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Chapter 9: Question 8BE (page 474)

Use the information for Kemper Company from BE9-7. In 2018, Kemper paid \(1,000,000 to obtain the raw materials which were worth \)950,000. Prepare the entry to record the purchase

Short Answer

Expert verified

In the entry to record purchase, the purchases account will be debited by $950,000. The estimated liability on the purchase commitments account will be debited by $50,000. The cash account will be credited by $1,000,000.

Step by step solution

01

Estimated Liability on Purchase Commitment is calculated as follows:

Estimatedliabilityonpurchasecommitment=Contractprice-Marketvalue=$1,000,000-$950,000=$50,000

02

The following entries will be recorded. The purchases are as follows:

Date

Accounts

Debit

Credit

Purchases (Inventory)

$950,000

Estimated Liability on Purchase Commitments

$50,000

Cash

$1,000,000

Being record the inventory purchased

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