Question Details

The credit balance that arises when a net loss on a purchase commitment 


1.	Commodity broker-traders
a.	Produce or raise commodities such as corn, wheat, or precious metals.
b.	Hold their inventory primarily to sell the commodities in the near term and generate a profit from price fluctuations.
c.	Value their inventories at the lower-of-cost-or-net realizable value (LCNRV).
d.	All of the choices are correct regarding broker-traders.

	2.	Situations in which net realizable value is used to value inventory include
a.	agricultural inventory.
b.	minerals and mineral products.
c.	commodities held by broker-traders.
d.	all of these.

	3.	If a material amount of inventory has been ordered through a formal purchase contract at the statement of financial position date for future delivery at firm prices,
a.	this fact must be disclosed.
b.	disclosure is required only if prices have declined since the date of the order.
c.	disclosure is required only if prices have since risen substantially.
d.	an appropriation of retained earnings is necessary.

	4.	The credit balance that arises when a net loss on a purchase commitment is recognized should be
a.	presented as a current liability.
b.	subtracted from ending inventory.
c.	presented as an appropriation of retained earnings.
d.	presented in the income statement.

	5.	In 2010, Orear Manufacturing signed a contract with a supplier to purchase raw materials in 2011 for $700,000. Before the December 31, 2010 statement of financial position date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2010 will result in a credit that should be reported
a.	as a valuation account to Inventory on the statement of financial position.
b.	as a current liability.
c.	as an appropriation of retained earnings.
d.	on the income statement.



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