Asked by Raphaela Cruickshank on Apr 27, 2024
Verified
The account, Loss on Purchase Commitments, used when the year-end market price is less than the fixed purchase price for non-cancellable purchase obligations is reported as a(n)
A) liability on the balance sheet
B) contra asset to inventory on the balance sheet
C) extraordinary item on the income statement
D) component of income from continuing operations
Loss on Purchase Commitments
A financial loss that occurs when a company commits to purchasing goods at a certain price but the market value of these goods decreases before the purchase is completed.
Continuing Operations
The segments or activities of a business expected to continue for the foreseeable future, excluding any discontinued operations.
- Identify particular accounting procedures for handling losses on non-cancelable purchase agreements.
Verified Answer
JM
Jairo MariscalMay 02, 2024
Final Answer :
D
Explanation :
The account, Loss on Purchase Commitments, is reported as a component of income from continuing operations on the income statement. This reflects the loss recognized when the market price at year-end is lower than the fixed purchase price under a non-cancellable purchase obligation.
Learning Objectives
- Identify particular accounting procedures for handling losses on non-cancelable purchase agreements.