Question

During 20X5, Brokeback Corporation signed a contract with Alpha Inc. to purchase 20,000 subassemblies at $ 45 each during 20X6.

Required:
1. On 31 December 20X5, the end of the annual accounting period, the financial statements are to be prepared. Assume that the cost of the subassemblies is dropping and the total estimated current replacement cost is $ 850,000. Under what additional contractual and economic conditions would note disclosure only be required? Prepare an appropriate note.
2. What contractual and economic conditions would require accrual of a loss? Give the accrual entry.
3. Assume that the subassemblies are received in 20X5 when their replacement cost was $ 830,000. The contract was paid in full. Give the required entry, assuming the entry in ( 2) was made, and a periodic inventory system is used.



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  • CreatedFebruary 17, 2015
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