In March 2013, the Phillips Tool Company signed two purchase commitments. The first commitment requires Phillips to purchase inventory for $100,000 by June 15, 2013. The second commitment requires the company to purchase inventory for $150,000 by August 20, 2013. The company’s fiscal year-end is June 30. Phillips uses a periodic inventory system.
The first commitment is exercised on June 15, 2013, when the market price of the inventory purchased was $85,000. The second commitment was exercised on August 20, 2013, when the market price of the inventory purchased was $120,000.
Prepare the journal entries required on June 15, June 30, and August 20, 2013, to account for the two purchase commitments. Assume that the market price of the inventory related to the outstanding purchase commitment was $140,000 at June 30.