Kitchener Distributors Inc. entered into a non-cancellable contract to buy 10,000 litres of linseed oil for $3

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Kitchener Distributors Inc. entered into a non-cancellable contract to buy 10,000 litres of linseed oil for $3 per litre for resale purposes. Kitchener intends to resell the oil to retail paint outlets for $4 per litre. The contract was entered into on October 31, 2020, for delivery on January 15, 2021. Kitchener’s year-end is December 31.

On December 12, 2020, Kitchener’s supplier reduced the price to $2 per litre due to adverse market conditions.


Required:

a. Outline the required accounting treatment assuming that Kitchener expects it can sell the oil for $3.20 per litre.

b. Outline the required accounting treatment assuming that Kitchener expects it can sell the oil for $2.75 per litre.

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