An alfalfa co-op has an agreement with its farmers to purchase alfalfa at a.price that is currently above the existing market price. In addition, the co-op has agreed to pay the farmers interest at 2 percent for each month delivery is delayed beyond December 31, 2001. Management expects that at least 14,500 tons will be delivered sometime after the balance sheet date.

Required:

a. What factors should be considered in making an estimate of the loss accrual?

b. What information should management disclose in the footnotes to the financial statements concerning this purchase commitment?