In 2007 the Sterling Farm Company produced 100,000 bushels of wheat at a cost of $2.00 per bushel. The company has a contract to deliver 80,000 bushels at $2.15 per bushel in 2008. Delivery costs are estimated to be $0.02 per bushel. For guaranteed price contracts, the company recognizes revenue at the completion of production; otherwise, it recognizes revenue at the time of delivery.
Required
1. Prepare summary journal entries for 2007 and 2008.
2. At what value is the inventory of the company carried after the delivery of the 80,000 bushels? Why?