Pino Inc. is a BC based wine producer. In anticipation of a particularly bounteous grape harvest and a potential problem in obtaining a sufficient volume of shipping crates, Pino entered into a noncancellable agreement with Lumber Products Ltd. to supply 200,000 wooden crates at a price of $24 per crate plus 7% PST and 5% GST.

During the current fiscal year, Pino purchased 50,000 crates.

Near the end of the year, however, a restrictive tariff on the import of crates from the United States was lifted. Crates then became readily available from other suppliers for only $18 plus tax.

Required:

1. Prepare the journal entry to record the purchase of crates during the current fiscal year.

2. Prepare the journal entry to record the impact of the price drop. What conditions are necessary for Pino to recognize a loss on the contract?