Waterloo Wholesale Corp. entered into an irrevocable contract to buy 1,000 kilograms of amorphous silica for $40
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Waterloo Wholesale Corp. entered into an irrevocable contract to buy 1,000 kilograms of amorphous silica for $40 per kilogram for resale purposes. Waterloo intends to resell the silica to local cosmetic manufacturers for $60 per kilogram. The contract was entered into on November 30, 2020, for delivery on January 15, 2021. Waterloo’s year-end is December 31.
On December 18, 2020, Waterloo’s supplier reduced the price to $24 per kilogram due to adverse market conditions.
Required:
a. Outline the required accounting treatment assuming that Waterloo expects it can sell the silica for $36 per kilogram.
b. Outline the required accounting treatment assuming that Waterloo expects it can sell the silica for $45 per kilogram.
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