1. On November 15, 2018, DAW Inc. signed anon-cancellable purchase commitment with a major supplier to purchase raw materials needed for production of the companys product during 2019 for $2,000,000. On December 31, 2018, the last day of the fiscal year, the raw materials to be purchased had a market value of $1,850,000. An increase in market value is not expected in the foreseeable future. As the outsider auditor, explain to your client what, if any, GAAP would apply to the status of the purchase commitment. What would be your recommendation to this client for reporting the purchase commitment at year end?
2. Your clients competitor recently introduced a new, more efficient and less expensive product compared to one of your clients very similar product. Prior to this introduction, sales of the clients product had met revenue and quantity of sale forecasts. Since the introduction by the competitor, sales (at the historical selling price) have slowed and inventory is beginning to build. Your client uses the FIFO cost flow assumption and perpetual system.

Explain to your client what GAAP requires for the measurement of inventory at the end of the reporting period. In this particular case, what will your client need to consider with respect to adjusting entries and/or disclosure?