5: Purchase Commitment Walex Incorporated signed timber-cutting contracts in Year 1 to be executed at $5,000,000 in Year 2. The market price of the rights at December 31, Year 1, is $4,000,000 and it is expected that the loss will occur when the contract is effected in Year 2.

What amount should be reported as a loss on purchase commitments at December 31, Year 1? What is the journal entry that should be recorded?