In November 2015, Event Horizon, Inc. signed the following purchase commitment. Event Horizons fiscal year-end is December 31, 2015. The company uses a perpetual inventory system. The contract was exercised and paid in cash on its expiration date.

A commitment to purchase 20,000 units of inventory at $15 per unit at March 15, 2016.

a. Prepare the necessary adjusting entry at December 31, 2015 (year-end), assuming a unit market price on that date is $12. (7 points)

b. Prepare the journal entry to record the purchase for cash on March 15, 2016, assuming a unit market price on that date is $20. (10 points)