November 1, 2020, 5M Corporation entered into a purchase contract (not subject to revision or cancellation) to purchase 500 units of inventory for $50 per unit before January 1, 2021. The company uses the LIFO inventory method.

a. If the inventory has a market price of $40 per unit on November 30, 2020, what entry (if any) does 5M Corporation record?

b. Record the purchase of 500 units on December 15, 2020, if the market price remained at $40 per unit. Assume that the company uses a perpetual inventory system.

 

Account Name Dr. Cr. a. b. Inventory Cash Accounts Receivable Inventory Allowance to Reduce Inventory to Net Realizable Value Allowance to Reduce Inventory to Market Value Accounts Payable Bonus Payable Estimated Liability on Purchase Commitment Retained Earnings Retained Earnings-Prior Period Adjustment Sales Cost of Goods Sold Compensation Expense Holding Loss on Inventory Estimated Loss on Purchase Commitment N/A