Question
. On September 1, 2014, Dockside Tacos signed a purchase commitment to purchase inventory for $400,000 on or before January 31, 2015. The company's fiscal
. On September 1, 2014, Dockside Tacos signed a purchase commitment to purchase inventory for $400,000 on or before January 31, 2015. The company's fiscal year-end is December 31. The contract was exercised on January 5, 2015 and the inventory was purchased for cash at the contract price. On the purchase date of January 5, the market price of the inventory was $500,000. The market price of the inventory on December 31, 2014, was $300,000. The company uses a perpetual inventory system. The journal entry to record the purchase includes:
A. A credit to gain on purchase for 200,000
B. A debit to inventory for 400,000
C. A debit to inventory for 300,000
D. A debit to inventory for 500,000
E. A credit to gain on purchase for 100,000
Please explain
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