Question 14

During 2020, Crane Co., a manufacturer of chocolate candies, contracted to purchase 249000 pounds of cocoa beans at $3.90 per pound, delivery to be made in the spring of 2021. Because a record harvest is predicted for 2021, the price per pound for cocoa beans had fallen to $3.25 by December 31, 2020. Of the following journal entries, the one which would properly reflect in 2020 the effect of the commitment of Crane Co. to purchase the 249000 pounds of cocoa is

Cocoa Inventory	971100
Accounts Payable		971100

Cocoa Inventory	809250
Loss on Purchase Commitments	161850
Accounts Payable		971100

Unrealized Holding Gain or Loss-Income	161850
Estimated Liability on Purchase Commitments		161850

No entry would be necessary in 2020