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Zappala Distributors Inc. entered into a non-cancellable contract to buy 12 comma 000 litres of linseed oil for $ 2 per litre for resale purposes. Zappala intends to resell the oil to retail paint outlets for $ 4 per litre. The contract was entered into on October 31, 2020, for delivery on January 15, 2021. Zappala's year-end is December 31. On December 12, 2020, Zappala's supplier reduced the price to $ 1.10 per litre due to adverse market conditions.

Required

a. Outline the required accounting treatment assuming that Zappala expects it can sell the oil for $ 2.10 per litre.

b. Outline the required accounting treatment assuming that Zappala expects it can sell the oil for $ 1.80 per litre.

Zappala Distributors Inc. entered into a non-cancellable contract to buy 12,000 litres of linseed oil for $2 per litre for resale purposes. Zappala intends to resell the oil to retail paint outlets for $4 per litre. The contract was entered into on October 31, 2020, for delivery on January 15, 2021. Zappala's year-end is December 31. On December 12, 2020, Zappala's supplier reduced the price to $1.10 per litre due to adverse market conditions. Required a. Outline the required accounting treatment assuming that Zappala expects it can sell the oil for $2.10 per litre b. Outline the required accounting treatment assuming that Zappala expects it can sell the oil for $1.80 per litre Requirement a. Outline the required accounting treatment assuming that Zappala expects it can sell the oil for $2.10 per litre. (Enter a loss with a minus sign or parentheses.) Requirement (a) Expected economic benefit Unavoidable costs Profit/(loss) Result Prepare the required entry, if any, for requirement a. (Record debits first, then credits. Explanations are not required. Select "No entry required" in the first column of the Accounts column and leave the remaining cells blank if no entry is required.) Accounts Debit Credit Date Dec. 2020 Requirement b. Outline the required accounting treatment assuming that Zappala expects it can sell the oil for $1.80 per litre. (Enter a loss with a minus sign or parentheses.) Requirement (b) Expected economic benefit Unavoidable costs Profit/(loss) Result Prepare the required entry, if any, for requirement b. (Record debits first, then credits. Explanations are not required. Select "No entry required" in the first column of the Accounts column, and leave the remaining cells blank if no entry is required.) Date Accounts Debit Credit Dec. 2020