Question

Use the information for Kemper Company from BE9-7. In 2018, Kemper paid \(1,000,000 to obtain the raw materials which were worth \)950,000. Prepare the entry to record the purchase

Short answer

In the entry to record purchase, the purchases account will be debited by $950,000. The estimated liability on the purchase commitments account will be debited by $50,000. The cash account will be credited by $1,000,000.

Step-by-step solution

Estimated Liability on Purchase Commitment is calculated as follows:

$\begin{array}{rcl}\mathrm{Estimated}\mathrm{liability}\mathrm{on}\mathrm{purchase}\mathrm{commitment}& =& \mathrm{Contract}\mathrm{price}-\mathrm{Market}\mathrm{value}\\ & =& \$1,000,000-\$950,000\\ & =& \$50,000\end{array}$

The following entries will be recorded. The purchases are as follows:

Date	Accounts	Debit	Credit
	Purchases (Inventory)	$950,000
	Estimated Liability on Purchase Commitments	$50,000
	Cash		$1,000,000
	Being record the inventory purchased