11 4 learning objective 4 1 which statement is not correct about commitments a a com 4351007

11.4   Learning Objective 4

1) Which statement is not correct about commitments?

A) A commitment to buy equipment must be disclosed if the contract is partially executed.

B) A commitment to buy equipment must be disclosed even if the contract is unexecuted.

C) Onerous contracts must be disclosed if they can be reliably measured.

D) Onerous contract must be recognized in the accounting records.

2) Indemnities and letters of credit are examples of?

A) Commitments.

B) Provisions.

C) Contingencies.

D) Guarantees.

3) Gladstone Distributors Inc. entered into a non-cancellable contract to buy 40,000 litres of linseed oil for $6 per litre for resale purposes. Gladstone intends to resell the oil to retail paint outlets for $10 per litre. The contract was entered into on October 31,2016 for delivery on January 15,2017. Gladstone's year-end is December 31. On December 12, 2016, Gladstone's supplier reduces the price to $5.10 per litre due to adverse market conditions.

 

Requirements:

a. Outline the required accounting treatment assuming that Gladstone expects it can sell the oil for $6.45 per litre.

b. Outline the required accounting treatment assuming that Gladstone expects it can sell the oil for $5.55 per litre.

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