Answer
The controller should recognize the amount of the loss in the period in which the price decline occurs.
In this case the loss is worth 1,000,000 and recorded as follows:
Unrealized Holding Gain or Loss-Income
Purchase Commitments........................................................................ 1,000,000
……………………Estimated Liability on Purchases Commitments......................... 1,000,000
Work Step by Step
Jerry should insist on statement preparation in accordance with generally acceptable accounting principles (GAAP). If Hands will not accept Jerry’s position, Jerry will have to consider an alternative course of action.
