During 2006, Reese Co

Short Answer

During 2006, Reese Co., a manufacturer of chocolate candies, contracted to purchase 100,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2007.Because a record harvest is predicted for 2007, the price per pound for cocoa beans had fallen to $3.10 by December 31, 2006. Of the following journal entries, the one which would properly reflect in 2006 the effect of the commitment of Reese Co.to purchase the 100,000 pounds of cocoa is $\begin{array} { l } \text {a. Cocoa lnventory }&400,000\\ \quad\text { Accounts Payable}&&400,000\\ \text { b. Cocoa Inventory}&310,000\\ \quad\text {Loss on Purchase Commitments }&90,000\\\quad\quad\text { Accounts Payable}&&400,000\\ \text { c. Estimated Loss on Purchase Commitments. }&90,000\\\quad \text {Estimated Liability on Purchase Commitments. }&&90,000\\ \text {d. No entrywould be necessary in } 2006 &\\\end{array}$