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At the end of the accounting period, the current market value of the inventory was less than the fixed purchase price by a material amount. Which of the following accounting treatments is most appropriate?
A. Describe the nature of the contract in a note to the financial statements, recognize a loss in the income statement, and recognize a liability for the accrued loss.
B. Describe the nature of the contract and the estimated amount of the loss in a note to the financial statements, but do not recognize a loss in the income statement.
C. Describe the nature of the contract in a note to the financial statements, recognize a loss in the income statement, and recognize a reduction in inventory equal to the amount of the loss by use of a valuation account.
D. Neither describe the purchase obligation nor recognize a loss on the income statement or balance sheet.
Neither describe the purchase obligation nor recognize a loss on the income statement or balance sheet
C. Describe the nature of the contract in a note to the financial statements, recognize a loss in the income statement, and recognize a reduction in inventory equal to the amount of the loss by use of a valuation account.
