Question

Inventory to Market Value.) L06-1, LO6-2, L06-3, L06-4. L06-5, L06-6, L06-7, L06-8 PROBLEM 6.8A A Comprehensive Problem CPI sells computer peripherals. At December 31, year 1. CPI's inventory amounted to $500,000 During the first week in January, year 2, the company made only one purchase and one sale. These transactions were as follows. Jan.2 Jan. 6 Purchased 20 modems and printers from Sharp. The total cost of these machines was $25,000 terms 31/10, 1/60. Sold 30 different types of products on account to Pace Corporation. The total sales price was $10,000, terms S/10, 1/90. The total cost of these 30 units to CPI was $6,100 (net of the purchase discount) CPI has a full-time accountant and a computer-based accounting system. It records sales at the gross sales price and purchases at net cost and maintains subsidiary ledgers for accounts receiv. able, inventory, and accounts payable. Instructions a. Briefly describe the operating cycle of a merchandising company. Identify the assets and lia- bilities directly affected by this cycle. b. Prepare journal entries to record these transactions, assuming that CPI uses a perpetual inven- tory system. e. Compute the balance in the Inventory account at the close of business on January 6. d. Prepare journal entries to record the two transactions, assuming that CPI uses a periodic inventory system e. Compute the cost of goods sold for the first week of January assuming use of the periodic system. (Use your answer to parte as the ending inventory.) 1. Which type of inventory system do you think CPI most likely would use? Explain your reasoning. & Compute the gross profit margin on the January 6 sales transaction.

Can someone assist me with this please?
Thanks!

Answer 1

a.

Operating cycle = Inventory period + Accounts receivable period

= 10 days + 90 days

= 100 days.

Purchases are record at net cost. Hence inventory period taking as 10 days. Otherwise it is 60 days.

Accounts receivable (Asset) and Accounts payable (liability) are directly affecting by this cycle.

b. Perpetual

Date	Account title and explanation	Debit	Credit
Jan. 2	Merchandise inventory (25,000 x 0.97)	$24,250
	Accounts payable		$24,250
	[Purchased inventory on account]

c.

Merchandise inventory
Beginning	$500,000
Jan.2 purchase	$24,250
Jan.6 sale	($6,100)
Ending	$518,150

d.Periodic

Date	Account title and explanation	Debit	Credit
Jan. 2	Merchandise inventory	$24,250
	Accounts payable		$24,250
	[Purchased inventory on account]
Jan. 6	Accounts receivable	$10,000
	Sales revenue		$10,000
	[Sales on account]

e.

Cost of goods sold = Beginning inventory + purchases - Ending inventory

= $500,000+$24,250-$518,150

= $6,100

f.

Specific Identification inventory system is most likely usable inventory system for CPT Because products are different types.

g.

Gross profit = Sales - cost of goods sold = 10,000-6,100 = 3,900

Gross profit margin = (3,900/10,000) x 100 = 39%