Question

Problem 2 (25 points) Computers & Friends sells computer peripherals. At December 31, 2018, Computers & Friends inventory amounted to $150,000. During the first week in January 2018, the company made only one purchase and one sale. These transactions were as follows: Purchased 40 keyboards and 80 printers from HP. The total cost of these machines was $28,000. Discount terms 2/10, n/30. Jan. 2 Sold 25 different types of products on account to Georges retail store. The total sales price was $39,000. The total cost of these 30 units to Computers & Friends was $16,200. Jan. 6 Computers & Friends has a full-time accountant and a computer-based accounting system. Its records sales at the gross sales price and purchases at net cost and maintains subsidiary ledgers for accounts receivable, inventory, and accounts payable. Instructions 1. Briefly describe the operating cycle of a merchandising company. Identify the assets and liabilities directly affected by this cycle. (5 points) 2. Prepare journal entries to record these transactions, assuming Computers & Friends uses a perpetual inventory system. (5 points) 3. Compute the balance in the Inventory control account at the close of business on January 15. (4 points) 4. Prepare journal entries to record the two transactions, assuming that Computers & Friends uses a periodic inventory system. (5 points) 5. Compute the cost of goods sold (COGS) for the two weeks of January assuming use of the periodic system. (Use your answer to part 3. as the ending inventory.) (5 points)

Answer 1

1. Operating cycle of merchandise company:

This can be referred to the average time taken by a company to make enough cash to buy the required inventories for selling it to the end users and RECEIVING CASH for the inventories sold . The operating cycle of merchandise company could take more time than any service company

Formula: 365 days/Inventory turn over ratio

collection period:365 days/accounts recievable turn over ratio

Assets: Cash, Marketable securties and Inventory

Liabilities: Current liabilities, notes payable and accrued liability

2.

Journal entries under perpetual Inventory

1. Purchases

Description Debit amount    Credit amount

Inventory A/c Dr 27,440

To accounts payable (28000-2% discount) 27,440

2.Sales

accounts recievables A/C dr 39,000

To sales 39,000

cost of goods sold A/C Dr 16,200

To inventory 16,200

3. Inventory control account

Balance in inventory (Opening balance)- 1,50,000

+ purchases 27,440

- sales 39,000

balance in inventory account =$ 138,440

4. Periodic Inventory system:

Description Debit amount    Credit amount

Purchases A/C DR 27,440

To accounts Payable 27,440

Accounts Recievables A/C DR 39,000

To sales 39,000

5. COST OF GOODS SOLD

Ending Inventory 138440

cost of goods sold 39000

To Purchases 27440

Inventory beginning: 150000