Question

1. Perpetual and periodict systems SUI sells presses. At December 31, 2011, SUI's inventory amounted to $500,000. During the first week of January 2012, the company made only one purchase and one sale. These transactions wene as follows Jan. 5 Purchased 60 machines from Double, Inc. The total cost of these machines was $40,000, terms 3/10, n/60. Sold 30 different types of products on account to Air Corporation. The total sales price was $28,000, terms 5/10, n/90. The total cost of these 30 units to SUI was $10,000 (net of the purchase discount). Jan. 10 SUI 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. Prepare journal entries to record these transactions, assuming SUI uses a perpetual inventory system b. c. Explain the information in part b that should be posted to subsidiary ledger accounts. d. Compute the balance in the Inventory control account at the close of business on January 10 e. Prepare journal entries to record the two transactions, assuming that SUI uses a periodic inventory system. Compute the cost of goods sold for the two weeks of January assuming use of the periodic system. (Use your answer to part d as the ending inventory.) Which type of inventory system do you think SUI most likely would use? Explain your reasoning. Compute the gross profit margin on the January 10 sales transaction. [Round your answer to one decimal place.] f. g. h.

Answer 1

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Part a:	The operating cycle is the time required for a company's cash to be put into its operations and then return to the company's cash account.
	Affected Items
	Assets	Liabilities
	Cash	Accounts Payable
	Accounts Receivable
	Inventory
Part b:
Date	Account	Debit	Credit
Jan 5	Merchandise Inventory	$                38,800		40000-3%
	Accounts Payable		$ 38,800
	(being purchase on account recorded)
Jan 10	Accounts Receivable	$                28,000
	Sales Revenue		$ 28,000
	(To record sale on account)
	Cost of Goods Sold	$                10,000
	Merchandise Inventory		$ 10,000
	(to record cost of goods sold)
Part c:
	Accounts Payable	$                38,800
	Accounts Receivable	$                28,000
Part d:	Ending Inventory
	Beginning Inventory	$              500,000
	Add: Purchase on Jan 5	$                38,800	(Net Pur)
	Less: Cost of Goods Sold	$               -10,000
	Ending Inventory	$              528,800
Part e:
Date	Account	Debit	Credit
Jan 5	Purchases	$                40,000
	Purchase Discount		$    1,200	40000*3%
	Accounts Payable		$ 38,800	Plug in
	(being purchase on account recorded)
Jan 10	Accounts Receivable	$                28,000
	Sales Revenue		$ 28,000
	(To record sale on account)
Part f:
	Beginning Inventory	$              500,000
	Add: Purchase (periodic Inventory)	$                40,000
	Less: Ending Inventory (From part d)	$            -528,800
	Cost of Goods Sold	$                11,200
Part g:
	Perpetual Accounting System
	Since Company has computer based accounting system based on which
	it can record inventory as and when purchased and sold
Part h:
	Sales Revenue		$ 28,000
	Less: Cost of Goods Sold		$ 11,200
	Gross Margin Profit		$ 16,800
	Gross Margin %	16800/28000	60.00%