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 of a merchandising Company

Generally, the operating cycle of a company involved in merchandising is

Purchases of Materials - Payments for purchases - Conversion costs - Inventory - Sale of goods - Cash collection directly Assets and Liabilities directly affected by this cycle are: Inventory, Accounts payable, Accounts receivable, Cash

b) Journal entries under perpetual inventory system

Date	Particulars	Debit ($)	Credit ($)
Jan 2	Inventory (Modems & Printers)	25,000
	Accounts Payable		25,000
	(Peripherals purchased)
Jan 6	Accounts Receivable	10,000
	Sales Revenue		10,000
	(Sales on account to Pace Corp)
Jan 6	Cost of goods sold	6,100
	Inventory		6,100
	(Inventory depletion)

C) Ending Inventory balance

Beginning inventory = $ 500,000

Add: Purchases $ 25,000

Less: Cost of goods sold ($ 6,100)

Ending inventory = $ 518,900

d) Journal entries under Periodic inventory system

Date	Particulars	Debit ($)	Credit ($)
Jan 6	Inventory (Ending Inventory)	518,900
	Cost of Goods Sold (Balancing Figure)	6,100
	Inventory (Beginning Inventory)		500,000
	Purchases		25,000
	(Entry at the period end)

e) Cost of goods sold under Periodic system

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

= 500,000 + 25,000 - 518,000

= $ 6,100

f) CPI may use perpetual system as it records the transactions as and when happens and can have a better track over the inventory.

g) Gross Profit

Sales = $ 10,000

Less: Cost ( $ 6,100)

Gross profit $ 3,900