SUI sells presses. At December 31, 2011, SUI’s inventory amounted to $500,000. During the firstweek of January 2012, the company made only one purchase and one sale. These transactions wereas follows:Jan. 5 Purchased 60 machines from Double, Inc. The total cost of these machines was$40,000, terms 3/10, n/60.Jan. 10 Sold 30 different types of products on account to Air Corporation. The total sales pricewas $28,000, terms 5/10, n/90. The total cost of these 30 units to SUI was $10,000(net of the purchase discount).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. b. Prepare journal entries to record these transactions, assuming SUI uses a perpetual inventorysystem.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 periodicinventory system.f. Compute the cost of goods sold for the two weeks of January assuming use of the periodicsystem. (Use your answer to part d as the ending inventory.)g. Which type of inventory system do you think SUI most likely would use? Explain yourreasoning.h. Compute the gross profit margin on the January 10 sales transaction. [Round your answer toone decimal place.]
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 were
as follows:
Jan. 5 Purchased 60 machines from Double, Inc. The total cost of these machines was
$40,000, terms 3/10, n/60.
Jan. 10 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).
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
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
system.
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.
f. 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.)
g. Which type of inventory system do you think SUI most likely would use? Explain your
reasoning.
h. Compute the gross profit margin on the January 10 sales transaction. [Round your answer to
one decimal place.]
Step by step
Solved in 4 steps with 2 images
