CPI sells computer peripherals. At December 31, 2011, CPI’s inventory amounted to $500,000.During the first week in January 2012, the company made only one purchase and one sale. Thesetransactions were as follows:Jan. 2 Purchased 20 modems and 80 printers from Sharp. The total cost of these machineswas $25,000, terms 3/10, n/60.Jan. 6 Sold 30 different types of products on account to Pace Corporation. The total salesprice was $10,000, terms 5/10, n/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. c. 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 periodicinventory system.e. Compute the cost of goods sold for the first week of January assuming use of the periodicsystem. (Use your answer to part c as the ending inventory.)f. Which type of inventory system do you think CPI most likely would use? Explain yourreasoning.g. Compute the gross profit margin on the January 6 sales transaction.
CPI sells computer peripherals. At December 31, 2011, CPI’s inventory amounted to $500,000.
During the first week in January 2012, the company made only one purchase and one sale. These
transactions were as follows:
Jan. 2 Purchased 20 modems and 80 printers from Sharp. The total cost of these machines
was $25,000, terms 3/10, n/60.
Jan. 6 Sold 30 different types of products on account to Pace Corporation. The total sales
price was $10,000, terms 5/10, n/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
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
tory system.
c. 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 part c as the ending inventory.)
f. Which type of inventory system do you think CPI most likely would use? Explain your
reasoning.
g. Compute the gross profit margin on the January 6 sales transaction.
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