Briefly describe operating cycle of a merchandising company

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Question - STAR-TRACK sells satellite tracking systems for receiving television broadcasts from communications satellities in space. At December 31, 2000, the company's inventory amounted to $44,000.During the first week in January 2001. STAR-TRACK made only one purchase and one sale. These transactions were as follows:

Jan.3 Sold a tracking system to Mystery Resort for $20,000 cash. The system consisted of seven different devices which had a total cost to STAR-TRACK of $11,200.

Jan.7 Purchased two Model 400 and four Model 800 satellite dishes from Yamaha Corp. The total cost of this purchase amounted to $10,000; terms 2/10,n/30. STAR-TRACK records purchases of merchandise at net cost. The company has full time accounting personal and uses a manual accounting system.

Instructions -

a. Briefly describe the operating cycle of a merchandising company.

b. Prepare journal entries to record these transactions assuming that STAR-TRACK uses a perpetual inventory system.

c. Prepare journal entries to record these transactions assuming that STAR-TRACK uses a periodic inventory system.

d. Which type of inventory system do you think STAR-TRACK should use? Explain your reasoning.

e. Compute the cost of goods sold for the first week of January, assuming use of the periodic system.

Reference no: EM132802217

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