Reference no: EM132616292

Question - A Comprehensive Problem

SUI sells presses. At December 31, 2002. SUI's inventory amounted to $500,000. During the first week of January 2003, 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 20 units of LLP 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 receivable, inventory, and accounts payable.

Instructions -

a. Briefly describe the opening cycle of a merchandising company. Identify the assets and liabilities directly affected by this cycle.

b. Prepare journal entries to record these transactions, assuming the SUI uses a perpetual inventory system.

c. Explain the information in part b that should be posted to subsidiary ledger accounts.

d. Computer the balance in the Inventory controlling 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 systems. (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.