Question

CPI sells computer peripherals. At December 31, year 1, CPI’s inventory amounted to $600,000. During the first week in January, year 2, the company made only one purchase and one sale. These transactions were as follows.

Jan.	2		Purchased 20 modems and 80 printers from Sharp. The total cost of these machines was $35,000, terms 3/10, n/60.
Jan.	6		Sold 30 different types of products on account to Pace Corporation. The total sales price was $20,000, terms 5/10, n/90. The total cost of these 30 units to CPI was $11,800 (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 receivable, inventory, and accounts payable.

Required:

b. Prepare journal entries to record these transactions, assuming that CPI uses a perpetual inventory 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.)

g. Compute the gross profit margin on the January 6 sales transaction.

Answer 1

Solution:

b)

Date	Account title	Debit	Credit
2 Jan	Inventory	$33,950
	Accounts payable ($35,000 -3%)		$33,950
6 Jan	Accounts receivable	$20,000
	Sales		$20,000
6 Jan	Cost of goods sold	$11,800
	Inventory		$11,800

c)

Inventory balance
Opening balance	$600,000
Add: purchase	$33,950
Less: Cost of goods sold	($11,800)
Ending balance	$622,150

d)

Date	Account title	Debit	Credit
2 Jan	Purchase	$33,950
	Accounts payabe Sharp		$33,950
6 Jan	Accounts receivable Pace	$20,000
	Sales		$20,000

e)

Cost of goods sold
Opening stock	$600,000
Add: purchase	$33,950
Less: Closing stock	($622,150)
Cost of goods sold	$11,800

g)

Gross profit = Sales - Cost

=$20,000 -$11,800

=$8,200

Gross profit margin = (Gp/Sales)*100

=($8,200/20,000)*100

=41%

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