CH 5

1.
STAR-TRACK sells satellite tracking systems for receiving television broadcasts from
communications satellites 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 Mountain 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 personnel 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. Explain what information in part b should be posted to subsidiary ledger accounts.
d. Compute the balance in the Inventory controlling account at January 7.
e. Prepare journal entries to record the two transactions, assuming that STAR-
TRACK uses a periodic inventory system.
f. Compute the cost of goods sold for the first week of January, assuming use of the
periodic system. As the amount of ending inventory, use your answer to part d.
g. Which type of inventory system do you think STAR-TRACK should use? Explain
your reasoning.
h. Determine the gross profit margin on the January 3 sales transaction.
2. Tyler lumber co. is the only lumberyard in snow valley, a remote mountain town and
popular ski resort. Some of Tyler’s transactions during the current year are as follows:
Nov. 5 Sold lumber on account to Snow Valley Construction, $66,950. The inventory
subsidiary ledger shows the cost of this merchandise to Tyler was $45,525.
Nov. 9 Purchased lumber on account from Lonesome Pine, $190,000.
Dec.5 Collected in cash the $66,950 account receivable from Snow Valley
Construction.
Dec. 9 Paid the $190,000 owed to Lonesome Pine Mill.
Dec. 31 Company personnel counted the inventory on hand and determined its cost to be
$910,400.The accounting records, however, indicate inventory of $918,950 and a cost of
goods sold of $3,476,110.The physical count of the inventory was observed by the
company’s auditors and is considered correct.
Instructions
a. Prepare journal entries to record these transactions and events in the accounting
records of Tyler Lumber Co. (The company uses a perpetual inventory system.)
b. Prepare a partial income statement showing the company’s gross profit for the
year. (Net sales for the year amount to $5,124,500.)
3. Facts-by-FAX sells facsimile machines, copiers, and other types of office equipment. On
May 10, the company purchased for the first time a new plain-paper fax machine
manufactured by Mitsui Corporation. Transactions relating to this product during May
and June were as follows:
May 10 Purchased five P-500 facsimile machined on account from Mitsui Corporation,
at a cost of $560 each. Payment due in 30 days.
May 23 Sold four P-500 facsimile machines on account to Foster & Cole, stockbrokers;
sales price, $900 per machine. Payment due in 30 days.
May 24 Purchased an additional seven P-500 facsimile machines on account from

Mitsui. Cost, $560 per machine; Payment due in 30 days.
June 9 Paid $2,800 cash to Mitsui Corporation for the facsimile machines purchased on
May 10.
June 19 Sold two P-500 facsimile machines to Tri-State Really for cash. Sales price,
$950 per machine.
June 22 Collected $3,600 from Foster & Cole in full settlement of the credit sale on
May 23.
Instructions
a. Prepare journal entries to record these transactions in the accounting records of Facts-
by-FAX. (The company uses a perpetual inventory system.)
b. Post the appropriate information from these journal entries to an inventory subsidiary
ledger account like
c. How many Mitsui P-500 facsimile machines were in inventory on May 31? From
what accounting record did you obtain the answer to this question?
d. Describe the types of information contained in any inventory subsidiary ledger
account and explain how this information may be useful to various company
personnel in conducting daily business operations.
4. September 1 purchased 10 Regent CX-21 computer monitors on account from Okawa
wholesale Co. the monitors cost $ 600 each for a total of $ 6,000.payment is due in 30
days.
Sept 7 sold two monitors on account to RJ travel Agency at a retail sale price of $ 1,000
each for a total of $ 2,000.payment is due in 30 days.
Oct 1 paid the $ 6,000 account payable to Okawa Wholesale Co.
Oct 7 collected the $ 2000 account receivable from RJ Travel Agency.
Instructions:
Record transactions following Perpetual Inventory System.
5. Concord Products use a perpetual inventory system. On January 1 the inventory account
had a balance of $ 84,500.during the first few days of January the following transactions
occurred:
Jan 2 purchased merchandise on credit from Smith Company for $ 9,200.
Jan 3 sold merchandise for cash; $ 22,000.the cost of this merchandise was $ 14,300
a. Prepare entries in general Journal form to record the above transactions.

b. What was the balance of the inventory account at the close of business January 3?
6. During the current year, Green Bay Company earned a gross profit of $ 350, 000,
whereas New England Company earned a gross profit of only $ 280,000.Does this mean
that that Green Bay is more profitable than New England? Explain.
7. Thornhill Company’s income statement shows gross profit of $ 432, 000, cost of goods
sold of $ 638,000 and other expense totaling $ 390,000.compute the amounts of (a)
revenue from sales and (b) net income.
8. Assume that at year end the inventory controlling account and inventory subsidiary
ledger of Computer Barn both show an inventory with a cost of $ 72,200.A physical
count ,however reveals that some of merchandise listed in the accounting records is
missing; the items actually on hand have a total cost of $ 70,000.compute adjusting entry
for inventory shrinkage.

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1.

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

Nov. 9 Purchased lumber on account from Lonesome Pine, $190,000.

Dec. 9 Paid the $190,000 owed to Lonesome Pine Mill.

May 24 Purchased an additional seven P-500 facsimile machines on account from

Oct 1 paid the $ 6,000 account payable to Okawa Wholesale Co.

Oct 7 collected the $ 2000 account receivable from RJ Travel Agency.

Record transactions following Perpetual Inventory System.

Jan 2 purchased merchandise on credit from Smith Company for $ 9,200.

a. Prepare entries in general Journal form to record the above transactions.

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