STAR-TRACK sells satellite tracking systems for receiving television broadcasts from communi- cations satellites in space. At December 31, 2011, the company’s inventory amounted to $44,000. During the first week in January 2012, 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 con- sisted 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 account- ing 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 control 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.

 

 

 

 

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