February 2: Purchase of mild chocolate: 2.500Kg@10$/Kg $ 25.000

Purchase of dark chocolate: 4.000Kg @ 5$/Kg $ 20.000

Purchas of white chocolate: 6.000Kg @ 3$/ Kg $ 18.000

February 3: Purchase of mild chocolate : 1.500Kg@12$/Kg $18.000

Purchase of dark chocolate: 2.000Kg @ 6$/Kg $ 12.000

Purchas of white chocolate: 2.000Kg @ 4$/ Kg $ 8.000

February 6: Sold to several clients:

Mild chocolte: 2.000Kg@ 20$/Kg $40.000

Dark chocolate: 2.500Kg @ 11$/Kg $ 27.500

White chocolate: 3.000Kg @ 7$/ Kg $ 21.000

February 6: Sold to chocolate Lovers Inc.:

Mild chocolate: 500Kg @20$/Kg. $ 10.000

Dark chocolate: 1.000Kg @ 11$/Kg $ 11.000

White chocolate: 1.500Kg @ 8$/ Kg $ 12.000

February 12 Purchase of mild chocolate: 1.500Kg@14$/Kg $ 21.000

Purchase of dark chocolate: 2.000Kg @ 8$/Kg $ 16.000

February 13: Sale of white chocolate to white chocolate Lovers Inc.: 3.500Kg @8$/kg $ 28.000

February 14: Purchase of white chocolate 6.000 Kg @4$/Kg $24.000

February 19: Sold to several clients:

Mild chocolate: 1.000Kg@ 21$/Kg. $ 21.000

Dark chocolate: 1.500Kg @ 13$/Kg $ 19.500

White chocolate: 3.000Kg @ 9$/ Kg $ 27.000

February 25: Purchased from various suppliers:

Mild chocolate: 1.000Kg@13$/Kg. $ 13.000

Dark chocolate: 1.000Kg @ 9$/Kg $ 9.000

White chocolate: 1.000Kg @ 4$/ Kg $ 4.000

Besides these transactions, the company has had the following expenses:

Salaries: $3500

Electricity bill: $300

Renting of equipment: $800

Rent of warehouse and office: $1.500

Miscellaneous: $1.200

Hannas accountant recommended that she should use the average cost method in order to determine the cost of the inventory sold but she is not sure about the consequences it may have on his financial situation.

1. Why in your opinion did Hannas accountant recommend the average cost method and what difference is there with the three other methods? Explain the main characteristics of each method of valuation of the inventory and the consequences they may have on the valuation of the inventory and determination of the net income in case of price fluctuation.

2. In order to compare with the records made by her accountant, Hanna asks you to prepare the different journal entries for the purchases and sales mentioned above for each one of the 3 different methods used above.

3. Hannas accountant insisted that she should use a perpetual inventory system instead of a periodic inventory system and the average cost method for valuating the inventory. Do you agree with this advice (justify the answer)? Would the balance of the inventory at the end of the month be the same? And the net income?

4. Hanna would like to know a forecast of the number of days to sell the inventory based on the results of the month of February. Explain your calculation and the steps followed.