0. Grayson, Inc. sells kitchen cabinets. On December 31, 2020, Graysons inventory amounted to $900,000. During the first week of January 2021, the company made the following transactions:

   Jan. 5 Purchased 90 cabinets from Wooden, Inc. The total cost of this purchase was $102,000, terms 4/10, n/60. Jan. 10 Sold 50 cabinets on account to Kitchen Delight. The total sales price was $70,400, terms 5/10, n/30. The total cost of these 50 units to

   Grayson was $25,000 (net of the purchase discount). Jan. 12 Grayson paid the amount due to Wooden, Inc. in order to benefit from the discount. February 2 Kitchen Delight. returned 20 of the 50 cabinets it had purchased from Grayson on January 10.

   February 3 Kitchen Delight pays the full amount due to Grayson. .

Grayson, Inc. has a full-time accountant and a computer-based accounting system. The business records sales at the gross sales price (does not apply discount) and purchases at net cost (discount included).

Instructions

1. Briefly describe the operating cycle of a merchandising company. (5 points)

2. Prepare journal entries to record these transactions, assuming Grayson uses a perpetual inventory system. (10 points)

3. Prepare journal entries to record the transactions, considering that Grayson uses a periodic inventory system. (10 points)

4. Which type of inventory system do you think Grayson most likely would use? Explain your reasoning. (5 points)