Howard, Inc. is a merchandising company that began operations on January 1, 2019. During January, the following inventory transactions occurred:

January Transactions:

Jan.11 Howard purchased merchandise on account for $12,000.

15 Howard returned some of the merchandise purchased on Jan. 11, and the supplier credited Howards account. The cost of the merchandise returned was $700.

20 Howard sold merchandise that cost $3,500 for $5,000 in cash.

Required:

1.Assume that Howard uses a perpetual inventory system. Prepare the journal entries to record the January inventory transactions.

2.Assume that Howard uses a periodic inventory system. Prepare the journal entries to record the January inventory transactions. Be sure to include any adjusting entries necessary.

3.Next Level Howards CEO states that a perpetual inventory system would result in a better inventory valuation. Evaluate this statement and provide a discussion of the benefits of each type of inventory system.

CHART OF ACCOUNTS

Howard, Inc.

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
142	Allowance for Inventory Valuation
152	Prepaid Insurance
181	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
241	Accrued Loss on Purchase Commitment
251	Unearned Revenue

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
510	Purchases
511	Purchase Returns and Allowances
512	Purchase Discounts Taken
513	Purchase Discounts Lost
514	Loss on Purchase Commitment
515	Recovery of Accrued Loss on Purchase Commitment
521	Insurance Expense
522	Utilities Expense
523	Salaries Expense
524	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses

1. Assume that Howard uses a perpetual inventory system. Prepare the journal entries to record the January inventory transactions.

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8

2. Assume that Howard uses a periodic inventory system. Prepare the journal entries to record the January inventory transactions. Be sure to include any adjusting entries necessary.

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10

Howards CEO states that a perpetual inventory system would result in a better inventory valuation. Evaluate this statement and provide a discussion of the benefits of each type of inventory system.

The CEOs statement is . The valuation of ending inventory is generally between the perpetual and periodic systems. Periodic inventory systems are relatively to operate; however, the cost of operating a perpetual inventory system is rapidly . A perpetual inventory system provides management with timely and information and, therefore, control over inventory than a periodic inventory system.