Instructions Howard, Inc. is a merchandising company that began operations on January 1, 2019. During January, the following inventory transactions occurred: January Transactions: Jan. 11 15 Howard purchased merchandise on account for $12,000. Howard returned some of the merchandise purchased on Jan. 11, and the supplier credited Howard's account. The cost of the merchandise returned was $700. Howard sold merchandise that cost $3,500 for $5,000 in cash 20 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 Howard's 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 REVENUE 411 Sales Revenue 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 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 EQUITY 311 Common Stock 331 Retained Earnings 1. Assume that Howard uses a perpetual inventory system. Prepare the journal entries to record the January inventory transactions General Journal Instructions PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. CREDIT DEBIT 12,000.00 Jan. 11 Inventory 12,000.00 Accounts Payable Accounts Payable Jan. 15 700.00 Inventory 700.00 Jan. 20 Cash 5,000.00 Sales Revenue 5,000.00 Jan. 20 Cost of Goods Sold 3,500.00 Inventory 3,500.00 2. Assume that Howard uses a penodic inventory system. Prepare the journal entnes to record the January inventory transactions. Be sure to include any adjusting entries necessary General Journal Instructions PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. CREDIT DEBIT 12,000.00 Jan 11 Purchases Accounts Payable 12,000.00 Jan 15 Accounts Payable 700.00 700.00 Jan 20 5,000.00 5,000.00 Jan. 30 Purchase Returns and Allowances Cash Sales Revenue Inventory Cost of Goods Sold Purchase Returns and Allowances Purchases 7,800.00 3,500.00 700.00 12,000.00 Next Level Howard's 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 CEO's statement is true . The valuation of ending inventory is generally diminishing A perpetual inventory system provides management with more significant between the perpetual and periodic systems. Periodic inventory systems are relatively expensive to operate; however, the cost of operating a perpetual inventory system is rapidly timely and irrelevant information and therefore greater control over inventory than a periodic inventory system
