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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Perpetual versus Periodic Inventory Systems Howard, Inc. is a merchandising company that began operations on January 1, 2019. During January, the following inventory transactions occurred:

Chapter 7, Problem 5E, Perpetual versus Periodic Inventory Systems Howard, Inc. is a merchandising company that began

Required:

  1. 1. Assume that Howard uses a perpetual inventory system. Prepare the journal entries to record the January inventory transactions.
  2. 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. 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.

1.

To determine

Journalize the January inventory transactions for Company H, using perpetual inventory system.

Explanation

Perpetual inventory system:

The method or system of maintaining, recording, and adjusting the inventory perpetually throughout the year, is referred to as perpetual inventory system.

Journalize the inventory transactions:

DateAccount TitleDebit ($)Credit ($)
January 11Inventory$12,000  
 Accounts Payable $12,000
 (To record the purchases made on account)  
    
January 15Accounts Payable$700  

2.

To determine

Journalize the January inventory transactions for Company H, using periodic inventory system.

3.

To determine

Evaluate the statement of the CEO and provide the benefits of each type of inventory systems.

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