Harrison Company has a July 31 fiscal year end and uses a perpetual inventory system. The records of Harrison Company show the following data:

After its July 31, 2024, year end, Harrison discovered two errors:
1. At July 31, 2023, Harrison had $10,000 of goods held on consignment at another company that were not included in the physical count.
2. In July 2023, Harrison recorded a $15,000 inventory purchase on account that should have been recorded in August 2023.

Instructions
a. Prepare corrected income statements for Harrison for the years ended July 31, 2022, 2023, and 2024.
b. What is the impact of these errors on the owner’s equity at July 31, 2024, before correction?
c. Calculate the incorrect and correct inventory turnover ratios for 2023 and 2024.

Taking It Further

Compare the trends in the incorrectly calculated annual profits with the trends in the correctly calculated annual profits. Does it appear that management may have deliberately made these errors, or do they appear to be honest errors? Explain.

Transcribed Image Text:

Income statement: Sales Cost of goods sold Operating expenses Balance sheet: Merchandise inventory 2024 $350,000 245,000 76,000 55,000 2023 $330,000 235,000 76,000 45,000 2022 $310,000 225,000 76,000 35,000