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

After its July 31, 2014, year end, Amanpreet discovered two errors:
1. At July 31, 2013, Amanpreet had $10,000 of goods held on consignment at another company that were not included in the physical count.
2. In July 2013, Amanpreet recorded a $15,000 inventory purchase on account that should have been recorded in August 2013.
Instructions
(a) Prepare incorrect and corrected income statements for Amanpreet for the years ended July 31, 2012, 2013, and 2014.
(b) What is the impact of these errors on the owner's equity at July 31, 2014?
(c) Calculate the incorrect and correct inventory turnover ratios for 2013 and 2014.
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:

2014 2013 2012 Income statement: Sales Cost of goods sold Operating expenses 350,000 $330,000 310,000 235,000 245,000 76,000 225,000 76,000 76,000 Balance sheet: Merchandise inventory 55,000 45,000 35,000