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, 2017, year end, Harrison discovered two errors:
1. At July 31, 2016, Harrison had $10,000 of goods held on consignment at another company that were not included in the physical count.
2. In July 2016, Harrison recorded a $15,000 inventory purchase on account that should have been recorded in August 2016.
Instructions
(a) Prepare corrected income statements for Harrison for the years ended July 31, 2015, 2016, and 2017.
(b) What is the impact of these errors on the owner's equity at July 31, 2017?
(c) Calculate the incorrect and correct inventory turnover ratios for 2016 and 2017.
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:

2017 2016 2015 Income statement Sales Cost of goods sold Operating expenses 350,000 S33 245,000 76,000 0,000 235,000 76,000 $310,000 225,000 76,000 Balance sheet Merchandise inventory 55,000 45,000 35,000