Harrison Company has a July 31 fiscal year end and uses a perpetual inventory system. The records
Question:
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, 2021, year end, Harrison discovered two errors:
1. At July 31, 2020, Harrison had $10,000 of goods held on consignment at another company that were not included in the physical count.
2. In July 2020, Harrison recorded a $15,000 inventory purchase on account that should have been recorded in August 2020.
Instructions
a. Prepare corrected income statements for Harrison for the years ended July 31, 2019, 2020, and 2021.
b. What is the impact of these errors on the owner?s equity at July 31, 2021?
c. Calculate the incorrect and correct inventory turnover ratios for 2020 and 2021.
Compare the trends in the incorrectly calculated annual profi ts with the trends in the correctly calculated annual profi ts. Does it appear that management may have deliberately made these errors, or do they appear to be honest errors? Explain.
Inventory Turnover RatioInventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,...
Step by Step Answer:
aIncorrect b The impact of these errors on owners equity at July 31 2021 is zero because the total o...View the full answer
Accounting Principles Volume 1
ISBN: 978-1119502425
8th Canadian Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak
