2. Problem P6.8A page 6-50. Remember an error in one period if undiscovered, corrects itself in the second period. The ending inventory of one period is the beginning inventory of the next period. Suggest that you prepare the income statement for each year using the correct inventory balances.

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

Determine effects of inventory errors. Calculate inventory turnover.

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.

2021 2020 2019 Income statement: Sales Cost of goods sold Operating expenses Balance sheet: Merchandise inventory $350,000 245,000 76,000 $330,000 235,000 76,000 $310,000 225,000 76,000 55,000 45,000 35,000