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In: Accounting

Harrison Company has a July 31 fiscal year end and uses a perpetual inventory system. The...

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

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

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.


	Your answer is partially correct. Try again.

Prepare corrected income statements for Harrison for the years ended July 31, 2019, 2020, and 2021.

HARRISON COMPANY Income Statement Year Ended July 31
	2021	2020	2019
InvestmentsOperating ExpensesProfit / (Loss)Merchandise InventorySalesCost of Goods SoldGross Profit	$	$	$
Profit / (Loss)Cost of Goods SoldMerchandise InventoryGross ProfitInvestmentsOperating ExpensesSales
Cost of Goods SoldGross ProfitOperating ExpensesProfit / (Loss)Merchandise InventoryInvestmentsSales
Cost of Goods SoldMerchandise InventoryGross ProfitOperating ExpensesProfit / (Loss)InvestmentsSales
InvestmentsGross ProfitOperating ExpensesSalesProfit / (Loss)Cost of Goods SoldMerchandise Inventory	$	$	$


	Your answer is partially correct. Try again.

Calculate the incorrect and correct inventory turnover ratios for 2020 and 2021. (Round answers to 2 decimal places, e.g. 52.75.)

	2020		2021
Incorrect inventory turnover		times		times
Correct inventory turnover		times		times

Expert Solution

(a) (Incorrect)

HARRISON COMPANY

Income Statement

Year Ended July 31

2021 2020 2019

Sales $350,000 $330,000 $310,000

Cost of goods sold 245,000 235,000 225,000

Gross profit 105,000 95,000 85,000

Operating expenses 76,000 76,000 76,000

Profit $ 29,000 $ 19,000 $ 9,000

(Corrected)

HARRISON COMPANY

Income Statement

Year Ended July 31

2021 2020 2019

Sales $350,000 $330,000 $310,000

Cost of goods sold 240,000 ** 240,000 * 225,000

Gross profit 110,000 90,000 85,000

Operating expenses 76,000 76,000 76,000

Profit $ 34,000 $ 14,000 $ 9,000

** $240,000 = $245,000 + $10,000 – $15,000

* $240,000 = $235,000 – $10,000 + $15,000

(b)

Inventory turnover = Cost of goods sold ÷ Weighted average inventory

Incorrect

2020: $235,000 ÷ [($45,000 + $35,000) ÷ 2] = 5.88

2021: $245,000 ÷ [($55,000 + $45,000) ÷ 2] = 4.90

Corrected

2020: $240,000 ÷ [($40,000 + $35,000) ÷ 2] = 6.40 times

2021: $240,000 ÷ [($55,000 + $40,000) ÷ 2] = 5.05 times

ekkarill92 answered 2 years ago

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