Pharoah Company has a July 31 fiscal year end and uses a perpetual inventory system. The records of Pharoah Company show the following data: Income statement: Sales Cost of goods sold Operating expenses Balance sheet: Merchandise inventory 1. 2. 2024 (a) $360,000 255,000 70,000 52,000 2023 $335,000 241,000 After its July 31, 2024, year end, Pharoah discovered two errors: 70,000 45,000 2022 $360,000 276,000 70,000 35,000 At July 31, 2023, Pharoah had $10,000 of goods held on consignment at another company that were not included in the physical count. In July 2023, Pharoah recorded a $15,000 inventory purchase on account that should have been recorded in August 2023. Prepare corrected income statements for Pharoah for the years ended July 31, 2022, 2023, and 2024.

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…