Reference no: EM133159187

Question - Case A - When the accounting staff of Nicodemus Limited was preparing the first-quarter 2022 interim financial statements, they discovered an error in the 31 December 2021 financial statements. Inventory costing $265,000 had been in transit and was not received until 4 January 2022. The accounts payable department had recorded the purchase as an account payable on 28 December 2021. Title to the inventory had passed to Nicodemus on 27 December, the date that the supplier had loaded the shipment onto the shipping company's trucks, but it was not included in the yearend inventory count like it should have been. Nicodemus uses a periodic inventory method.

Case B - Internal auditors for Basu Corporation discovered during 2021 that finished goods inventory of $400,000 had been shipped to a customer on 30 December 2020, the last working day of the year. The ending inventory for 31 December 2020 had been properly stated on the basis of the year-end physical count. However, the shipment was not recorded until 4 January 2021, when sales revenue of $640,000 was recorded. Basu uses a perpetual inventory system.

Required - For each of the independent cases above, answer the following questions.

1. What impact did the errors have on each company's financial statements?

2. What correcting entry should each company make when the error is discovered?