Case A When the accounting staff of Nicodemus Limited was preparing the first- quarter 20X5 interim financial statements, they discovered an error in the 31 December 20X4 financial statements. Inventory costing $ 265,000 had been in transit and was not received until 4 January 20X5. The accounts payable department had recorded the purchase as an account payable on 28 December 20X4. 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. Nicodemus uses a periodic inventory method.
Case B Internal auditors for Basu Corporation discovered during 20X4 that finished goods inventory of $ 400,000 had been shipped to a customer on 30 December 20X3, the last working day of the year. The ending inventory for 31 December 20X3 had been properly stated on the basis of the year- end physical count. However, the shipment was not recorded until 4 January 20X4, when sales revenue of $ 640,000 was recorded. Basu uses a perpetual inventory system.

Required:
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?