Following are descriptions of two independent situations that involve inventory misstatements.
Saunders Corporation
On December 30, 2006, Saunders Corporation sold merchandise that cost $63,000 for $112,500, FOB shipping point. During the morning of December 31, 2006, the merchandise was counted as part of the physical inventory since it was still on hand. Late in the afternoon of December 31, the merchandise was picked up by the freight company hired by the customer to deliver the merchandise. Saunders Corporation’s accounting department did not record the sale and related cost of merchandise sold until January 3, 2007. Saunders Corporation did not discover the preceding errors in 2007, and the customer paid the receivable later in January 2007.
Bjork Jewelry
On December 31, 2006, Bjork Jewelry failed to include in its inventory count $127,500 of its inventory that was out on consignment with other jewelers. Of this amount, $45,000 was sold the last week of December 2006 for $108,000. Bjork Jewelry was notified of these consignment sales on January 3, and, as a result, recorded the $108,000 of sales on January 3, 2007. On January 20, the consignee remitted the $108,000 to Bjork Jewelry. On December 31, 2007, Bjork again failed to include in its inventory count $115,000 of its inventory that was out on consignment with other jewelers. None of the jewelry out on consignment on December 31, 2007, had been sold as of that date. Bjork had not discovered any of the errors.
For each of the companies, indicate the effects of the inventory misstatements on the financial statements for 2006 and 2007.