The following inventory errors were discovered by Twenty-five Company Limited (TCL) at the end of 2023.
(i) An analysis of inventory indicated that inventory at the end of 2022 was overstated by $15,000 due to an inventory count error. Inventory at the end of 2023 was correctly stated.
(ii) Invoices in the amount of $24,000 for inventory received in December 2022 were not entered on the books in 2022. They were recorded as purchases in January 2023 when they were paid. The goods were counted in the 2022 inventory count and included in ending inventory on the 2022 financial statements.
(iii) Goods received on consignment amounting to $37,000 were included in the physical count of goods at the end of 2023 and included in ending inventory on the 2023 financial statements.
Required:
For each of the aforesaid independent scenarios, indicate and explain the effect of the error (if any) on TCL's:
2022 net income;
2023 net income; and
2023 closing retained earnings.
TCL uses the periodic system of inventory and its fiscal year-end is December 31. Ignore income tax effects.