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Incorrect Entry
Mr. Rosales was not involved in the negotiations between
petitioner and ASA. He neither was informed nor independently
discovered that petitioner held the ASA inventory on consignment.
After taking a physical inventory of the goods in petitioner's
warehouse, Mr. Rosales mistakenly included the $2,031,778 ASA
consignment merchandise in petitioner's June 30, 1990, ending
inventory on petitioner's audited financial statements and credited
$2,031,778 to trade accounts payable (reflecting his belief that
petitioner had purchased the goods). Mr. Rosales did not consult
with either Mr. Campos, Jr. or Sr., when making this entry.
"Correcting Entry"
Sometime in April 1991, Mr. Rosales questioned why the trade
account payable to ASA recorded on the books remained unpaid. Mr.
Campos, Sr. informed Mr. Rosales that there was no payable due ASA.
Mr. Rosales then stated that he would correct the books and remove
the payable. However, instead of debiting accounts payable and
crediting beginning inventory, Mr. Rosales debited accounts payable
and credited paid-in capital (reflecting his belief that the
shareholders had assumed the liability from the account payable to
ASA). A physical inventory was taken at yearend June 30, 1991, and
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