When performing a physical count of inventory at year-end, which of the following items should be included in the entity’s ending inventory balance?

• A. Goods purchased from a supplier that are in transit FOB shipping point and have not yet arrived
• B. Goods sold to customers that have been shipped FOB shipping point but not yet received by the customer
• C. Goods sold to customers that are in transit FOB destination and have not yet arrived to the customer
• D. Goods held on consignment for another company (the entity is the consignee)

Answer: (A)

Verified step by step guidance

1. Understand the concept of inventory ownership and the terms FOB (Free On Board) shipping point and FOB destination. Ownership of goods transfers at the shipping point for FOB shipping point terms, and at the destination for FOB destination terms.
2. For goods purchased from a supplier that are in transit FOB shipping point, recognize that ownership transfers to the buyer once the goods are shipped. Therefore, these goods should be included in the buyer's ending inventory even if they have not yet arrived.
3. For goods sold to customers that have been shipped FOB shipping point but not yet received by the customer, understand that ownership transfers to the customer at the shipping point. Hence, these goods should be excluded from the seller's ending inventory because they no longer own them.
4. For goods sold to customers that are in transit FOB destination and have not yet arrived at the customer, ownership remains with the seller until the goods reach the customer. Therefore, these goods should be included in the seller's ending inventory.
5. For goods held on consignment for another company (where the entity is the consignee), recognize that the entity does not own these goods. They are held on behalf of the consignor and should not be included in the consignee's inventory.