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

• A. Goods owned by the company that are stored in a public warehouse and are still on hand at year-end.
• B. Goods held on consignment from another company (the company is the consignee).
• C. Goods purchased FOB destination that are in transit at year-end.
• D. Goods shipped to customers FOB shipping point before year-end that are still in transit.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of inventory ownership. Inventory should include only goods that the company legally owns at the balance sheet date, regardless of their physical location.
2. Step 2: Analyze goods stored in a public warehouse. Since these goods are owned by the company and simply stored off-site, they should be included in ending inventory.
3. Step 3: Consider goods held on consignment. These goods are owned by another company (the consignor), so they should NOT be included in the consignee's inventory.
4. Step 4: Evaluate goods purchased FOB destination that are in transit. Ownership transfers to the buyer only when goods arrive, so goods still in transit under FOB destination terms are NOT included in inventory.
5. Step 5: Assess goods shipped to customers FOB shipping point before year-end but still in transit. Ownership transfers to the buyer at shipment, so these goods should NOT be included in the seller's ending inventory.