Which of the following should be included in the physical inventory of a company at year-end?

• A. Goods shipped by the company to a customer, FOB shipping point
• B. Goods held on consignment for another company
• C. Goods sold to customers, shipped FOB destination but not yet delivered
• D. Goods in transit to the company, shipped FOB shipping point

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of FOB (Free on Board) shipping terms. FOB shipping point means the buyer takes ownership of the goods once they leave the seller's location, while FOB destination means the seller retains ownership until the goods are delivered to the buyer.
2. Step 2: Analyze the first scenario: 'Goods shipped by the company to a customer, FOB shipping point.' Since ownership transfers to the customer at the shipping point, these goods should not be included in the company's physical inventory at year-end.
3. Step 3: Analyze the second scenario: 'Goods held on consignment for another company.' Consigned goods are owned by the consignor (the other company), not the consignee (your company). Therefore, these goods should not be included in your company's physical inventory.
4. Step 4: Analyze the third scenario: 'Goods sold to customers, shipped FOB destination but not yet delivered.' Since ownership remains with the seller until the goods are delivered, these goods should be included in the company's physical inventory at year-end.
5. Step 5: Analyze the fourth scenario: 'Goods in transit to the company, shipped FOB shipping point.' Since ownership transfers to your company at the shipping point, these goods should be included in your company's physical inventory at year-end.