In an annual audit at December 31, 2019, you find the following transactions near the closing date:
1. Merchandise costing $625 was received on December 28, 2019, and the invoice was
not recorded. You located it in the hands of the purchasing agent; it was marked “on
consignment.”
2. A packing case containing products costing $816 was standing in the shipping room
when the physical inventory was taken. It was not included in the inventory because
it was marked “Hold for shipping instructions.” Your investigation revealed that the
customer’s order was dated December 18, 2019, but that the case was shipped and
the customer billed on January 10, 2020. The product was a stock item of your client.
3. Merchandise received on January 3, 2020, costing $720 was entered in the acquisi-
tions journal on January 4, 2020. The invoice showed shipment was made FOB sup-
plier’s warehouse on December 31, 2019. Because it was not on hand December 31, it
was not included in inventory.
4. Merchandise costing $1,822 was received on January 3, 2020, and the related acqui-
sition invoice recorded January 5. The invoice showed the shipment was made on
December 29, 2019, FOB destination.
5. A special machine, fabricated to order for a customer, was finished and in the ship-
ping room on December 31, 2019. The customer was billed on that date and the ma-
chine excluded from inventory, although it was shipped on January 4, 2020.
Assume that each of the amounts is material.
a. State whether the merchandise should be included in the client’s inventory.
b. Give your reason for your decision on each item.