In an annual audit as at December 31, 2001, you find the following transactions near the closing date:

1. Merchandise costing $1,822 was received on January 3, 2002, and the related purchase invoice recorded January 5. The invoice showed the shipment was made on December 29, 2001, FOB destination.

2. Merchandise costing $625 was received on December 28, 2001, and the invoice was not recorded. You located it in the hands of the purchasing agent; it was marked "on consignment."

3. A packing case containing products costing $816 was standing in the shipping room when the physical inven¬ tory 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, 2001, but that the case was shipped and the customer billed on January 10,2002. The productwas stocjditem of your client's.

4. Merchandise received on January 6, 2002, costing $720 was entered i%the purchase register on January 7, 2002. The invoice shAwgd shipment was made FOB supplier's warehouse on December 31, 2001. Since it was not on hand at December 31, it was not included in inventory.

5. A special machine, fabricated to order for a customer, was finished and in the shipping room on December 31, 2001. The customer was billed on that date and the machine excluded from inventory, although it was shipped on January 4, 2002.

Assume that each of the amounts is material.

Required

a. State whether or not the merchandise should be included in the client's inventory.

b. Give your reason for your decision on each item.