1. Mogul Company ships merchandise to Ski Outfit in a consignment arrangement. The arrangement specifies that Ski Outfit will attempt to sell the merchandise, and in return, Mogul will pay to Ski Outfit a 15% sales commission on any merchandise sold. During the year, Mogul ships inventory with a cost of $85,000 to Ski Outfit. By the end of the year, $64,000 of the merchandise has been sold to customers for a total of $90,200. What amount of inventory will Mogul report at year end?

1. $0.
2. $5,200.
3. $12,750.
4. $21,000.