P6-1 Identifying Items to Be Included in Inventory LO6-1 Reggie Company has just completed a physical inventory count at year-end, December 31 of the current year. Only the items on the shelves, in storage, and in the receiving area were counted and costed on a FIFO basis. The inventory amounted to $65,000. During the audit, the auditor developed the following additional information: a. Goods costing $750 were being used by a customer on a trial basis and were excluded from the inventory count at December 31 . b. Goods costing $900 were in transit to Reggie on December 31, with terms FOB destination (explained below). Because these goods had not arrived, they were excluded from the physical inventory count. c. On December 31, goods in transit to customers, with terms FOB shipping point, amounted to $1,300 (the expected delivery date was January 10, next year). Because the goods had been shipped, they were excluded from the physical inventory count. d. On December 28, a customer purchased goods for $2,650 cash and left them for pick-up on January 3, next year." The cost of sales totalled $1,590 and was included in the physical inventory count because the goods were still on hand. e. On the date of the inventory count, the company received notice from a supplier that goods ordered earlier at a cost of $2,550 had been delivered to the transportation company on December 27; the terms were FOB shipping point. Because the shipment had not arrived by December 31, it was excluded from the physical inventory count. f. On December 31, the company shipped goods to a customer, FOB destination. The goods, which cost $850, are not expected to arrive at their destination before January 8 , next year. Because the goods were not on hand, they were not included in the physical inventory count. g. One of the items sold by the company has such a low volume that the management planned to drop it last year. To induce Reggie Company to continue carrying the item, the manufacturer-supplier provided the item on a consignment basis. This means that the manufacturer-supplier retains ownership of the item, and Reggie Company (the consignee) has no responsibility to pay for the items until they are sold to customers. Each month, Reggie Company sends a report to the manufacturer on the number sold and remits cash for the cost. At December 31, Reggie Company had five of these items on hand; therefore, they were included in the physical inventory count at $950 each. Required: Reggie is required to include in inventory all goods for which it has title. Note that the point where title (ownership) changes hands is determined by the shipping terms in the sales contract. When goods are shipped "FOB shipping point," title changes hands at shipment and the buyer normally pays for shipping. When they are shipped "FOB destination," title changes hands on delivery, and the seller normally pays for shipping. Begin with the $65,000 inventory amount and compute the correct amount for the ending inventory. Explain the basis for your treatment of each of the preceding items. (Hint: Set up three columns: Item, Amount, and Explanation.) Page 356