The Cowart Company recently hired an accountant who had no experience with inventory accounting and had missed the chapters on inventory in intermediate accounting. The company has asked you to [a] review its December 31, 2011, inventory values and state the proper treatment for each item.

The company uses the perpetual inventory system.

(a) Review inventory values: The following information is provided for what and how much should be included in inventory.

1. The physical count of inventory at December 31, 2011, indicated that $500,000 of inventory was on hand. (The company has not yet compared the physical count to the ledger balance.) Yes - Include

2. Not included in the physical count of inventory was $25,000 of merchandise received on December 31 after the inventory had been counted. The invoice was received and recorded on January 4. INCORRECT - Yes Include

3. Not included in the physical count was merchandise purchased for $80,000 on December 28. The merchandise was shipped f.o.b. destination and was received by Cowart Company on January 4. The invoice which has not been received has not been recorded. CORRECT Should NOT be Included

4. Not included in the physical count of inventory is $40,000 of merchandise purchased on December 21. The merchandise was shipped f.o.b. shipping point on December 27 and arrived in January. The invoice arrived and was recorded on December 31. INCORRECT Should be INCLUDED

5. Included in the physical count was $40,000 of inventory held by Cowart on consignment. INCORRECT Dont Include Cowart is Consignee

6. Included in the physical count is merchandise sold f.o.b. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for $100,000 on December 31. The cost of the inventory was $72,000 and the customer received the inventory on January 5.

7. Included in the physical count is merchandise sold on December 31, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for $50,000 on December 31. The merchandise had a cost of $30,000. The merchandise was delivered to the customer on January 3.