Morden Company is trying to determine the value of its ending inventory as at February 28, 2021, the company’s year end. The accountant counted everything that was in the warehouse as at February 28, which resulted in an ending inventory cost of $56,000. However, she was not sure how to treat the following transactions, so she did not include them in inventory:

1. On February 20, Morden Company had received $875 of inventory on consignment from Carberry Company. By February 28, Morden Company had sold $365 of this inventory for Carberry Company.

2. On February 25, Morden ordered goods costing $750. The goods were shipped FOB shipping point on February 27. The receiving report indicates that Morden received the goods on March 1.

3. On February 26, Morden shipped goods costing $800 to a customer. The goods were shipped FOB shipping point. The receiving report indicates that the customer received the goods on March 1.

4. On February 27, Stony Mountain Company shipped goods to Morden, FOB destination. The invoice price was $350 plus $25 for freight. The receiving report indicates that the goods were received by Morden on March 2.

5. On February 28, Morden packaged goods and moved them to the shipping department for shipping to a customer, FOB destination. The invoice price was $425 plus $20 for freight. The cost of the items was $360. The receiving report indicates that the goods were received by the customer on March 2.

6. Morden had damaged goods set aside in the warehouse because they were not saleable. These goods originally cost $400. Morden had expected to sell these items for $600 before they were damaged.

7. On February 28, Morden was holding merchandise that had been sold to a customer on February 25. The customer has paid for the goods and will pick them up on March 3. This inventory cost $940 and was sold for $1,340.

8. Morden had $620 of inventory at a customer’s warehouse “on approval.” The customer was going to let Morden know whether it wanted the merchandise by the end of the week, March 7.

Instructions

a. For each of the above transactions, specify whether the item in question should be included in ending inventory, and if so, at what amount. Explain your reasoning.

b. What is the revised ending inventory cost?

If the owner of Morden Company wants to minimize the amount of income taxes he or she will have to pay, what errors might the owner tell the accountant not to correct? Explain.