You are engaged in the audit of Reed Company, a new client, at the end of its first fiscal year, June 30, 20X1. During your work on inventories, you discover that all of the merchandise remaining in stock on June 30, 20X1, had been acquired July 1, 20X0, from Andrew Reed, the sole shareholder and president of Reed Company, for an original selling price of $10,000 cash and a note payable due July 1, 20X3, with interest at 15 percent, in the amount of $90,000. The merchandise had been used by the president when he operated a similar business as a sole proprietor.
How can you verify the pricing of the June 30, 20X1, inventory of Reed Company? Explain.