Stallman Company took a physical inventory on December 31 and determined that goods costing $205,000 were on hand

The on hand inventory according to the physical counting amounts to $205,000. There were two transactions that we need to analyze if they are part of the ending inventory or not.

1. The purchase of merchandise from Pelzer Corporation was termed as FOB shipping point and remained in transit at year end. Such cost of goods were not included in the physical count. This goods should be part of the inventory since Stallman already owned the goods the moment they were shipped because it was FOB Shipping Point. The title of the goods belong to the owner and not to the one who holds the goods.
2. The sale of merchandise from Alvarez Company was termed as FOB Destination Point and the cost of which was also not not included in the physical count. Note that the previous item was a purchase and this otem is a sales transaction. The title of the goods is passed to the buyer only when the goods have reach its destination, whch is usually the warehouse of the buyer. The goods were still in transit at the end of the year. Meaning, the sale of the goods was not effective yet as of year end and the title of the goods remains to the seller, in this case, Stallman Company.

So, the cost of inventory at the end of the yeat should be:

Inventory = $205,000 + $25,000 + $22,000 = $252,000