At the end of 2011, the Biggie Company performed its annual physical inventory count. John Lawrence, the manager in charge of the physical count, was told that an additional $22,000 in inventory that had been sold and was in transit to the customer should be included in the ending inventory balance. John was of the opinion that the merchandise shipped should be excluded from the ending inventory since Biggie was not in physical possession of the merchandise.

Required:

Discuss the situation and indicate why John's opinion might be incorrect.