Hello, Lisadoglover! I hope I can be of some help!
I wish I could meet your puppy and give things a feel myself so I could tell you exactly what is going on!
However, I'll try my best to talk about the possibilities.
Yes, a dog's testicles should normally be descended into his scrotum by 12 weeks. If they are not, the dog is considered "cryptorchid," meaning one or both of the testicles are not descended. Sometimes the missing testicles can be felt on the belly near the scrotum or in the inquinal area (on the inside of the rear leg where it meets the body). Sometimes the testicle is actually up in the abdomen and can't be found on the outside.
You say you can feel them and they are freely movable. And yet your vet says they are normal. What I suspect is that the testicles are moving in and out of the scrotum, which can be quite normal. This does not mean your dog is cryptorchid. With cryptorchid dogs the testicles are never in the scrotum. But some dogs' testicles move about and will move in and out of the scrotum, or can easily be pushed into the scrotum. Sometimes you may feel them there and sometimes not. The good news is that your dog is completely normal if this is the case, and the neuter surgery can be done normally as long as the testicles can be pushed into the scrotum. In a cryptorchid dog, the neuter surgery can be quite challenging as it can be difficult to locate the missing testicle and sometimes we have to go looking for it in the abdomen. It doesn't sound like you need to worry about that.
Here is some additional information on cryptorchidism:
http://www.veterinarypartner.com/Content.plx?P=A&S=0&C=0&A=2743
I hope that is helpful to you. Thank you for your question!
Dr. Marcia
Dog Veterinarian
I am a Companion Animal Veterinarian with 12 years of medical and surgical experience