Describe FOB shipping point and FOB destination. When does the buyer take ownership of the goods, and who typically pays the freight?
FOB shipping point indicates the risk linked with the buyer, and FOB destination represents the risk associated with the seller of the goods.
In accounting, the term “freight” denotes the cost associated with the goods or materials delivered to a customer for manufacturing or resale purposes. Freights are of two types: freight-in and freight-out.
The term “FOB shipping point” refers to the process used to define the risk associated with the buyer because once the seller ships the goods, the buyer is responsible for any damages to the goods in transit. At the same time, FOB destination means that the seller is responsible for all the risks until the buyer receives the goods.
The buyer takes ownership of the goods at the FOB shipping point when the seller ships the goods, and the buyer pays for them. On the other hand, freight and other charges are borne by the seller until the goods are delivered.
The records of Farm Quality Steak Company list the following selected accounts for the quarter ended April 30, 2018:
Interest Revenue $ 400 Accounts Payable $ 17,700
Merchandise Inventory 45,000 Accounts Receivable 38,200
Notes Payable, long-term 54,000 Accumulated Depreciation—Equipment 37,700
Salaries Payable 2,800 Common Stock 30,000
Net Sales Revenue 298,000 Retained Earnings 5,380
Rent Expense (Selling) 15,100 Dividends 25,000
Salaries Expense (Administrative) 2,000 Cash 7,100
Office Supplies 6,500 Cost of Goods Sold 154,960
Unearned Revenue 13,100 Equipment 132,000
Interest Expense 2,100 Interest Payable 1,700
Depreciation Expense—Equipment (Administrative) 1,320
Rent Expense (Administrative) 7,100
Utilities Expense (Administrative) 4,600 Salaries Expense (Selling) 6,000
Delivery Expense (Selling) 3,800 Utilities Expense (Selling) 10,000
1. Prepare a single-step income statement.
2. Prepare a multi-step income statement.
3. M. Doherty, manager of the company, strives to earn a gross profit percentage of at least 50%. Did Farm Quality achieve this goal? Show your calculations
Suppose Piranha.com sells 3,500 books on account for $17 each (cost of these books is $35,700) on October 10, 2018 to The Textbook Store. One hundred of these books (cost $1,020) were damaged in shipment, so Piranha.com later received the damaged goods from The Textbook Store as sales returns on October 13, 2018.
1. Journalize The Textbook Store’s October 2018 transactions.
2. Journalize Piranha.com’s October 2018 transactions. The company estimates sales returns at the end of each month.
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