Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Textbook Question
Chapter 5, Problem 1YT
In each separate situation, identify which company must pay the freight.
- 1. Company A purchased merchandise from Company X, FOB destination, for $10,000.
- 2. Company B purchased merchandise from Company Y, FOB shipping point, for $10,000.
Expert Solution & Answer
To determine
Identify the company that must pay the freight.
Explanation of Solution
FOB Shipping point means that the buyer pays all costs incurred for the delivery of goods once the goods is left from the supplier’s warehouse.
FOB Destination means that the buyer pays all costs incurred for the delivery of goods once the goods is delivered at buyer receiving point.
Identify the company that must pay the freight:
- 1. Under FOB destination, the buyer does not pay shipment charges whereas the vendor pays the shipping cost. In this case, Company X is the vendor hence Company X needs to pay the freight charges.
- 2. Under FOB shipping point, the buyer pays the shipment charges whereas the vendor does not pays the shipping cost. In this case, Company B is the buyer hence Company B needs to pay the freight charges.
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Students have asked these similar questions
22. Paden Company purchased merchandise from Emmett Company with freight terms of FOB
shipping point. The freight costs will be paid by the
a. seller.
b. buyer.
c. transportation company.
d. buyer and the seller.
c. Shipping terms are F.O.B. shipping point, freight prepaid. llano paid the shipping
costs on June 16 and added the P600 cost to the invoice sent to Pascual Pascual
remitted P6,480 on June 24.
Required:
1. Prepare the entries for llano to record the sale and freight payment, and the cash
receipt.
2. Prepare the entries for Pascual to record the purchase (with shipping costs added to
the invoice from llano) and the cash remittance.
On December 15, 2022, LYCHEE Company purchased goods costing ₱ 100,000. The terms were FOB shipping point. Costs incurred by the entity in connection with the purchase and delivery of the goods were as follows:
Normal freight charge
₱ 3,000
Handling cost
₱ 2,000
Insurance on shipment
₱ 500
Abnormal freight charge for express shipping
₱ 1,200
The goods were received on December 18, 2022. What is the amount that should be charged to inventory and expense respectively?
A. ₱ 3,000 and 3,700
B. ₱ 5,000 and 1,700
C. ₱ 5,500 and 1,200
D. ₱ 6, 700 and 0
Chapter 5 Solutions
Financial Accounting
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