Chapter 6, Problem 1E

To determine

Concept Introduction:

Goods in Transit:

When sales are made to a company, at the end of the year, it often occurs that the goods are in transit and have not reached the final port or destination of the buyer.

Determination of the ownership is dependent on the shipping terms associated with the goods in transit and is determined based on the following criteria:

If the sale is FOB Shipping Point, then the ownership of the goods is transferred to the buyer as soon as the goods which are sold, depart from the shipping point of the seller.

If the sale is FOB Destination, then the ownership of the goods is transferred to the buyer as soon as the goods which are sold, reach the shipping point of the buyer.

FOB stands for Freight on Board.

Requirement 1:

Which of the companies will record the goods as part of the year endinventory.

To determine

Concept Introduction:

Consignment Sales:

Consignment sales take place when two or more parties enter into an agreement, where one party sells goods on behalf of the other party or parties in the capacity of an agent, i.e. acting on behalf of the other party.

The owner of the goods is the Consigner and the Agent who undertakes the sale of the goods is the Consignee. The risks and rewards of ownership are not passed on to the consignee since he is merely an agent of the Consignor.

Requirement 2:

Consigner and Consignee of the goods and determination of who will record unsold goods as inventory.