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.
Required:
For each of the following events, determine the amount of freight paid by The Box Company. Also indicate whether the freight cost
would be classified as a product or period (selling and administrative) cost.
a. Purchased inventory with freight costs of $700. The goods were shipped FOB shipping point.
b. Sold merchandise to a customer. Freight costs were $1,000. The goods were shipped FOB shipping point.
c. Purchased merchandise inventory with freight costs of $1,600. The merchandise was shipped FOB destination.
d. Shipped merchandise to customers, freight terms FOB destination. The freight costs were $500.
Note: Not all cells will require input.
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.
Chapter 5 Solutions
Financial Accounting
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