Which of the following shipments was shipped fob destination?

Which of the following shipments was shipped FOB destination? A
: The customer paid $32,540 for purchased goods and received a 3%
purchase discount. B : The customer returned $2,800 in purchased
goods with freight costs paid by the supplier. C : The customer
paid $41,720 for purchased goods and $365 for freight costs. D :
The customer paid $11,390 for purchased goods with a $200 purchase
discount and $120 for freight costs.

General guidance

Concepts and reason
Merchandising operations: Merchandising operations which are exchange of goods are performed as a primary source of revenue. These include purchase and sale of goods, or merchandising inventory.
Merchandise inventory: Merchandise is the goods procured by a trader, a wholesaler, or a merchant from suppliers with an intention to resell those goods for a higher price. This inventory is recorded as current asset on the balance sheet because it is planned to sell within a year.
Merchandise return: Merchandise return is a situation where a buyer returns the goods purchased from a seller. This generally results in receiving a credit for the goods returned.
Merchandise allowance: Merchandise allowance is given to the buyer when goods sold include damaged goods. The buyer retains the goods and the value equal to the damaged goods is reduced from the total bill.

Fundamentals

FOB (Free on Board) destination: When the seller bears the transportation costs from the point of origin to the point of destination, it is called FOB destination. The seller does not transfer the title of the ownership to the buyer until the inventory reaches the delivery point.
FOB shipping point: “FOB shipping point” means the ownership transfers from the seller to the buyer at the time goods are shipped to the buyer. This has no relevance with the credit term.
Freight cost: Freight cost is the charge required to be paid to the transporter, who moves cargo from one the supplier to the seller. It is otherwise known as delivery expense.
FOB destination point: It refers to Free on Board. It means the freight or transport costs are to be borne by the seller at the time of shipment.
Terms of shipping and transfer of title:
vThe seller has to pay the shipment cost as per FOB.
vThe seller should not include the merchandise in transit as sales in the income statement until it reaches the buyer’s business.
vThe buyer should not include the goods in transit into inventory until it has reached to his place.
vThe ownership of the goods remains with the seller.
Purchase Discount: The purchaser gets a concession or reduction in the purchasing price for early payment from seller. This reduction is known as purchase discount.
Transportation Costs: The costs of transportation of delivering the merchandise inventory are differentiated on the terms of the payment of transportation charges or freight by the buyer or the seller.

Step-by-step

Step 1 of 2

The following shipment was not shipped on FOB destination.
vThe customer paid $41,720 for purchased goods and $365 for freight costs.
vThe customer paid $11,390 for purchased goods with a $200 purchase discount and $120 for freight costs.
vThe customer returned $2,800 in purchased goods with freight costs paid by the supplier.
Therefore, these options are incorrect answers.

Justification for incorrect answers:
The customer paid $41,720 for purchased goods and $365 for freight costs. In this shipment, freight cost is borne by the purchaser. If freight cost is borne by the customer, then such shipment is said to be FOB shipment. Hence, the option “the customer paid $41,720 for purchased goods and $365 for freight costs” is an incorrect answer.
The customer paid $11,390 for purchased goods with a $200 purchase discount and $120 for freight costs. In this shipment also, the freight cost is borne by the purchaser. Hence, the option “the customer paid $11,390 for purchased goods with a $200 purchase discount and $120 for freight costs” is an incorrect answer.
The customer returned $2,800 in purchased goods with freight costs paid by the purchaser. In this shipment, freight cost is borne by the purchaser. If freight cost is borne by the purchaser, then such shipment is said to be FOB shipment. Hence, the option “the customer returned $2,800 in purchased goods with freight costs paid by the supplier” is an incorrect answer.

Use the options given the question to find which are shipped on FOB destination.

Step 2 of 2

The customer paid $32,540 for purchased goods and received a 3% purchase discount was shipped on FOB destination.
Therefore, the option “the customer paid $32,540 for purchased goods and received a 3% purchase discount” is the correct answer.

The customer paid $32,540 for purchased goods and received a 3% purchase discount.

Justification for correct answer:
The customer paid $32,540 for purchased goods and received a 3% purchase discount. In this shipment ownership during transaction and freight cost borne by the customer was at the FOB destination. Hence, it can be decided that it is an FOB destination. Hence, the option “the customer paid $32,540 for purchased goods and received a 3% purchase discount” is a correct answer.

Answer

The customer paid $32,540 for purchased goods and received a 3% purchase discount.

Answer only

The customer paid $32,540 for purchased goods and received a 3% purchase discount.

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