ACC 101-Terms and DefinitionsPurchases and sales of merchandise involve freight.
Question # 00324029
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Updated on: 06/25/2016 12:51 AM Due on: 06/25/2016
- Terms and DefinitionsPurchases and sales of merchandise involve freight. The responsibility for freight (buyer or seller) is determined by the terms of sale. The terms of sale will identify when title passes from the seller to the buyer, and thus determines who is responsible for freight. Select the correct terms in the table below.
Understanding the Business TransactionFOB Shipping Point, buyer pays invoiceSales Freight Term Party responsible for paying freight invoice Account debited for freight costs FOB shipping point FOB destination
FOB Destination, seller pays invoiceMar. 15, 2015 Majestic Products, Inc. purchased goods from Fulton Corp. on Mar. 15, 2015, FOB shipping point. Boston Trucking invoiced the freight on these goods to Majestic for $300. Under the perpetual inventory method the cost of freight paid by the buyer is part of the cost of merchandise.
FOB Shipping point, seller prepays freightMay 6, 2015 Fun Supply Inc. sold goods to Marvel Games, Inc. on May 6, 2015, FOB destination. Mid States Trucking Inc. invoiced the freight on these goods to Fun Supply for $245. Freight paid by the seller, FOB destination, is a selling expense.
Recording in the Accounting SystemFOB Shipping Point, buyer pays invoiceJournalize the freight transaction for Majestic Products, Inc.May 19, 2015 Fun Supply Inc. sold goods to Marvel Games, Inc. on May 19, 2015, FOB shipping point. Mid States Trucking Inc. invoiced the freight on these goods to Fun Supply for $220. Freight paid by the seller, FOB shipping point, is invoiced to the customer.
FOB Destination, seller pays invoiceJournalize the freight transaction for Fun Supply, Inc.Mar. 15
FOB Shipping point, seller prepays freightJournalize the freight transaction for Fun Supply, Inc.May 6
Financial Statement ImpactMagnificent Mile, Inc., located in Chicago, IL., sells products to Peachtree Inc., located in Atlanta, GA. The freight costs incurred to ship product from Chicago to Atlanta is $6,000.It is assumed that the merchandise inventory for Peachtree is not changing. Thus, any freight costs that are debited to Merchandise Inventory under terms FOB shipping point will eventually be debited to Cost of Merchandise Sold when the goods are sold. Thus, under FOB destination the income statement of the seller is impacted by freight costs through Delivery Expense, a selling expense. Under FOB shipping point, the income statement of the buyer is impacted by freight costs through Cost of Merchandise Sold. Two sets of income statements from Magnificent Mile and Peachtree are provided, one excluding freight costs and a second including freight cost, depending on the FOB term selected. The two sets can be compared to see how freight costs impact the income statement under FOB shipping point and FOB destination.Below is a slider to select the FOB term (destination or shipping point). Select the freight term and compare how the $6,000 freight impacts the income statements of the buyer and seller, and with themselves excluding freight.Click here and answer the following questions using the freight term slider and income statement information, assuming that freight costs are included.1. Under terms FOB-destination the net income for Magnificent Mile Inc. is $ .May 19
2. Under terms FOB-destination, the gross profit of Magnificent Mile Inc. with freight costs is the gross profit without freight costs.
3. Under freight terms FOB-shipping point the net income for Peachtree Inc. is $ .
4. Under terms FOB-shipping point, the gross profit of Peachtree Inc. with freight costs is the gross profit without freight costs.
5. Under terms FOB-destination the net income for Magnificent Mile Inc. with freight costs is the net income without freight costs.
6. Under terms FOB-shipping point the net income for Peachtree Inc. with freight costs is the net income without freight costs.
7. Under terms FOB-shipping point the selling expenses of Peachtree Inc. with freight costs is the selling expenses of Peachtree Inc. without freight costs.
8. Under terms FOB-destination the selling expenses of Magnificent Mile Inc. with freight costs is the selling expenses of Magnificent Mile Inc. without freight costs.
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Rating:
/5
Solution: ACC 101-Terms and DefinitionsPurchases and sales of merchandise involve freight.