Question

ABC Company sold and shipped merchandise to XYZ Company on December 28, 2019, with shipping terms...

ABC Company sold and shipped merchandise to XYZ Company on December 28, 2019, with shipping terms of FOB shipping point. ABC notified XYZ of the shipment on December 28, 2019. XYZ received the merchandise on January 3, 2020. Which one of the following statements is true?

a. XYZ Company should record a liability for the purchase on January 3, 2018

b. ABC Company should record sales revenue on December 28, 2017

c. XYZ Company must pay the transportation costs in cash

d. ABC Company should include the merchandise in its inventory at December 31, 2017

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Answer #2

Correct Option B i.e.  ABC Company should record sales revenue on December 28, 2017

Reason: A sales is recorded when its obligation is performed. in FOB shipping sales, obligation gets performed when goods are shipped.

Why other options are incorrect:

a.) Purchase liability should be recorded on Dec 28, 2017 and not on January 3, 2018.

c.) Transportation cost can be paid by ABC and reimbursed by XYZ

d) Title of Goods in transit under FOB Shipping lies with purchaser, it should be included in XYZ inventory.

answered by: anonymous
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