FINANCIAL ACCOUNTING CUSTOM PACKAGE
LATEST Edition
ISBN: 9781256636755
Author: REIMERS
Publisher: Pearson Custom Publishing
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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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