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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Consider each of the following independent situations. Should a company report the goods in its inventory?

  1. (a) Goods purchased by the company with shipping terms FOB shipping point that are in transit at the end of the year
  2. (b) Goods received by the company on consignment
  3. (c) An estimate of the amount of goods sold by the company that it expects the buyer to return
  4. (d) Goods required to be purchased by the company under an unconditional purchase obligation

To determine

Identify whether the company should report the goods in its inventory or not, in each of the independent situation.

Explanation

FOB destination: When the seller bears the freight charges for the delivery of merchandise from the point of origin, it is referred to as FOB (freight-on-board) destination. So, the title of ownership would be held with the buyer only at the destination point.

FOB shipping point: When the buyer bears the freight charges for the delivery of merchandise from the point of origin, it is referred to as FOB (freight-on-board) shipping point. So, the title of ownership is held with the buyer, from the shipping point itself.

The appropriate reporting of the goods is as follows:

(a) Goods purchased by the company with shipping terms FOB shipping point are in transit at the end of the year. :  The company has purchased goods with shipping terms of FOB shipping point. So, the title of the goods is transferred to the buyer and thus it is included in the inventory...

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