ACC 100 Final: What are the two different types of shipping terms

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lavendermole636

10 Apr 2016

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Shipping terms determine who pays for the shipping costs, who owns the inventory while it"s in transit (moving from the seller to the buyer), and who is responsible for the inventory if it is damaged while in transit. This stands for free on board means that the shipping is free up to that point. F. o. b. shipping point the buyer pays the shipping costs and ownership of the goods transfers from the seller to the buyer as soon as the goods are placed on the truck. This means that the buyer owns the goods while the goods are in transit. If anything happens to the goods while they"re in transit the buyer is responsible. With f. o. b. shipping point means the shipping is free to the buyer up unil it reaches the door of the seller"s locaion (the shipping point). Ater that it costs the buyer the amount of the shipping fee.

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Travis Company has just completed a physical inventory count at year-end, December 31 of the current year. Only the items on the shelves, in storage, and in the receiving area were counted and costed on a FIFO basis. The inventory amounted to $66,500. During the audit, the independent CPA developed the following additional information: Goods costing $910 were being used by a customer on a trial basis and were excluded from the inventory count at December 31 of the current year. Goods in transit on December 31 of the current year, from a supplier, with terms FOB destination (explained in the âRequiredâ section), cost $1,400. Because these goods had not yet arrived, they were excluded from the physical inventory count. On December 31 of the current year, goods in transit to customers, with terms FOB shipping point, amounted to $1,800 (expected delivery date January 10 of next year). Because the goods had been shipped, they were excluded from the physical inventory count. On December 28 of the current year, a customer purchased goods for cash amounting to $3,050 and left them âfor pickup on January 3 of next year.â Travis Company had paid $1,720 for the goods and, because they were on hand, included the latter amount in the physical inventory count. On the date of the inventory count, the company received notice from a supplier that goods ordered earlier at a cost of $4,000 had been delivered to the transportation company on December 27 of the current year; the terms were FOB shipping point. Because the shipment had not arrived by December 31 of the current year, it was excluded from the physical inventory count. On December 31 current year, the company shipped $1,700 worth of goods to a customer, FOB destination. The goods are expected to arrive at their destination no earlier than January 8 of next year. Because the goods were not on hand, they were not included in the physical inventory count. One of the items sold by the company has such a low volume that management planned to drop it last year. To induce Travis Company to continue carrying the item, the manufacturer-supplier provided the item on a âconsignment basis.â This means that the manufacturer-supplier retains ownership of the item, and Travis Company (the consignee) has no responsibility to pay for the items until they are sold to a customer. Each month, Travis Company sends a report to the manufacturer on the number sold and remits cash for the cost. At the end of December of the current year, Travis Company had seven of these items on hand; therefore, they were included in the physical inventory count at $780 each. Required: Assume that Travisâs accounting policy requires including in inventory all goods for which it has title. Note that the point where title (ownership) changes hands is determined by the shipping terms in the sales contract. When goods are shipped âFOB shipping point,â title changes hands at shipment and the buyer normally pays for shipping. When they are shipped âFOB destination,â title changes hands on delivery, and the seller normally pays for shipping. Begin with the $66,500 inventory amount and compute the correct amount for the ending inventory. (Deductible amounts should be entered with a minus sign. If no adjustment is necessary, enter a 0 in the cell.)

blushwater-buffalo929

1. Inventory is classified on the balance sheet as a

a.current liability

b.long-term asset

c.current asset

d.long-term liability

2. What is the term applied to the excess of sales over the cost of goods sold?

a.net income

b.gross profit

c.operations

d.gross sales

3. The inventory system employing accounting records that continuously disclose the amount of inventory is called

a.periodic

b.retail

c.perpetual

d.physical

4. Calculate the gross profit for Jefferson Company based on the following:

Sales $764,000

Selling Expenses $42,500

Cost of Goods Sold $538,000

a.$183,500

b.$721,500

c.$495,500

d.$226,000

5. Calculate income from operations for Jonas Company based on the following data:

Sales $764,000

Selling Expenses $52,500

Cost of Goods Sold $538,000

a.$226,000

b.$711,500

c.$485,500

d.$173,500

6. The primary difference between the periodic and perpetual inventory systems is that a

a.periodic system keeps a record showing the inventory on hand at all times

b.periodic system determines the inventory on hand only at the end of the accounting period

c.periodic system records the cost of the sale on the date the sale is made

d.periodic system provides an easy means to determine inventory shrinkage

7. In credit terms of 3/15, n/45, the "3" represents the

a.percent of the cash discount

b.full amount of the invoice

c.number of days when the entire amount is due

d.number of days in the discount period

8. Which of the following accounts has a normal credit balance?

a.Inventory

b.Accounts Receivable

c.Sales

d.Delivery Expense

9. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

a.debit to Inventory

b.debit to Accounts Payable

c.credit to Sales

d.credit to Inventory

10. Which of the following accounts usually has a debit balance?

a.Sales

b.Inventory

c.Accounts Payable

d.Sales Tax Payable

11. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

a.n/30

b.consigned

c.FOB shipping point

d.FOB destination

12. When goods are shipped FOB destination and the seller pays the freight charges, the buyer

a.does not take a discount

b.journalizes a reduction for the cost of the merchandise

c.makes no journal entry for the freight

d.journalizes a reimbursement to the seller

13. When the perpetual inventory system is used, the inventory sold is debited to

a.Supplies Expense

b.Cost of Goods Sold

c.Sales

d.Inventory

14. Generally, the revenue account for a merchandising business is entitled

a.Gross Sales

b.Sales

c.Gross Profit

d.Fees Earned

lemonpug879

In class we discussed a number of situations where a sellercould recognize revenue before it has fully completed everyobligation under a contract. Which of the following items does NOTrepresent one of these situations?

Sale without a fixed price

Substantial completion of a contract (i.e., onlyinconsequential obligations remain)

A multiple-element arrangement

Percentage-of-completion accounting for a long-termcontract

Bill-and-hold sale

Sale with a return policy (provided certain conditions aremet)

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Question 21 pts

In class we discussed a couple situations where a seller wouldnot be able to recognize revenue even though it had shipped an itemto a customer. Which of the following items does NOT represent oneof these situations? (i.e., in which of these cases can revenue berecognized?)

Goods shipped but still in transit, with FOB shipping pointterms

Goods shipped but still in transit, with FOB destinationterms

Goods delivered on consignment

Goods delivered to a customer, where customer acceptance hasnâtyet occurred

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Question 31 pts

Sellerâs sales contract specifies that legal title transfers tocustomers upon shipment from its facility. However, in the eventthat a product is lost or damaged in shipment, Seller has a pastpractice of supplying a replacement product at no charge to thecustomer. When should Seller recognize revenue?

When the product arrives at the customerâs facility

When the product is shipped from Sellerâs facility

When Seller receives payment from the customer

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Question 41 pts

For which type of customer acceptance are revenues recognizednet (instead of gross)?

Acceptance based on subjective criteria

Acceptance based on customer-specified objective criteria

Acceptance based on seller-specified objective criteria

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Question 51 pts

In 2015, Constructor Corp. began a three-year, long-termconstruction project that qualified for percentage-of-completionaccounting. Constructorâs customer agreed to pay $300,000. By theend of 2015, Constructor had incurred costs of $60,000 and expectedto spend an additional $180,000 over the next two years. How muchrevenue will Constructor report on the project in its 2015 incomestatement?

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Question 61 pts

On December 12, 2014, Customer purchased two pieces of equipmentfor $105. Seller delivered Item A on December 13 but doesnât expectto deliver Item B until the following February. Seller doesnât selleither items separately (only as a pair), but Seller estimates theindividual selling prices to be $40 for item A and $80 for item B.Assuming this contract meets the criteria for separation as amultiple-element arrangement, how much revenue can Seller recognizein the fiscal year ending December 31, 2014?

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ACC 100 Final: What are the two different types of shipping terms

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