[Anonymous]

On Dec. 28, year 2, Ume Manufacturing purchases goods costing $70,000 FOB destination. Packaging, shipping costs totaled $4,500. Good were received on Dec. 31, year 2. On the Dec. 31, year 2 balance sheet, what amount of costs should be included in inventory?

the answer in wtb says it is 74,000: “When the shipping terms are FOB destination, the seller bears all costs of transporting the goods to the buyer. Therefore, the seller is responsible for the payment of packaging costs ($1,000), shipping costs ($1,500), and the special handling charges ($2,000). The only amount to be included as the buyer’s cost of the inventory purchased is the purchase price ($70,000).”

however my understanding is that since the goods were received by the balance sheet date, why doesnt the company include the shipping costs in inventory as well?

[Study Monk]

There is another component to FOB Shipping Point and Shipping Destination besides who holds title that doesn't come up in a lot of problems. When it is FOB Shipping Point the buyer is paying for shipping and when it is FOB Shipping Destination the seller is paying for shipping. Think about it as who ever has title when the product is being shipped pays for shipping.

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Study Monk]

There is another component to FOB Shipping Point and Shipping Destination besides who holds title that doesn't come up in a lot of problems. When it is FOB Shipping Point the buyer is paying for shipping and when it is FOB Shipping Destination the seller is paying for shipping. Think about it as who ever has title when the product is being shipped pays for shipping.

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Anonymous]

@cpa066729, I am sort of lost for WTB’s answer for $74,000 while goods cost $70,000 and total shipping costs were $4,500. Did you perhaps mean $70,000?

My guess would be $70,000. This cost should be included in inventory of Ume Mfg. as of 12/31/Y2. I would not include the shipping costs on the inventory since the seller paid for these shipping costs. It’s just like buying items from Amazon.com or from any other manufacturers. If the cost of the item is only $70,000, shipping cost-free, then it would only cost you $70,000, simple!

[Anonymous]

@cpa066729, I am sort of lost for WTB’s answer for $74,000 while goods cost $70,000 and total shipping costs were $4,500. Did you perhaps mean $70,000?

My guess would be $70,000. This cost should be included in inventory of Ume Mfg. as of 12/31/Y2. I would not include the shipping costs on the inventory since the seller paid for these shipping costs. It’s just like buying items from Amazon.com or from any other manufacturers. If the cost of the item is only $70,000, shipping cost-free, then it would only cost you $70,000, simple!

[Anonymous]

yes, i meant 70,000. for some reason i thought that whoever owned the goods as of the balance sheet paid the shipping costs. thanks for clearing that up!

[Anonymous]

yes, i meant 70,000. for some reason i thought that whoever owned the goods as of the balance sheet paid the shipping costs. thanks for clearing that up!

[Author]

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