Question

P6-6A. Goods in Transit The Yankee Wholesale Company sells merchandise to a variety of retailers. Yankee uses different freight terms with its various customers and suppliers. All sales are made on account.

Required

For each of the following transactions, indicate which company has ownership of the goods in transit:

a. Yankee sold merchandise to X-Mart stores, with shipping terms of F.O.B shipping point.

b. Yankee purchased merchandise from Zendo Manufacturing Company, with shipping terms of F.O.B. destination.

c. Yankee Sold merchandise to Mary's boutique, with shipping terms of F.O.B destination.

d. Sunshine Manufacturing Company sold merchandise to Yankee, with shipping terms of F.O.B. shipping point.

e. Yankee purchased merchandise from Warfield Manufacturing Company, with freight terms of F. O. B shipping point.

f. Stevenson Stores purchased merchandise from Yankee, with shipping terms of F.O.B shipping point.

P6-7A. Lower-of-Cost-or-Net Realizable Value Method The Vandy Company had the following inventory at year-end:

   Unit Price

   Quantity Cost Net Realizable Value

Fans

Model X1...................................................................................300 $18    $19

Model X2..................................................................................250    23 24

Model X3..................................................................................450    29 25

Heaters

Model B7...................................................................................500    24 30

Model B8...................................................................................290 35    32   

Model B9...................................................................................100 41    37

Required

a. Determines the value of ending inventory after applying the lower-of-cost-or-net realizable value method to each item of inventory.

b. Would the net income be lower under the cost method or the lower-of-cost-or-net realizable value method?

Answer 1

Solution:

Given that the following information about The Yankee Wholesale Company sells merchandise to a variety of retailers. Yankee uses different freight terms with its various customers and suppliers. All sales are made on account.

	Ownership of the Goods in Transit	Explanation
a)	X- Mart Stores	Since Sale made on FOB Shipping point, it denotes risk and ownership is transferred at the time of shipping hence Buyer would have the ownership of goods in transit
b)	Zendo Manufacturing Company	Since Purchase made on FOB Desitination point, it denotes risk and ownership is transferred at the time of Delivery or desitnation hence Seller would have the ownership of goods in transit
c)	Cardinal Wholesale Company	Since Sale made on FOB Desitination point, it denotes risk and ownership is transferred at the time of Delivery or desitnation hence Seller would have the ownership of goods in transit
d)	Cardinal Wholesale Company	Since Purchase made on FOB Shipping point, it denotes risk and ownership is transferred at the time of shipping hence Buyer would have the ownership of goods in transit
e)	Cardinal Wholesale Company	Since Purchase made on FOB Shipping point, it denotes risk and ownership is transferred at the time of shipping hence Buyer would have the ownership of goods in transit
f)	Stevenson Stores	Since Sale made on FOB Shipping point, it denotes risk and ownership is transferred at the time of shipping hence Buyer would have the ownership of goods in transit