The following items were in transit to or from Power Corp. on December 31, 2009 Goods...

The following items were in transit to or from Power Corp. on December 31, 2009

Goods costing $4000 were sent FOB shipping point from Power Corp. to a customer

Goods costing $2580 were sent FOB destination to Power Corp. from a vendor

Goods costing $2960 were sent FOB destination from Power Corp. to a customer

Goods costing $1957 were sent FOB shipping point to Power Corp. from a vendor.

a) Which of these items should Power Corp. include in its December 31, 2009 inventory?

b) Explain the rationale for either including or excluding the items.

Expert Solution

Answer a)

		Include / Exclude
1)	Goods costing $4000 were sent FOB shipping point from Power Corp. to a customer	Exclude
2)	Goods costing $2580 were sent FOB destination to Power Corp. from a vendor	Exclude
3)	Goods costing $2960 were sent FOB destination from Power Corp. to a customer	Include
4)	Goods costing $1957 were sent FOB shipping point to Power Corp. from a vendor	Include

Answer b:

FOB shipping point : In case of FOB shipping point, the rights of goods are transferred to buyer as soon as the goods are being transported by the seller. Thus even those goods are in transit , those goods will be included in buyer's inventory.

Goods in transit in items number 1 & 4 goods were sent FOB shipping point thus Power Corp being a seller in item 1 , goods are excluded from his inventory & in case of item 4 Power Corp is a buyer of goods, thus goods are included in its inventory.

FOB destination : In case of FOB destination, the rights of goods are transferred to buyer only when the goods reached in buyer's destination (place) . Thus when those goods are in transit , those goods will be included in seller's inventory.

Goods in transit in items number 2 & 3 goods were sent FOB destination thus Power Corp being a buyer in item 2 , goods are excluded from his inventory & in case of item 3 Power Corp is a seller of goods, thus goods are included in its inventory

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