Question

South Bay Boating Company (South) sells to its customers under the terms Free On Board (FOB) Destination. One of its customers is West Shore Marine (West). On December 28, 2019 South sells to West a 25-foot pontoon boat for $29,750. The 25-foot pontoon boat arrives at West on January 4, 2020. The transportation and insurance costs total $3,124.

Requirements:

1. On what date can South record the sale as income?

2. Which company has to pay the transportation and insurance costs?

3. On what date can West record the boat in their inventory?

Answer 1

A.

If the goods are sold under the terms FOB destination, the sale will be recorded when the goods reach the buyer destination.

Sale date - Jan 4th, 2020

B.

If the goods are sold under the terms FOB destination, the goods will be included in the inventory of the seller until they reach the destination of the buyer. All the shipping costs and insurance costs should be incurred by the seller because the title to the goods are with the seller.

South Bay Boating Company (South) has to pay the transportation and insurance costs.

C.

If the goods are sold under the terms FOB destination, the buyer will have the ownership of the goods once they reach the destination and then will record the goods in the inventory.

Inventory record date - Jan 4th, 2020