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In: Accounting

Jake's Sporting Goods sells sporting goods and apparel in Omaha, NE. On October 17, Jake’s purchased...

Jake's Sporting Goods sells sporting goods and apparel in Omaha, NE. On October 17, Jake’s purchased $50,000 of sporting goods from Cincinnati Wholesale Distributors with terms FOB shipping point and 1/10, n/EOM. On October 18, Jake’s purchased $45,000 of sporting goods from the Chicago Sports Wholesalers with terms FOB destination and 3/15, n/30. Both suppliers hired KC Trucking Company to deliver the goods.

The trucks carrying these goods collided on the bridge over the Missouri River between Omaha and Council Bluffs. Both drivers were "fished" out of the river and were not hurt. However, all of the merchandise was destroyed. Both suppliers have sent Jake's Sporting Goods invoices and are expecting payment. The date is October 25.

Advise Jake on what he should do and how much he should pay. Show your calculations and include a description of the advantages of using various shipping terms.

Solutions

Expert Solution

Free on Board:

Free On Board (FOB) is a shipment term used to indicate whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. "FOB shipping point" or "FOB origin" means the buyer is at risk and takes ownership of goods once the seller ships the product.

For accounting purposes, the supplier should record a sale at the point of departure from its shipping dock. "FOB origin" means the purchaser pays the shipping cost from the factory or warehouse and gains ownership of the goods as soon as it leaves its point of origin. "FOB destination" means the seller retains the risk of loss until the goods reach the buyer.

S.No Ratio Cincinnati Wholesale Distributors Chicago Sports Wholesalers
A Purchase value $50,000 $45,000
B Discount terms 1/10, n/EOM 3/15, n/30
C Discount on Paymet (A*B) $500 $1,350
D Net Amount (A-C) $49,500 $43,650
E Contract Terms FOB Shipping FOB Destination
F Amount Payable $49,500 $0

ekkarill92 answered 1 year ago
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