In: Accounting
Jake's Big N Sporting Goods sells sporting goods and clothes in Omaha, On September 18, Jake (the owner) purchased $50,000 of merchandise from Chicago Wholesale Distributors fob shipping point, credit terms 3/10,n/30. On September 19, Jake purchased $45,000 of sporting goods and clothes from the Cincinnati Sports Wholesalers fob destination, credit terms 2/10,n/30. Both vendors hired KC Trucking Company to deliver the goods. The trucks carrying these goods collided on the Missouri river bridge 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 Big N Sporting Goods invoices and are expecting payment. The date is September 25. Advise Jake on what he should do and how much he should pay. Show your work. Explain your answer.
Jake is liable to pay to the vendor Chicago Wholesale Distributors for the amount of $ 50000 for the purchase of merchandise on FOB shipping point.
However, Jack is not liable to pay to other vendor Cincinnati Sports wholesalers of the amount of $ 45000 for the purchase of sporting goods and clothes on the terms of FOB destination.
This is due to the fact that the property in goods is transferred a soon as the goods have been purchased in terms of FOB shipping point and the transfer of goods from one place to another is at the risk of the buyer only. Hence, Jack has to pay the amount to the vendor.
However, in case of second purchase which has been purchased on FOB destination terms in which the property in goods rest with the supplier till it reaches the buyer destination and all the risk related to transfer of goods vest with the supplier. Hence, Jack is not liable to be paid for this invoice.