Philips Corp. is unsure how to record the following transactions: •$60,000 of goods shipped F.O.B shipping point on December 28, 2021.
•$50,000 of goods shipped F.O.B. destination point on December 31, 2021.
What amount of sales related to these two transactions should Philips Corp. record in fiscal 2021?
A)$0
B)$50,000
C)$60,000
D)$110,000

Question

Quizplus · Accepted Answer

According to FOB (Free On Board) shipping terms, ownership and responsibility for the goods transfer from the seller to the buyer at a specific point of delivery. For FOB shipping point, the ownership transfers to the buyer once the goods are shipped and leave the seller's facility. For FOB destination point, the ownership transfers to the buyer once the goods are delivered to their final destination.

In the first transaction, since the goods were shipped FOB shipping point on December 28, 2021, the ownership and responsibility for the goods transferred to the buyer on that day. Therefore, Philips Corp. can record the $60,000 as sales revenue for fiscal 2021.

In the second transaction, since the goods were shipped FOB destination point on December 31, 2021, the ownership and responsibility for the goods did not transfer to the buyer until they were delivered to their final destination. Therefore, Philips Corp. cannot record the $50,000 as sales revenue for fiscal 2021 since it was not delivered until after the fiscal year end.

Thus, the best choice is C, which is $60,000.