The balance in Georgia Corp.'s accounts payable account at December 31, 2020, was $900,000 before any necessary year-end adjustments relating to the following:
1) Goods were in transit to Georgia from a vendor on December 31, 2020. The invoice cost was $75,000. The goods were shipped FOB shipping point on December 29, 2020 and were received on January 4, 2021.
2) Goods shipped FOB destination on December 21, 2020 from a vendor were received on January 6, 2021. The invoice cost was $37,500.
3) On December 27, 2020, Georgia wrote and recorded cheques to creditors totalling $45,000 that were mailed on January 10, 2021.
At December 31, 2020, what amount should Georgia report as total accounts payable?

Question

Quizplus · Accepted Answer

$1,020,000The correct adjustments to the accounts payable at year-end are as follows:1) The goods in transit with an invoice cost of $75,000 shipped FOB shipping point on December 29, 2020, should be included in accounts payable because the title to the goods passes to the buyer when the goods are shipped. Therefore, Georgia Corp. has both ownership of the goods and the obligation to pay for them as of December 31, 2020.2) The goods shipped FOB destination on December 21, 2020, and received on January 6, 2021, should not be included in accounts payable at December 31, 2020, because the title to the goods passes to the buyer only when the goods arrive at their destination. Since the goods were received after year-end, they do not affect the accounts payable at December 31, 2020.3) The cheques written and recorded on December 27, 2020, but mailed on January 10, 2021, totaling $45,000, should still be included in accounts payable because they have not been cashed and thus the liability remains.Therefore, the total accounts payable at December 31, 2020, is the original balance of $900,000 plus the $75,000 for the goods in transit, plus the $45,000 for the cheques not yet cashed, totaling $1,020,000.

The Balance in Georgia Corp