Question

Marigold Corp.'s accounts payable balance at December 31, 2017 was $1596000 before considering the following transactions:

• Goods were in transit from a vendor to Marigold on December 31, 2017. The invoice price was $70000, and the goods were shipped f.o.b. shipping point on December 29, 2017. The goods were received on January 4, 2018.
• Goods shipped to Marigold, f.o.b. shipping point on December 20, 2017, from a vendor were lost in transit. The invoice price was $51000. On January 5, 2018, Marigold filed a $51000 claim against the common carrier.

In its December 31, 2017 balance sheet, Marigold should report accounts payable of

Answer 1

1. When goods are shipped on FOB shipping point terms, the property in the goods transfers to the buyer as soon as the goods are handed over to the carrier for transit. All the risks associated with the goods are transferred to the buyer. Hence even though goods are not received physically, buyer becomes the owner of the goods after they are shipped.

2. $70,000 worth of goods are shipped on FOB shipping point terms. So even when goods are received on Jan 4, 2018 , Marigold became the owner as soon as goods are shipped i.e on Dec 29,2017. Hence $70,000 should be included in year ended accounts payable.

3. $51,000 worth of goods are also shipped on FOB shipping point terms. So even when goods are lost in transit, $51,000 should be included in year ended accounts payable since Marigold became the owner after goods are shipped i.e on Dec 20,2017. This is the reason why Marigold filed a claim against the common carrier and not the vendor.

Therefore Marigold Accounts Payable on Dec 31,2017 = $1,596,000 + $70,000 + $51,000 = $1,717,000