Indicate whether each of the following statements is true or false. (Assume a perpetual inventory system.)________ a) The freight terms FOB shipping point increase the cost of inventory to the buyer.________ b) The term FOB means that goods are shipped free of charge to buyer and seller.________ c) FOB shipping point means that the purchaser's responsibility ends at freight point.________ d) FOB destination means that the seller's responsibility ends at destination.________ e) When the seller of merchandise records freight under the terms FOB shipping point, the seller records an expense.
What will be an ideal response?
a) T b) F c) F d) T e) F
a) This is true. FOB shipping point means that the buyer pays freight costs, which are added to the merchandise inventory account.
b) This is false. FOB means Free on Board, and indicates the point at which ownership of goods transfers from the seller to the buyer.
c) This is false. FOB shipping point means that the purchaser's responsibility begins, not ends, at the shipping point.
d) This is true. FOB destination means that the seller's responsibility ends at the destination point.
e) This is false. When goods are sent FOB shipping point, the shipper does not record anything for freight costs.
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