The following events apply to Deb's Dance Wholesalers.1) Sold merchandise to a customer. The goods were shipped FOB destination, with a freight cost of $50.2) Purchased merchandise with freight cost of $75, shipped with the terms FOB shipping point.3) Sold merchandise to a customer with freight cost of $40, shipped FOB shipping point.Required:a) What is the total amount of freight that will be paid by Deb's Dance Wholesalers?b) What is the amount of the expense that will be recorded with regards to freight costs paid by Deb's Dance Wholesalers?
What will be an ideal response?
a) Freight paid by Deb's Dance Wholesalers = $50 (event 1) + 75 (event 2) = $125
b) Expense (transportation-out) = $50 (event 1)
When goods are delivered FOB shipping point, the buyer is responsible for the freight cost. When goods are delivered FOB destination, the seller is responsible for the freight costs.
Event 1) - As seller of goods shipped FOB destination, Deb's is responsible for the freight cost.
Event 2) - As purchaser of goods shipped FOB shipping point, Deb's is responsible for the freight cost.
Event 3) - As seller of goods shipped FOB shipping point, Deb's is not responsible for the freight costs.
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