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Periodic Inventory - Freight Costs quiz

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  • Who is responsible for paying freight costs under FOB Shipping Point terms?
    The buyer is responsible for paying freight costs under FOB Shipping Point terms.
  • What account is used to record delivery expenses paid by the buyer in a periodic inventory system?
    The 'freight in' account is used to record delivery expenses paid by the buyer.
  • How does the 'freight in' account affect the value of inventory?
    'Freight in' increases the value of inventory by including delivery expenses as part of the inventory cost.
  • What does it mean to capitalize a delivery expense?
    To capitalize a delivery expense means to record it as an asset on the balance sheet rather than as an expense on the income statement.
  • Under FOB Destination terms, who owns the goods during delivery?
    The seller owns the goods during delivery under FOB Destination terms.
  • Does the buyer record any delivery expense under FOB Destination terms?
    No, the buyer does not record any delivery expense under FOB Destination terms.
  • How is a \$35 shipping fee recorded by the buyer under FOB Shipping Point?
    The buyer debits 'freight in' for \$35, increasing inventory value, and credits accounts payable or cash.
  • What is the journal entry for the buyer when purchasing inventory on account under FOB Shipping Point?
    The buyer debits purchases and freight in, and credits accounts payable for the total amount owed.
  • What is the journal entry for the buyer when purchasing inventory on account under FOB Destination?
    The buyer debits purchases and credits accounts payable for the inventory cost only; no entry is made for delivery.
  • How does the seller record delivery expenses under FOB Destination?
    The seller debits a selling expense and credits accounts payable or cash for the delivery cost.
  • Why are freight costs included in inventory value under FOB Shipping Point?
    Freight costs are necessary to receive inventory, so they are included in inventory value as part of the asset.
  • What does FOB stand for in shipping terms?
    FOB stands for 'Free On Board.'
  • When does ownership of goods transfer under FOB Shipping Point?
    Ownership transfers to the buyer at the shipping point, before delivery begins.
  • When does ownership of goods transfer under FOB Destination?
    Ownership transfers to the buyer at the destination, after delivery is complete.
  • If the buyer pays for shipping, which account increases on the balance sheet?
    The 'freight in' account increases, which is part of inventory (an asset) on the balance sheet.