Question

Alpha company bought inventory from Omega company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta inc, in transit halfway between Alpha and Omega. Which company should include these goods in its December 31 inventory?

1) Alpha company
2) Omega company
3) Theta inc
4) Cannot be determined

Answer 1

The goods should be included in Alpha company's December 31 inventory because ownership transfers to the buyer, Alpha company, under FOB shipping point terms.

Step-by-step explanation:

The inclusion of goods in inventory when they are shipped FOB (Free On Board) shipping point is an important concept in accounting. Since the term FOB shipping point means that ownership of the goods passes to the buyer when the goods are shipped, the correct company to include these goods in its December 31 inventory would be Alpha company. This is because Alpha company owns the goods once they are handed over to the carrier, which in this case is Theta Inc, despite the goods being in transit.

When inventory is shipped FOB (Free on Board) shipping point, ownership of the goods transfers from the seller to the buyer at the point of shipment. In this case, since the goods were on a truck in transit halfway between Alpha and Omega on December 31, ownership would belong to Alpha company. Therefore, Alpha company should include these goods in its December 31 inventory.