Asked by FRANCIS VENTURA on Jul 18, 2024
Verified
Pierce Company sold to Stanton Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000. Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?
A) Accounts Receivable-Stanton, debit $20,000; Sales, credit $20,000
B) Accounts Receivable-Stanton, debit $19,600; Sales, credit $19,600, and Accounts Receivable-Stanton, debit $500; Cash, credit $500
C) Accounts Receivable-Stanton, debit $20,100; Sales, credit $20,100
D) Accounts Receivable-Stanton, debit $20,000; Sales, credit $20,000, and Delivery Expense, debit $500; Cash, credit $500
FOB Shipping Point
A term indicating that the buyer assumes responsibility for the goods and the transportation costs at the point of origin.
Accounts Receivable-Stanton
Likely refers to the amounts due to a business (possibly named Stanton) from its customers for goods or services delivered on credit.
Delivery Expense
Costs incurred by a company to transport its goods to customers, including shipping fees, packaging, and logistics services.
- Acquire knowledge about how FOB shipping point and FOB destination terms influence freight expenses.
- Differentiate among various sales categories, including cash sales, credit sales, and transactions made with bank credit cards.
Verified Answer
AG
Aissa GutierrezJul 18, 2024
Final Answer :
B
Explanation :
Since the terms are FOB shipping point, the buyer (Stanton Company) is responsible for shipping costs. Therefore, Pierce Company should not include the $500 shipping charge in the sale price. This means the amount recorded in Accounts Receivable and Sales should be $19,600 ($20,000 - $400 discount). Pierce Company should also record the prepaid shipping charge separately as a debit to Delivery Expense and a credit to Cash. Therefore, the correct entry is Accounts Receivable-Stanton, debit $19,600; Sales, credit $19,600, and Delivery Expense, debit $500; Cash, credit $500.
Learning Objectives
- Acquire knowledge about how FOB shipping point and FOB destination terms influence freight expenses.
- Differentiate among various sales categories, including cash sales, credit sales, and transactions made with bank credit cards.