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Accounts Payable The balance in Ashwood Company's Accounts Payable account at December 31, 2016, was $1,200,000 before any necessary year-end adjustment relating to the following: Goods were in transit from a vendor to Ashwood on December 31, 2016. The invoice cost was $85,000, and the goods were shipped FOB shipping point on December 29, 2016. The goods were received on January 2, 2017. Goods shipped FOB shipping point on December 20, 2016, from a vendor to Ashwood were lost in transit. The invoice cost was $40,000. On January 5, 2017, Ashwood filed a $40,000 claim against the common carrier. Goods shipped FOB destination on December 22, 2016, from a vendor to Ashwood were received on January 6, 2017. The invoice cost was $20,000. What amount should Ashwood report as accounts payable on its December 31, 2016, balance sheet? a. $1,325,000 b. $1,260,000 c. $1,285,000 d. $1,345,000

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Answer:

Ashwood Company

Accounts Payable account at December 31, 2016:

Amount to report in the balance sheet =

a. $1,325,000

Explanation:

The balance in the account was $1,200,000

Adjustments:

In transit goods, shipped FOB shipping point = $85,000

Lost in transit goods, shipped FOB shipping point = $40,000

Total = $1,325,000

The shipping terms determine when liability for goods in transit pass to the buyer and if the buyer should include the goods in its own Ending Inventory and adjust its Accounts Payable respectively.  The liability for goods in transit passes to the buyer if the FOB is shipping point.  The liability does not pass to the buyer if the FOB is destination.

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