ExpertHard1 markMultiple Choice
CPA · Question 31 · Area 3: Performing Procedures
An auditor sends positive confirmation requests to 50 customers. One customer replies indicating that the balance is overstated because they returned the goods on December 28 (year-end is December 31). The auditor verifies that the goods were received by the client on January 4. The shipping terms were FOB Destination. What is the correct conclusion?
An auditor sends positive confirmation requests to 50 customers. One customer replies indicating that the balance is overstated because they returned the goods on December 28 (year-end is December 31). The auditor verifies that the goods were received by the client on January 4. The shipping terms were FOB Destination. What is the correct conclusion?
Answer options:
A.
The client is correct; the sale was valid upon shipment.
B.
The customer is correct; the sale should not have been recorded until delivery in January.
C.
This is a timing difference that requires no adjustment.
D.
The goods should be included in the client's inventory but also recorded as a sale.
How to approach this question
Analyze Shipping Terms: FOB Shipping Point (Sale at shipment) vs FOB Destination (Sale at delivery). Check dates.
Full Answer
B.The customer is correct; the sale should not have been recorded until delivery in January.✓ Correct
The customer is correct; the sale should not have been recorded until delivery in January.
Under FOB Destination terms, title passes when goods are received by the buyer. Since the goods were received on Jan 4, the sale and receivable should not be recorded at Dec 31. The goods should be in the client's ending inventory.
Common mistakes
Confusing FOB Shipping Point with FOB Destination.
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