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Goods are shipped with terms FOB destination. Which party owns the goods in transit and absorbs the transportation cost?
AThe transport company owns the goods and absorbs the cost
BThe buyer owns the goods in transit and absorbs the transport cost
CThe seller owns the goods in transit and absorbs the transport cost
DOwnership and cost are shared equally between buyer and seller
Answer & Solution
Correct answer: C. The seller owns the goods in transit and absorbs the transport cost
1. FOB stands for Free On Board and marks where ownership transfers from seller to buyer.
2. Under FOB destination, ownership transfers at the destination, so the seller owns the goods all through transit.
3. The owner absorbs the transport cost, so the seller bears it and debits Delivery Expense.
4. Under FOB shipping point the buyer would own the goods in transit; the carrier never owns them.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §3.4 "Transportation Costs", p.100_