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Flashcards in Current Liabilities Deck (2):

On December 28, 20X4, Black purchased and received goods for $153,061, terms 2/10, n/30. Black records purchases and accounts payable at net amounts. The invoice was recorded and paid on January 3, 20X5.
Goods shipped F.O.B. destination on December 20, 20X4 from a vendor to Black were received January 2, 20X5. The invoice cost was $65,000.
At December 31, 20X4, what amount should Black report as total accounts payable?

A. $1,515,000
B. $1,450,000
C. $1,153,061
D. $1,053,061

B. $1,450,000


Preadjusted balance in accounts payable
Plus checks not sent to creditors until Jan. 10 (this amount was debited to accounts payable and must be reversed because the checks have not been sent - accounts payable has not been reduced as of December 31)
Plus goods received Dec. 28, at net: .98($153,061)(the firm records purchases at net of 2% discount)
Equals ending accounts payable
There is no liability at December 31, 20X4 for the goods shipped FOB destination because title does not pass until the goods reach the destination, which did not occur until January.
The firm must include the Dec. 28 receipt of goods in accounts payable because the firm has received the goods.


Acme Co.'s accounts payable balance at December 31 was $850,000 before necessary year-end adjustments, if any, related to the following information:
At December 31, Acme has a $50,000 debit balance in its accounts payable resulting from a payment to a supplier for goods to be manufactured to Acme's specifications.

Goods shipped F.O.B. destination on December 20 were received and recorded by Acme on January 2. The invoice cost was $45,000.

In its December 31 balance sheet, what amount should Acme report as accounts payable?

A. $850,000
B. $895,000
C. $900,000
D. $945,000

C. $900,000

The $50,000 advance is not related to accounts payable, even though it was made to a supplier for which Acme would have accounts payable. It is a prepayment. Removing the $50,000 debit increases the accounts payable balance by that amount. The $45,000 shipment is not part of the inventory of Acme as of December 31 nor is it a liability (accounts payable) because title to the goods did not transfer to Acme until January 2. FOB destination means that title does not transfer until goods reach their destination. Acme treated this item correctly because it was recorded January 2. Therefore, the correct accounts payable balance is $900,000 ($850,000 before adjustment + $50,000).