Practice prompt · Q:inventory-ownership-cost-flow-and-measurement/shipping-terms-cutoff-001

Assign goods in transit at a year-end cutoff

Tests whether the learner applies ordinary shipping terms only after confirming that the contract supplies no conflicting transfer condition.

Updated Sep 11, 2026 Review due Dec 11, 2026

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At December 31 a buyer's count excludes two shipments still on trucks. Shipment one left the seller's dock on December 29 under free on board shipping point terms and arrives January 3. Shipment two left on December 30 under free on board destination terms and arrives January 4. The executed contracts use the ordinary meanings of those terms and contain no acceptance, redirection, bill-and-hold, or other condition that changes the transfer event.

Use the stated transfer conditions and carrier or delivery dates to assign each shipment. Do not generalize the answer to a contract with different terms. ASC 606-10-55-82 states that the contract terms can place control transfer at shipment or delivery.

Choose the best answer. a Add shipment one to the buyer's inventory; leave shipment two out. b Add both shipments, because both were shipped before the reporting date. c Leave both out, because neither had arrived and neither was counted. d Add shipment two; leave shipment one out.

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Answer: a

Choice a. Under the stipulated ordinary meanings and with no conflicting contract term, shipment one transferred at carrier acceptance and shipment two transfers at delivery.