The Beta Company—consignee—paid the freight costs for goods shipped from the Foxtrot Incorporated—consigner. The freight costs are to be deducted from the Beta Company's payment to the Foxtrot Incorporated when the goods are sold. Until the Beta Company sells the goods, the freight costs should be included in which of the following?
- Accounts receivable (correct answer)
- Freight-out costs
- Selling expense
- Cost of goods sold
Explanation: In a consignment, the manufacturer—Foxtrot Incorporated—is known as the consignor and the retailer is the consignee—Beta Company. In this type of arrangement, title to the goods remains with the manufacturer until they are sold to a third or unrelated party; thus, the Beta Company's payment of reimbursable freight costs results in an account receivable from Foxtrot Incorporated.