Western Governors University (WGU) ACCT3340 D215 Auditing Practice Exam

When does the title of goods pass to the buyer under FOB destination terms?

When goods are shipped After payment is made When goods arrive at the customer's warehouse Upon invoice receipt

Correct Answer:

When goods arrive at the customer's warehouse

Explanation:

Under FOB (Free on Board) destination terms, the title of goods passes to the buyer when the goods arrive at the customer's warehouse. This means that the seller retains ownership and risk of loss until the goods are delivered to the specified destination. The purpose of FOB destination is to ensure that the buyer does not take ownership—and therefore does not assume the risk associated with the goods—until they are safely received at their location. Therefore, until the delivery is complete, responsibility for the goods remains with the seller. This is crucial for both parties in a transaction, as it clarifies when liability shifts and provides protection to the buyer until the goods are physically in their possession.

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