[Challenge Question] Bob's Diner, Johnson City, Iowa buys 50 pounds of apples from Sweet Citrus Company in Washington. The parties agree to ship the oranges "F.O.B. Bob's Diner in Johnson City, Iowa and use Road Trucking, Inc. as the transport company. Assume Road Trucking, Inc. has no liability. The apples rot in transit--i.e., the apples are destroyed in transit. The loss is suffered by

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BlackTom AI · Accepted Answer

We start by restating the situation: Bob's Diner in Johnson City, Iowa buys 50 pounds of apples from Sweet Citrus Company in Washington. The contract is F.O.B. Bob's Diner in Johnson City, Iowa, with Road Trucking, Inc. as the carrier, and Road Trucking has no liability. The apples rot in transit, destruction occurs in transit, and we must decide who bears the loss.

Option 1: 'Bob's Diner and Sweet Citrus, but not Road Trucking, Inc.' This would imply that both the buyer and seller share liability, excluding the carrier. Since the contract specifies FOB destination (risk passes to the buyer when the goods reach Bob's Diner), the loss that occurs while in transit typically affects the seller until delivery, not the buyer or a carrier. Because the apples rot in transit before delivery and the carrier has no liability, this shared-liability interpretation is inaccurate.

Option 2: 'Bob's Diner, Sweet Citrus Company, and Road Trucking, Inc.' This suggests all three bear some portion of the loss, including the carrier. The problem states Road Trucking has no liability, so this option is inconsistent with the given premise that the carrier bears no liability for the loss.

Option 3: 'Bob's Diner only.' This would indicate the buyer bears the loss. Under FOB destination terms, the seller bears risk until delivery to the destination. Since the goods rot in transit and have not yet been delivered, the seller should bear the loss. However, note that the carrier being free of liability reinforces that the risk remains with the seller until delivery, making this a plausible option to assign the loss to the seller rather than the buyer in this FOB destination scenario.

Option 4: 'Sweet Citrus Company only.' This option assigns the loss solely to the seller. Given the FOB destination arrangement (risk passes to Bob's Diner only upon delivery), and since the apples rot in transit before delivery, the seller (Sweet Citrus) bears the loss. The carrier is not liable, aligning with the premise. This makes the seller-only loss allocation consistent with the contract terms and the facts provided.

In summary, option 1 incorrectly divides liability between buyer and seller, option 2 incorrectly includes the carrier (which is stated to have no liability), option 3 assigns the loss to the buyer despite FOB destination terms, and option 4 correctly assigns the loss to the seller under FOB destination when the loss occurs in transit and the carrier has no liability.

ACCT:4300:0001 Fall25 Complete: Quiz #7 - Accounting Ethics and Law

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