[Anonymous]

Been struggling with questions like this one lately. After failing FAR twice and Auditing once, I’ve come to the conclusion that the CPA exam is not about testing your knowledge in accounting… it’s about testing your sanity with all the tricky, sneaky-worded questions to try to second-guess you. I’m using Gleim system and maybe that’s my issue. But the book says differently than the answer explanation down below.

The book says: “If the seller notifies the buyer within a reasonable time that a nonconforming shipment is offered only as an accommodation, no breach occurs”. This is regarding contract law and dealing with shipping conforming and nonconforming goods and deciding who bears risk of loss, buyer or seller. I chose answer A because the seller informed the buyer that he shipped accommodating goods within a reasonable amount of time. I figured no breach had occurred, so loss goes to buyer. This is all so confusing. Maybe it’s me or maybe it’s the study material I’m using. Any suggestions or help from anyone who’s passed the REG would be helpful. After three failed attempts, I certainly need one in the win column.

Question from Gleim system:

Bell, by telegram to Major Corp., ordered 10,000 yards of fabric, first quality, 50% wool and 50% cotton. Major accepted the order and packed the fabric for shipment. In the process, it discovered that one-half of the fabric packed had been commingled with fabric that was 30% wool and 70% cotton. Because Major did not have any additional 50% wool fabric, it decided to send the shipment to Bell as an accommodation. The goods were shipped and, later the same day, Major wired Bell its apology, informing Bell of the facts and indicating that the 5,000 yards of 30% wool would be priced at $2 a yard less. The carrier delivering the goods was destroyed on the way to Bell. Who bears the risk of loss?

A. Bell, because Bell has title to the goods.

B. Major, because it shipped goods that failed to conform to the contract.

Answer (B) is correct.

If the contract does not cover risk, the most significant factor in determining who has the risk of loss is whether a breach has occurred. If a tender or delivery of goods is so nonconforming as to give a right of rejection, the risk of loss remains on the seller until cure or acceptance. The breaching party therefore has the risk of loss. The seller’s shipment of nonconforming goods as an accommodation was a breach, so Major has the risk of loss. The result is the same for either a shipment contract or a destination contract.

C. Major, because the order was not a signed writing.

D. Bell, if the shipping terms were FOB Bell’s place of business.