ACCOUNTING FOR BRANCH OPERATIONS
ANSWERS TO QUESTIONS
Q11-1 A sales agency usually is limited to activities such as
taking orders and arranging for delivery of goods and
merchandise on behalf of the home office. Branch offices
typically provide more complete service to their customers.
For example, a branch office is likely to stock and sell
merchandise, provide credit and collection functions, engage
in local advertising, and participate in business activities
on a basis more comparable to those of the home office.
Q11-2 The home office typically maintains the primary
accounting records when a sales agency is involved. As a
result, a sale of merchandise or a collection of accounts
receivable is recorded in the accounts maintained by the home
office. A relatively complete accounting system is likely to
be provided by a branch.
Q11-3 Branches are established to carry out activities of the
home office in outlying locations. Although the branches are
separate operating entities, they are not separate legal
entities and generally report directly to the home office.
Q11-4 Sales agencies and branches are especially useful in
areas such as retailing and manufacturing. In a large
community, several retail locations may be needed to have a
store within reasonable driving distance of the targeted
number of customers. Because they are under the control of the
home office, sales agencies and branches make it possible to
have the desired level of continuity between locations in
features such as the product line carried and store layout.
Manufacturing companies often find it efficient to produce
their products in several geographic locations to reduce
transportation costs and to adapt the product to the
characteristics of a particular market.
Q11-5 Investors are concerned with the overall profitability
of the company. However, in order to be successful, company
management must be able to expand in those markets that are
profitable and abandon or find ways of improving profitability
in those areas that are not as profitable. If the records of
all branches and sales agencies were merged, the ability of
management to use accounting information in arriving at its
decisions would be significantly hampered.
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8 The McGraw-Hill Companies, Inc., 1999
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Q11-6 A very simple accounting system is likely to be
employed by a sales agency. Commonly, little decision making
power is given to the agency manager and there is no need for
a more complex system. On the other hand, branch managers
typically are given greater autonomy and therefore require an
accounting system that will assist them in making operating
decisions and provide timely information on past operating
results. As the level of autonomy increases, the need for a
more complex accounting system generally becomes greater as
well.
Q11-7 Intracompany accounts are established when there are
transactions between the home office and a branch or between
branches. The two most commonly used intracompany accounts are
the Investment in Branch account recorded on the books of the
home office to show its net contribution of assets to the
branch and the Home Office account recorded on the books of
the branch to reflect the net assets received from the home
office by the branch.
Q11-8 The term reciprocal relationship generally refers to
equal and offsetting intracompany account balances on the
books of the home office and one or more branches. These
balances on the books of the home office are helpful in
identifying the net amount of investment in each of the
branches.
Q11-9 All transactions between the home office and a
particular branch that change the net amount invested by the
home office are treated as adjustments to the Investment in
Branch account on the books of the home office. A transfer of
equipment, inventory, or other items to a branch will cause
the account balance to increase, while a transfer of cash to
the home office will cause the balance to decrease.
Q11-10 The branch will increase or decrease the
account balance whenever a transaction with the
results in a change in the net assets provided
office. A transfer of equipment, inventory, or
from the home office will cause the account
increase, while a transfer of cash to the home
cause the balance to decrease.
Home Office
home office
by the home
other items
balance to
office will
Q11-11 Branch income is recognized on the books of the home
office at the end of the period. The home office's Investment
in Branch account is increased by the amount of branch income
recognized and decreased by the amount of any loss recognized.
Q11-12 Freight charges incurred in transporting inventory from
the home office to a branch become part of the cost of the
branch inventory. Such charges are a normal part of the total
cost of acquiring inventory and should be deferred on
intracompany purchases as well as on purchases from outside
vendors.
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Q11-13 A transfer price is the dollar amount used in
accounting for an intracompany exchange of goods and services.
While transfer prices often are based on cost, other pricing
mechanisms sometimes are used when branch operations are
treated as separate profit centers or a particular type of
transfer is being encouraged or discouraged. A careful review
of items transferred may be needed in computing a branch's
income or the value of inventory or other assets held when the
transfers are not recorded at the seller's cost.
Q11-14 An intracompany profit occurs when an item is
transferred between the home office and a branch or between
branches at a price greater than the seller's cost. All
unrealized intracompany profits must be excluded from the
income reported by the company as a whole.
Q11-15 When transfers are made at cost, the selling unit has
little incentive to participate in the transaction even though
the overall company may benefit substantially. For example, a
retail company may be able to concentrate its purchases for a
particular type of merchandise in the home office or one of
the branches and realize major cost savings. By granting the
purchaser an opportunity to report some profit on an
intracompany transfer, there may be more incentive for them to
serve in that capacity.
Q11-16 In general, the revenue and expenses of the branches
and those of the home office are added together to form the
income statement for the company as a whole. The assets and
liabilities of these units typically are combined in preparing
the balance sheet for the entity as a whole. To the extent
that there are intracompany transfers included in the income
statement data and intracompany account balances are included
in the balance sheet accounts, the financial statements for
the company as a whole will be distorted if these amounts are
not removed. For example, the Investment in Branch and Home
Office account balances and any unrealized profit on
intracompany transfers must be eliminated in preparing
financial statements for the company as a whole.
Irwin/McGraw-Hill
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SOLUTIONS TO CASES
C11-1
Contrasting Sales Agency and Branch Accounting Systems
Primary responsibility for the accounting system maintained by
Bailey Products, Inc., rests with the home office. All records
relating to sales, collections, shipping costs and other
activities should be recorded at the home office because of
the way in which the company is organized. While the sales
agency may find it necessary to maintain a copy of each
receipt for customer payments and the orders taken at the
sales agency in order to provide for the delivery of
merchandise and answer customer inquiries, the accounting
records should be at the home office.
Accounting records maintained at the sales agencies should be
minimal. For example, salary checks for employees working at
the sales agencies should be generated at the home office. A
record of hours worked can be maintained at the sales agency
and a daily or weekly report submitted to the home office. If
employees are compensated on a commission basis, the employee
responsible for each sale can be designated on the sales order
when it is transmitted to the home office, and the amount of
sales accumulated by each employee each pay period can be
computed at the home office.
In the case of Chesapeake Distributors, Inc., a very different
accounting system is appropriate. Branch managers have
responsibility for inventory control, credit extension and
collection, deliveries, and other operating decisions. The
need for continuous access to information on receivables,
payables, and other accounts by the employees in each branch
justifies separate accounting systems for each of the
branches.
In the latter case, the home office records will not include
information on individual inventory items held or transactions
conducted by each of the branches. The accounting records of
Chesapeake Distributors, Inc. and its branches should be
established so that it is possible to determine the amount of
unrealized profit on intracompany sales at the end of each
period.
Unlike the sales agency situation, property and
equipment held by each branch is likely to be recorded by the
branch due to the apparent size of each of these offices. The
number of employees also may be sufficient to justify separate
salary and payroll activities in each of the branches.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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C11-2
Comparison of Branch and Subsidiary Accounting
a. As separate corporations, each of the subsidiaries of
Nieminsky Corporation have their own separate accounting
systems.
The
three
manufacturing
plants
of
Banks
Manufacturing, Inc., while not separately incorporated, are
treated as profit centers and would appear to require their
own accounting systems as well. The branches and subsidiaries
bear similar responsibilities with regard to production and
sale of product and collection of receivables. Similar
accounting systems would appear to be appropriate for these
activities.
The units are dissimilar as well. The accounting systems of
the subsidiaries must include their purchasing activities,
while the branches purchase all raw materials from the home
office and will need only an inventory and home office
account. Items included in buildings and equipment also may be
accounted for differently in branches versus subsidiaries. In
addition, subsidiaries often accrue income tax expense and
file separate tax returns. As part of the company as a whole,
branches normally are not expected to deal with tax matters.
b. Consolidated financial statements for Nieminsky Corporation
appear to be somewhat easier to prepare than the statements
for Banks Manufacturing. Banks Manufacturing has sold raw
materials and equipment to its branches at amounts in excess
of cost. There is, therefore, a need to remove the effects of
the intracompany sales, including the elimination of
unrealized profits. On the other hand, there is no indication
of transactions between the subsidiaries of Nieminsky.
The equity balances of both the subsidiaries and branch
offices must be eliminated in preparing external accounting
reports. In preparing the consolidated statements for
Nieminsky Corporation, the investment income and investment
accounts reported by the parent are eliminated along with the
stockholders' equity balances reported by the subsidiaries.
For the statements of Banks Manufacturing, the Investment in
Branch and Branch Income accounts on the books of the home
office are eliminated along with the Home Office balance
reported on the books of the branch. In both situations, like
accounts of the related organizational units are added
together.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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C11-3
Expanding through Branches
The answers to the first two parts of this case can be
obtained from the websites of the companies discussed:
www.nationsbank.com;
www.agedwards.com;
and
www.edwardjones.com; and from articles discussing the bank
mergers and the brokerage firms. Information also can be
obtained directly from the companies. In some cases, the
numbers obtained are approximations.
a. With the acquisition of Barnett Banks and Boatmen's
Bancshares, NationsBank increased its banking network by about
1,100 branches to approximately 3,000 branches in early 1998.
b. In 1997, A. G. Edwards had 569 offices and just over 6,000
brokers. By contrast, Edward Jones had over 3,700 brokers,
most in one-person offices. The strategy of Edward Jones is to
gain geographic coverage with its brokers, including having
brokers in small towns or neighborhoods where larger brokerage
firms do not establish offices. The largest brokerage firms
tend to concentrate brokers in a relatively small number of
large offices. A. G. Edwards falls between the largest
brokerage firms and Edward Jones in its strategy. Its offices
tend to be larger than those of Edward Jones, but smaller and
more widespread than those of larger brokerage firms.
c. Many banks have increased their numbers of branches for
several reasons. In some states, restrictive laws and
regulations have been relaxed, permitting an increase in
branch banking. In addition, because of changes in banking
laws, banks now often offer more services than they did a few
years ago, and, to meet competition and serve a larger segment
of the population, they frequently establish more branches.
This allows them to move into new geographic areas and to
provide more convenient service, thus maintaining or expanding
customer bases. In some cases, the number of branch banks may
have declined, often because less profitable branches are
closed following bank mergers or because some banks have
chosen to emphasize commercial rather than consumer banking.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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SOLUTIONS TO EXERCISES
E11-1
Establishing a Branch
Journal entries recorded by home office:
H(1)
230,000
Investment in New Jersey Branch
Cash
80,000
Inventory
150,000
Transfer cash and inventory to
New Jersey branch.
H(2)
120,000
Equipment
Cash
120,000
Purchase of equipment for
New Jersey branch.
Investment in New Jersey Branch
120,000
Equipment
120,000
Transfer of equipment to
New Jersey branch.
H(3)
H(4)
1,300
No entry
Investment in New Jersey Branch
Cash
1,300
Cost of shipping inventory and
equipment to New Jersey branch.
H(5)
No entry
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E11-1
(continued)
Journal entries recorded by branch:
B(1)
80,000
Cash
Inventory
150,000
Home Office
230,000
Transfer of cash and inventory
from home office.
B(2)
120,000
Equipment
Home Office
120,000
Transfer of equipment from home office.
B(3)
35,000
Inventory
Accounts Payable
35,000
Purchase of inventory.
B(4)
300
Inventory
Equipment
1,000
Home Office
1,300
Cost of transferring items from home
office.
B(5)
50,000
Buildings
Cash
50,000
Purchase of warehouse.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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E11-2
Recording Branch Activities
Journal entries recorded by home office:
H(1)
180,000
Investment in Branch
Inventory
120,000
Unrealized Intracompany Profit
60,000
Transfer of inventory to branch, billed
in excess of cost.
H(2)
50,000
Unrealized Intracompany Profit
Realized Profit on Branch Shipments
50,000
Recognize portion of intracompany profit
realized: $60,000 - $10,000
H(3)
H(4)
67,000
No entry
Investment in Branch
Advertising Expense
20,000
Depreciation Expense
35,000
Utility Expense
12,000
Apportion expenses to branch.
H(5)
180,000
Cash
Investment in Branch
180,000
Cash remittance from branch.
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E11-2
(continued)
Journal entries recorded by branch:
B(1)
80,000
Inventory
Cash
80,000
Purchase of inventory.
B(2)
180,000
Inventory──From Home Office
Home Office
180,000
Transfer of inventory from home office.
B(3)
326,000
Accounts Receivable
Sales
326,000
Record sales of inventory:
$240,000 + $86,000
Cost of Goods Sold
230,000
Inventory──From Home Office
150,000
Inventory
80,000
Record cost of inventory sold.
B(4)
20,000
Advertising Expense
Depreciation Expense
35,000
Utility Expense
12,000
Home Office
67,000
Expenses apportioned by home office.
B(5)
235,000
Cash
Accounts Receivable
235,000
Record collections on account.
Home Office
180,000
Cash
180,000
Cash remittance to home office.
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8 The McGraw-Hill Companies, Inc., 1999
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E11-3
Investment in Operating Division
Transfer of cash
$1,000,000
Transfer of inventory
450,000
Income of division
55,000
Payment on inventory transfer
(290,000)
Balance in Investment in Western Division at year-end
$1,215,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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E11-4
a.
Determining Income Statement Amounts
Journal entries recorded by home office:
H(1)
30,000
Inventory
Accounts Payable
30,000
Purchase of inventory.
H(2)
45,000
Investment in Branch
Inventory
20,000
Unrealized Intracompany Profit
25,000
Transfer of inventory to branch, billed
in excess of cost.
H(3)
11,000
Cash
Sales
11,000
Record sale of inventory to Separate
Company.
H(4)
6,000
Cost of Goods Sold
Inventory
6,000
Record cost of inventory sold to
Separate Company.
H(5)
17,500
Unrealized Intracompany Profit
Realized Profit on Branch Shipments
17,500
Recognize portion of intracompany profit
realized: $25,000 x .70
Journal entries recorded by branch:
B(1)
45,000
Inventory──From Home Office
Home Office
45,000
Transfer of inventory from home office.
B(2)
58,000
Accounts Receivable
Sales
58,000
Record sale of inventory.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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B(3)
31,500
Cost of Goods Sold
Inventory──From Home Office
31,500
Record cost of inventory sold:
$45,000 x .70
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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E11-4
b.
(continued)
(1)
Cost of goods sold by branch
=
$31,500
(2)
Sales reported by branch = $58,000
(3)
Cost of goods sold for Bean Corporation as a whole:
Recorded by home office
$ 6,000
Recorded by branch
$31,500
Less: Realized intracompany profit
recorded by home office
(17,500)
14,000
Cost of goods sold for company as a whole
$20,000
(4)
Sales for Bean Corporation as a whole:
Total sales recorded by Bean Corporation
$11,000
Total sales recorded by branch
58,000
Total sales for company as a whole
$69,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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E11-5
a.
Inventory Transfers
Journal entries recorded by home office:
H(1)
200,000
Finished Goods Inventory
Work-In-Process
200,000
Cost of inventory completed.
H(2)
280,000
Investment in Branch
Inventory
200,000
Unrealized Intracompany Profit
80,000
Transfer of inventory to branch, billed
in excess of cost.
H(3)
20,000
Unrealized Intracompany Profit
Realized Profit on Branch Shipments
20,000
Recognize portion of intracompany profit
realized: $80,000 x .25
Journal entries recorded by branch:
B(1)
280,000
Inventory──From Home Office
Home Office
280,000
Transfer of inventory from home office.
B(2)
105,000
Accounts Receivable
Sales
105,000
Record sale of inventory.
B(3)
70,000
Cost of Goods Sold
Inventory──From Home Office
70,000
Record cost of inventory sold.
b.
Eliminating entries:
E(1)
20,000
Realized Profit on Branch Shipments
Cost of Goods Sold
20,000
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8 The McGraw-Hill Companies, Inc., 1999
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Eliminate home office profit from
cost of goods sold.
E(2)
60,000
Unrealized Intracompany Profit
Inventory──From Home Office
60,000
Eliminate unrealized intracompany
profit from inventory.
E(3)
150,000
Inventory
Inventory──From Home Office
150,000
Reclassify inventory from home office:
$280,000 - $70,000 - $60,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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E11-6
a.
Inventory Transfers in Consecutive Years
Journal entries recorded by home office:
H(1)
33,000
Unrealized Intracompany Profit
Realized Profit on Branch Shipments
33,000
Recognize portion of 19X6 intracompany
profit realized in 19X7: $60,000 x .55
H(2)
225,000
Investment in Branch
Inventory
150,000
Unrealized Intracompany Profit
75,000
Transfer of inventory to branch, billed
in excess of cost.
H(3)
25,000
Unrealized Intracompany Profit
Realized Profit on Branch Shipments
25,000
Recognize portion of 19X7 intracompany
profit realized in 19X7: $75,000 x 1/3
Journal entries recorded by branch:
B(1)
295,000
Accounts Receivable
Sales
295,000
Record sale of inventory.
B(2)
165,000
Cost of Goods Sold
Inventory──From Home Office
165,000
Record cost of inventory sold:
$300,000 x .55
B(3)
225,000
Inventory──From Home Office
Home Office
225,000
Transfer of inventory from home office.
B(4)
140,000
Accounts Receivable
Sales
140,000
Record sale of inventory.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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B(5)
75,000
Cost of Goods Sold
Inventory──From Home Office
75,000
Record cost of inventory sold:
$225,000 x 1/3
b.
Eliminating entries:
E(1)
58,000
Realized Profit on Branch Shipments
Cost of Goods Sold
58,000
Eliminate home office profit from cost of
goods sold: $33,000 + $25,000
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8 The McGraw-Hill Companies, Inc., 1999
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E11-6
(continued)
E(2)
50,000
Unrealized Intracompany Profit
Inventory──From Home Office
50,000
Eliminate unrealized intracompany
profit from inventory: $75,000 - $25,000
E(3)
100,000
Inventory
Inventory──From Home Office
100,000
Reclassify inventory from home office:
$225,000 - $75,000 - $50,000
E11-7
Sale of Land Transferred to Branch
a. Journal entries recorded by home office:
H(1)
410,000
Investment in New York City Branch
Cash
40,000
Inventory
120,000
Unrealized Intracompany Profit
on Inventory
60,000
Land
150,000
Unrealized Intracompany Profit on Land
40,000
Transfer of assets to New York City
branch.
H(2)
280,000
Investment in New York City Branch
Inventory
200,000
Unrealized Intracompany Profit
on Inventory
80,000
Transfer of inventory to New York City
branch, billed in excess of cost.
H(3)
60,000
Unrealized Intracompany Profit on Inventory
Realized Profit on Branch Shipments
60,000
Recognize profit on intracompany
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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inventory transfer on January 1, 19X3.
H(4)
40,000
Unrealized Intracompany Profit on Inventory
Realized Profit on Branch Shipments
40,000
Recognize profit on intracompany inventory
transfers during 19X3:
$80,000 [($320,000 - $180,000) / $280,000]
H(5)
40,000
Unrealized Intracompany Profit on Land
Realized Profit on Land Sale to Branch
40,000
Recognize profit on sale of land to branch.
H(6)
65,000
Investment in New York City Branch
New York City Branch Income
65,000
Record income from New York City branch.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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E11-7
b.
(continued)
Eliminating entries:
E(1)
690,000
Home Office, Preclosing Balance
New York City Branch Income
65,000
Investment in New York City Branch
755,000
Eliminate intracompany accounts:
$690,000 = $410,000 + $280,000
E(2)
100,000
Realized Profit on Branch Shipments
Cost of Goods Sold
100,000
Eliminate home office profit from cost
of goods sold.
E(3)
40,000
Unrealized Intracompany Profit on Inventory
Inventory──From Home Office
40,000
Eliminate unrealized intracompany
inventory profit.
E(4)
100,000
Inventory
Inventory──From Home Office
100,000
Reclassify inventory from home office.
E(5)
40,000
Realized Profit on Land Sale to Branch
Loss on Sale of Land
25,000
Gain on Sale of Land
15,000
Establish gain on sale of land for
company as a whole.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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E11-8
a.
Branch Fixed Assets
Assets accounted for by the home office
Journal entries recorded by home office:
H(1)
124,000
Equipment──San Bernardino Branch
Investment in San Bernardino Branch
124,000
Record purchase of equipment by branch.
H(2)
2,000
Equipment──San Bernardino Branch
Accounts Payable
2,000
Record freight charges for branch equipment.
H(3)
2,000
Accounts Payable
Cash
2,000
Record payment of freight charges.
H(4)
35,000
Fixtures──San Bernardino Branch
Accounts Payable
35,000
Record purchase of fixtures for branch.
H(5)
35,000
Accounts Payable
Cash
35,000
Record payment of account.
H(6)
17,600
Depreciation Expense
Accumulated Depreciation──Branch Equipment
12,600
Accumulated Depreciation──Branch Fixtures
5,000
Record depreciation of branch assets:
$12,600 = $126,000 / 10
$5,000 = $35,000 / 7
Journal entries recorded by branch:
B(1)
124,000
Home Office
Accounts Payable
124,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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Record purchase of equipment.
B(2)
124,000
Accounts Payable
Cash
124,000
Record payment of account.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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E11-8
b.
(continued)
Assets accounted for by the branch
Journal entries recorded by home office:
H(1)
2,000
Investment in San Bernardino Branch
Accounts Payable
2,000
Record freight charges for branch equipment.
H(2)
2,000
Accounts Payable
Cash
2,000
Record payment of account.
H(3)
35,000
Investment in San Bernardino Branch
Accounts Payable
35,000
Record purchase of fixtures for branch.
H(4)
35,000
Accounts Payable
Cash
35,000
Record payment of account.
Journal entries recorded by branch:
B(1)
124,000
Equipment
Accounts Payable
124,000
Record purchase of equipment.
B(2)
2,000
Equipment
Home Office
2,000
Record freight charges paid by home office.
B(3)
124,000
Accounts Payable
Cash
124,000
Record payment of account.
B(4)
35,000
Fixtures
Home Office
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
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35,000
B(5)
17,600
Depreciation Expense
Accumulated Depreciation──Equipment
12,600
Accumulated Depreciation──Fixtures
5,000
Record depreciation of fixed assets:
$12,600 = $126,000 / 10
$5,000 = $35,000 / 7
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8 The McGraw-Hill Companies, Inc., 1999
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E11-9
Adjusting and Closing Entries
a.
Journal entries recorded by home office:
H(1)
11,200
Unrealized Intracompany Profit
Realized Profit on Branch Shipments
11,200
Recognize intracompany profit:
($96,000 - $80,000) x .70
H(2)
453,000
Investment in Kansas City Branch
Kansas City Branch Income
453,000
Record Kansas City branch income.
H(3)
453,000
Kansas City Branch Income
Income Summary
453,000
Close branch income to income summary.
Journal entries recorded by Kansas City branch:
B(1)
453,000
Income Summary
Home Office
453,000
Close income summary.
b. The Kansas City branch's remaining inventory purchased from
the home office would be reported at $24,000 ($80,000 x .30)
in Liz-Mark's balance sheet at the end of 19X9.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 582 -
E11-10*
Transfers between Branches
Journal entries recorded by home office:
H(1)
90,000
Investment in Dullesville Branch
Cash
40,000
Land
50,000
Transfer of cash and land to
Dullesville branch.
H(2)
190,000
Investment in Dullesville Branch
Investment in Brandenburg Branch
190,000
Transfer of inventory and equipment from
Brandenburg branch to Dullesville branch.
Journal entry recorded by Brandenburg branch:
B(1)
190,000
Home Office
Inventory
70,000
Equipment
120,000
Transfer of inventory and equipment
to Dullesville branch.
Journal entries recorded by Dullesville Branch:
B(1)
40,000
Cash
Land
50,000
Home Office
90,000
Transfer of cash and land from home
office.
B(2)
70,000
Inventory
Equipment
120,000
Home Office
190,000
Transfer of inventory and equipment
from Brandenburg branch.
B(3)
Inventory
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 583 -
22,000
Cash
22,000
Purchase of inventory.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 584 -
SOLUTIONS TO PROBLEMS
P11-11
a.
Creation of a Branch Operation
Journal entries recorded by branch:
B(1)
200,000
Cash
Automobile Inventory
350,000
Home Office
550,000
Transfer of cash and automobiles
from home office.
B(2)
400,000
Automobile Inventory
Accounts Payable
400,000
Record purchase of automobile inventory.
B(3)
650,000
Accounts Receivable
Sales
650,000
Record sales for period.
B(4)
425,000
Cost of Goods Sold
Automobile Inventory
425,000
Record cost of automobiles sold.
B(5)
600,000
Cash
Accounts Receivable
600,000
Record collections on account.
B(6)
40,000
Advertising Expense
Sales Commissions
65,000
Other Expenses
45,000
Cash
150,000
Record other costs incurred.
B(7)
370,000
Accounts Payable
Home Office
120,000
Cash
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 585 -
490,000
Record cash disbursement to home
office and to creditors.
Closing entries:
B(8)
650,000
Sales
Cost of Goods Sold
425,000
Advertising Expense
40,000
Sales Commission
65,000
Other Expenses
45,000
Income Summary
75,000
Close revenue and expense accounts.
B(9)
75,000
Income Summary
Home Office
75,000
Close income summary.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 586 -
P11-11
(continued)
b.
Mason City Branch
Income Statement
Year Ended December 31,19X3
Sales
$650,000
Cost of Goods Sold
Advertising Expense
Sales Commissions
Other Expenses
Total Expenses
575,000
Net Income
$ 75,000
$425,000
40,000
65,000
45,000
c.
Mason City Branch
Balance Sheet
December 31, 19X3
Cash
$ 30,000
Accounts Receivable
505,000
Automobile Inventory
$160,000
50,000
Accounts Payable
Home Office
325,000
$535,000
$535,000
P11-12
a.
Inventory Sold to Branch
Eliminating entries:
E(1)
305,000
Home Office
Investment in Branch
305,000
Eliminate intracompany accounts.
E(2)
12,000
Unrealized Intracompany Profit
Inventory──From Home Office
12,000
Eliminate unrealized intracompany
profit from inventory.
E(3)
20,000
Inventory
Inventory──From Home Office
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 587 -
20,000
Reclassify inventory from home office.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 588 -
P11-12
(continued)
b.
Plastic Products Corporation
Balance Sheet
December 31, 19X6
Cash
Accounts Receivable
Inventory
Total Current Assets
$ 548,000
Land
120,000
Buildings and Equipment
Less: Accumulated Depreciation
(360,000)
440,000
Total Assets
$1,108,000
Accounts Payable
Bonds Payable
Notes Payable
Total Liabilities
$ 478,000
Common Stock
Retained Earnings
Total Stockholders' Equity
630,000
Total Liabilities and Stockholders' Equity
$l,108,000
P11-13
a.
Asset Transfers to Multiple Branches
Eliminating entries:
E(1)
395,000
Home Office
Investment in Silverton Branch
395,000
Eliminate intracompany accounts.
E(2)
260,000
Home Office
Investment in Durango Branch
260,000
Eliminate intracompany accounts.
E(3)
Unrealized Intracompany Profit──Silverton
Branch
20,000
Unrealized Intracompany Profit──Durango
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 589 -
$ 90,000
170,000
288,000
$800,000
$ 78,000
300,000
100,000
$200,000
430,000
Branch
16,000
Inventory──From Home Office
36,000
Eliminate unrealized intracompany profit
from inventory.
E(4)
90,000
Inventory
Inventory──From Home Office
90,000
Reclassify inventory from home office.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 590 -
P11-13
E(5)
(continued)
Unrealized Intracompany Profit──Silverton
Branch
Equipment
40,000
40,000
Eliminate unrealized intracompany profit
on equipment: $75,000 - $35,000
b.
Item
Combined
Cash
116,000
Accts. Receivable
165,000
Inventory
444,000
Inventory──From
Home Office
36,000
Gold Company
Balance Sheet Workpaper
December 31, 19X4
Silverton
Branch
Home
Office
Durango
Branch
81,000
20,000
15,000
100,000
40,000
25,000
260,000
50,000
44,000
70,000
56,000
Eliminations
Debit
Credit
(4) 90,000
(3)
(4)
90,000
Land
120,000
Buildings and
Equipment
40,000 1,210,000
Investment in:
Silverton Br.
(1)395,000
Durango Br.
(2)260,000
Debits
2,055,000
Accum. Deprec.
480,000
Accounts Payable
175,000
Bonds Payable
400,000
Common Stock
300,000
Retained Earnings
700,000
Home Office
70,000
30,000
20,000
700,000
350,000
200,000
1,866,000
560,000
360,000
280,000
120,000
80,000
110,000
45,000
20,000
395,000
260,000
(5)
395,000
260,000
400,000
300,000
700,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 591 -
(1)395,000
(2)260,000
Unrealized Profit:
Silverton Br.
Durango Br.
Credits
821,000
60,000
(3) 20,000
(5) 40,000
(3) 16,000
16,000
1,866,000
560,000
360,000
2,055,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 592 -
821,000
P11-13
(continued)
Gold Company
Balance Sheet
December 31, 19X4
Cash
Accounts Receivable
Inventory
Total Current Assets
$ 725,000
Land
120,000
Buildings and Equipment
Less: Accumulated Depreciation
730,000
Total Assets
$1,575,000
Accounts Payable
$ 175,000
Bonds Payable
400,000
Common Stock
Retained Earnings
Total Stockholders' Equity
1,000,000
Total Liabilities and Stockholders' Equity
$1,575,000
$
$1,210,000
(480,000)
$
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 593 -
116,000
165,000
444,000
300,000
700,000
P11-14
a.
Sale of Depreciable Assets to Branch
Eliminating entries:
E(1)
350,000
Home Office
Investment in Edgarville Branch
350,000
Eliminate intracompany accounts.
E(2)
15,000
Unrealized Intracompany Profit
Inventory──From Home Office
15,000
Eliminate unrealized intracompany profit
from inventory: .60($70,000 - $45,000)
E(3)
27,000
Inventory
Inventory──From Home Office
27,000
Reclassify inventory from home office:
$45,000 x .60
E(4)
40,000
Buildings and Equipment
Unrealized Intracompany Profit
28,000
Accumulated Depreciation
68,000
Eliminate unrealized intracompany profit
on buildings and equipment:
$40,000 = $240,000 - $200,000
$28,000 = $40,000 - ($4,000 x 3 years)
$68,000 = [($240,000 / 15) x 8 years]
- [($200,000 / 10) x 3 years]
b.
Expando Corporation
Balance Sheet
December 31, 19X9
Cash
Accounts Receivable
Inventory
Total Current Assets
$515,000
Land
70,000
Buildings and Equipment
Less: Accumulated Depreciation
(368,000)
272,000
Total Assets
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 594 -
$ 90,000
170,000
255,000
$640,000
$857,000
Accounts Payable
$ 52,000
Bonds Payable
300,000
Notes Payable
65,000
Common Stock
Retained Earnings
Total Stockholders' Equity
440,000
Total Liabilities and Stockholders' Equity
$857,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 595 -
$100,000
340,000
P11-15
Trial Balance with Intracompany Land Transfer
Alpine Company
Financial Statement Workpaper
December 31, 19X4
Item
Combined
Home
Office
Resort
Branch
Sales
450,000
Resort Branch Income
300,000
Credits
450,000
Cost of Goods Sold
275,000
Depreciation Expense
40,000
Other Expenses
70,000
Debits
(385,000)
Net Income,
carry forward
65,000
320,000
150,000
170,000
105,000
25,000
15,000
60,000
10,000
Ret. Earnings, Jan. 1
380,000
Home Office,
preclosing balance
Net Income, from above
65,000
445,000
Dividends Declared
(30,000)
Ret. Earnings, Dec. 31,
carry forward
415,000
Cash
110,000
Accounts Receivable
120,000
Inventory
180,000
Land
24,000
116,000
Buildings and Equipment
610,000
Investment in Resort
Branch
Eliminations
Debit
Credit
150,000
20,000
(1) 20,000
(255,000)(130,000)
65,000
20,000
20,000
65,000
320,000
20,000
(1)320,000
20,000
445,000
340,000
380,000
(30,000)
415,000
340,000
50,000
60,000
80,000
40,000
110,000
70,000
60,000
80,000
370,000
240,000
340,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 596 -
340,000
(2)
(1)340,000
Debits
1,136,000
Accum. Depreciation
190,000
Accounts Payable
181,000
Bonds Payable
200,000
Common Stock
150,000
Ret. Earnings (and Home
Office), from above
415,000
Unrealized
Intracompany Profit
Credits
364,000
1,010,000
490,000
130,000
60,000
91,000
90,000
200,000
150,000
415,000
340,000
24,000
1,010,000
340,000
(2) 24,000
490,000
1,136,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 597 -
364,000
P11-16
a.
Journal Entries for Branch Operations
Journal entries recorded by home office:
H(1)
180,000
Investment in Oceanport Branch
Cash
100,000
Inventory
56,000
Unrealized Intracompany Profit
24,000
Transfer of cash and inventory to
Oceanport branch.
H(2)
18,000
Unrealized Intracompany Profit
Realized Profit on Branch Shipments
18,000
Recognize portion of intracompany
profit realized: $24,000 x .75
H(3)
300,000
Inventory
Accounts Payable
300,000
Purchase inventory.
H(4)
460,000
Accounts Receivable
Sales
460,000
Record sales of inventory.
H(5)
320,000
Cost of Goods Sold
Inventory
320,000
Record cost of inventory sold.
H(6)
375,000
Cash
Accounts Receivable
375,000
Record collections on account.
H(7)
65,000
Cash
Investment in Oceanport Branch
65,000
Cash remittance from Oceanport branch.
H(8)
15,000
Dividends Declared
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 598 -
Cash
15,000
Record dividends paid in 19X2.
H(9)
35,000
Depreciation Expense
Other Operating Expenses
55,000
Accumulated Depreciation
35,000
Cash
55,000
Record depreciation and other expenses.
H(10)
24,000
Investment in Oceanport Branch
Oceanport Branch Income
24,000
Record income from Oceanport branch.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 599 -
P11-16
H(11)
460,000
(continued)
Sales
Oceanport Branch Income
24,000
Realized Profit on Branch Shipments
18,000
Cost of Goods Sold
320,000
Depreciation Expense
35,000
Other Operating Expenses
55,000
Income Summary
92,000
Close revenue and expense accounts.
H(12)
92,000
Income Summary
Retained Earnings
92,000
Close income summary.
H(13)
15,000
Retained Earnings
Dividends Declared
15,000
Close dividends declared.
b.
Journal entries recorded by branch:
B(1)
100,000
Cash
Inventory──From Home Office
80,000
Home Office
180,000
Transfer of cash and inventory
from home office.
B(2)
50,000
Inventory
Cash
50,000
Purchase of inventory.
B(3)
200,000
Accounts Receivable
Sales
200,000
Record sales of inventory.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 600 -
B(4)
100,000
Cost of Goods Sold
Inventory──From Home Office
40,000
Inventory
60,000
Record cost of inventory sold.
B(5)
170,000
Cash
Accounts Receivable
170,000
Record collections on account.
B(6)
65,000
Home Office
Cash
65,000
Cash remittance to home office.
B(7)
36,000
Rent Expense
Other Operating Expenses
40,000
Cash
76,000
Record rent and other expenses.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 601 -
P11-16
B(8)
200,000
(continued)
Sales
Cost of Goods Sold
100,000
Rent Expense
36,000
Other Operating Expenses
40,000
Income Summary
24,000
Close revenue and expense accounts.
B(9)
24,000
Income Summary
Home Office
24,000
Close income summary.
c.
Retained Earnings, January 1, 19X2
$110,000
Net income──19X2
92,000
$202,000
Dividends Declared
(15,000)
Retained Earnings, December 31, 19X2
$187,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 602 -
P11-17
Trial Balance with Inventory Profits
a.
Dependable Appliance Corporation
Financial Statement Workpaper
December 31, 19X5
Item
Combined
Home
Office
New
York
Branch
Sales
500,000
New York Branch Income
Realized Intracompany
Profit
300,000
Credits
500,000
Cost of Goods Sold
24,000
336,000
Depreciation Expense
45,000
Other Expenses
55,000
Debits
(436,000)
Net Income,
carry forward
24,000
64,000
354,000
200,000
240,000
120,000
30,000
15,000
20,000
35,000
Ret. Earnings, Jan. 1
460,000
Home Office,
preclosing balance
Net Income, from above
24,000
64,000
524,000
Dividends Declared
(20,000)
Ret. Earnings, Dec. 31,
carry forward
24,000
504,000
Cash
115,000
Accounts Receivable
110,000
Inventory
6,000
184,000
Land
120,000
Buildings and Equipment
Eliminations
Debit
Credit
200,000
30,000
(1) 30,000
24,000
(2) 24,000
(2)
(290,000)(170,000)
64,000
30,000
54,000
64,000
400,000
30,000
(1)400,000
54,000
524,000
430,000
460,000
(20,000)
504,000
430,000
60,000
55,000
70,000
40,000
110,000
80,000
80,000
40,000
700,000
400,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 603 -
454,000
(3)
1,100,000
Investment in New
York Branch
(1)430,000
Debits
1,629,000
Accum. Depreciation
515,000
Accounts Payable
110,000
Bonds Payable
300,000
Common Stock
200,000
Ret. Earnings (and Home
Office), from above
24,000
504,000
Unrealized
Intracompany Profit
Credits
460,000
430,000
1,450,000
615,000
350,000
165,000
90,000
20,000
300,000
200,000
504,000
430,000
6,000
1,450,000
454,000
(3)
615,000
1,629,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 604 -
6,000
460,000
P11-17
b.
(continued)
Dependable Appliance Corporation
Income Statement
Year Ended December 31, 19X5
Sales
$500,000
Cost of Goods Sold
Depreciation Expense
Other Expenses
Total Expenses
436,000
Net Income
$ 64,000
$336,000
45,000
55,000
Dependable Appliance Corporation
Balance Sheet
December 31, 19X5
Cash
Accounts Receivable
Inventory
Total Current Assets
$ 409,000
Land
120,000
Buildings and Equipment
Less: Accumulated Depreciation
585,000
Total Assets
$1,114,000
Accounts Payable
$ 110,000
Bonds Payable
300,000
Common Stock
Retained Earnings
704,000
Total Liabilities and Stockholders' Equity
$1,114,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 605 -
$
115,000
110,000
184,000
$1,100,000
(515,000)
$
200,000
504,000
P11-18
a.
Workpaper for Home Office and Multiple Branches
Transactions recorded by home office and branches:
Journal entries recorded by Denton branch:
B(1)
20,000
Equipment
Cash
3,000
Home Office
23,000
Transfer of cash and equipment from
home office.
B(2)
140,000
Inventory
Home Office
140,000
Transfer of inventory from home office.
B(3)
136,000
Accounts Receivable
Sales
136,000
Record sales of inventory.
B(4)
102,000
Cost of Goods Sold
Inventory
102,000
Record cost of inventory sold:
$136,000 x .75
B(5)
13,000
Operating Expense
Accounts Payable
13,000
Record operating expenses.
B(6)
125,000
Cash
Accounts Receivable
125,000
Collections on account.
B(7)
12,000
Accounts Payable
Cash
12,000
Payment on accounts payable.
B(8)
35,000
Cash
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 606 -
Notes Payable
35,000
Record loan payable.
B(9)
4,000
Depreciation Expense
Accumulated Depreciation
4,000
Record depreciation expense.
B(10)
135,000
Home Office
Cash
135,000
Cash remittance to home office.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 607 -
P11-18
(continued)
Journal entries recorded by Houston branch:
B(1)
20,000
Equipment
Cash
5,000
Home Office
25,000
Transfer of cash and equipment from
home office.
B(2)
150,000
Inventory
Home Office
150,000
Transfer of inventory from home office.
B(3)
152,000
Accounts Receivable
Sales
152,000
Record sales of inventory.
B(4)
114,000
Cost of Goods Sold
Inventory
114,000
Record cost of inventory sold:
$152,000 x .75
B(5)
11,000
Operating Expenses
Accounts Payable
11,000
Record operating expenses.
B(6)
138,000
Cash
Accounts Receivable
138,000
Collections on account.
B(7)
9,000
Accounts Payable
Cash
9,000
Payments on accounts payable.
B(8)
40,000
Cash
Notes Payable
40,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 608 -
Record loan payable.
B(9)
4,000
Depreciation Expense
Accumulated Depreciation
4,000
Record depreciation expense.
B(10)
151,000
Home Office
Cash
151,000
Cash remittance to home office.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 609 -
P11-18
(continued)
Journal entries recorded by home office:
H(1)
40,000
Equipment
Accounts Payable
40,000
Record equipment purchase.
H(2)
23,000
Investment in Denton Branch
Investment in Houston Branch
25,000
Equipment
40,000
Cash
8,000
Transfer equipment and cash to branches.
H(3)
175,000
Accounts Receivable
Sales
175,000
Record sales of inventory.
H(4)
105,000
Cost of Goods Sold
Inventory
105,000
Record cost of inventory sold:
$105,000 = $175,000 x .60
H(5)
140,000
Investment in Denton Branch
Investment in Houston Branch
150,000
Inventory
232,000
Unrealized Intracompany Profit
58,000
Transfer of inventory to branches,
billed in excess of cost:
$232,000 = $290,000 x .80
$58,000 = $290,000 x .20
H(6)
341,000
Inventory
Accounts Payable
341,000
Purchase of inventory.
$341,000 = $105,000 + $232,000
+ $45,000 - $41,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 610 -
H(7)
85,000
Operating Expenses
Accounts Payable
85,000
Record operating expenses.
H(8)
172,000
Cash
Accounts Receivable
172,000
Record collections on account:
$172,000 = $25,000 + $175,000 - $28,000
H(9)
464,000
Accounts Payable
Cash
464,000
Payment on accounts payable.
$464,000 = $18,000 + $40,000 + $341,000
+ $85,000 - $20,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 611 -
P11-18
(continued)
H(10)
7,000
Depreciation Expense
Accumulated Depreciation
7,000
Record depreciation expense.
H(11)
286,000
Cash
Investment in Denton Branch
135,000
Investment in Houston Branch
151,000
Cash remittances from branches.
H(12)
17,000
Investment in Denton Branch
Denton Branch Income
17,000
Record income from Denton branch.
H(13)
23,000
Investment in Houston Branch
Houston Branch Income
23,000
Record income from Houston branch.
H(14)
43,200
Unrealized Intracompany Profit
Realized Profit on Branch Shipments
43,200
Recognize portion of intracompany
profit realization:
$43,200 = ($102,000 + 114,000) x .20
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 612 -
P11-18
(continued)
b.
ComItem
Credit
bined
Ortegren Sales Company
Financial Statement Workpaper
December 31, 19X1
Home
Denton
Houston
Office
Branch
Branch
136,000
152,000
Sales
175,000
463,000
Denton Branch Income
17,000
Houston Branch Income 23,000
Realized Profit on
Branch Shipments
43,200
Eliminations
Debit
(1) 17,000
(2) 23,000
(3) 43,200
Credits
258,200 136,000 152,000
463,000
Cost of Goods Sold
105,000 102,000 114,000
43,200 277,800
Depreciation Expense
7,000
4,000
4,000
15,000
Operating Expenses
85,000
13,000
11,000
109,000
Debits
(197,000)(119,000)(129,000)
(401,800)
Net Income,
carry forward
61,200
17,000
23,000
43,200 61,200
Ret. Earnings, Jan. 1
59,000
Home Office,
preclosing balance
(3)
83,200
59,000
Net Income, from above 61,200
43,200 61,200
Retained Earnings,
carry forward
120,200
43,200 120,200
17,000
24,000 (1) 28,000
(2) 24,000
23,000
83,200
45,000
47,000
Cash
6,000
16,000
23,000
28,000
11,000
14,000
45,000
38,000
36,000
20,000
20,000
45,000
Accounts Receivable
53,000
Inventory
14,800 104,200
Land
52,000
Buildings & Equipment
130,000
Investment in:
28,000
52,000
90,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 613 -
135,200
(4)
Denton Branch
45,000
Houston Branch
47,000
Debits
384,200
45,000
(1)
47,000
(2)
313,000
85,000
93,000
Accum. Depreciation
28,000
36,000
Accounts Payable
20,000
23,000
Notes Payable
30,000
105,000
Common Stock
100,000
100,000
Ret. Earnings (& Home
Office), from above 120,200
43,200 120,200
Unrealized
Intracompany Profit 14,800
4,000
4,000
1,000
2,000
35,000
40,000
45,000
47,000
Credits
150,000 384,200
(1)
(2)
(3)
(4)
Eliminate
Eliminate
Eliminate
Eliminate
313,000
135,200
(4) 14,800
85,000
93,000
150,000
intracompany accounts with Denton Branch.
intracompany accounts with Houston Branch.
home office profit from cost of goods sold.
unrealized intracompany profit from inventory.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 614 -
P11-19
a.
Comprehensive Workpaper
Adjusted and corrected trial balance:
Martin Products Company
Adjusted Trial Balance
December 31
Martin Home Office
Philadelphia Branch
Item
Debit
Credit
Debit
Credit
Cash
$
80,000
$
Accounts Receivable
95,000
Inventory
210,000
Loan to Philadelphia Branch
10,000
Land
220,000
Buildings and Equipment
2,100,000
Investment in Philadelphia Branch
500,0001
Dividends Declared
25,000
Cost of Goods Sold
1,160,000
Depreciation Expense
88,0002
3
42,000
Other Expenses
317,0004
5
93,000
Accumulated Depreciation
$ 555,000
$
40,000
Accounts Payable
85,000
67,000
Payable to Home Office
10,000
Bonds Payable
400,000
Common Stock
1,000,000
Home Office
435,0006
Retained Earnings
630,000
Unrealized Intracompany Profit
15,0007
Unrealized Gain on Land Transfer
90,000
Sales Revenue
1,880,000
510,000
Other Income
25,000
Realized Intracompany Profit
60,0008
Philadelphia Branch Income
65,0009
$4,805,000
$4,805,000
$1,062,000
1
$500,000 = $500,000 + $3,000 +$2,000 - $5,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 615 -
35,000
52,000
90,000
150,000
290,000
310,000
$1,062,000
2
$88,000 = $90,000 $42,000 = $40,000 +
4
$317,000 = $320,000
5
$93,000 = $90,000 +
6
$435,000 = $430,000
7
$15,000 = $50,000 8
$60,000 = ($300,000
9
$65,000 = $70,000 3
$2,000
$2,000
- $3,000
$3,000
+ $2,000 + $3,000
$35,000
- $225,000) - ($50,000 - $35,000)
$2,000 - $3,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 616 -
b. Workpaper for preparation of Martin Products Company financial
statements:
Martin Products Company
Financial Statement Workpaper
December 31
Home
Office
Branch
Sales Revenue
2,390,000
Philadelphia Branch Income
Other Income
3,000
Realized Intracompany
Profit
1,880,000
510,000
Credits
2,393,000
Cost of Goods Sold
60,000 1,410,000
Depreciation Expense
130,000
Other Expenses
22,000
388,000
Debits
1,928,000
Net Income, carry forward
82,000
465,000
2,030,000
510,000
1,160,000
310,000
88,000
42,000
317,000
93,000
1,565,000
445,000
465,000
65,000
147,000
465,000
435,000
65,000
(1)435,000
147,000
1,095,000
500,000
Item
Combined
Retained Earnings, Jan. 1
630,000
Home Office,
preclosing balance
Net Income, from above
82,000
465,000
1,095,000
Dividends Declared
25,000
Retained Earnings,
Dec. 31, carry forward
82,000 1,070,000
Cash
115,000
Accounts Receivable
147,000
Inventory
15,000
285,000
Loan to Branch
Eliminations
Debit
Credit
65,000
25,000
(1) 65,000
(5) 22,000
60,000
(3) 60,000
(3)
(5)
630,000
25,000
1,070,000
500,000
80,000
35,000
95,000
52,000
210,000
90,000
10,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 617 -
582,000
(4)
(6)
10,000
Land
90,000
280,000
Buildings and Equipment
2,390,000
Investment in
Philadelphia Branch
(1)500,000
Debits
3,217,000
150,000
2,100,000
290,000
(2)
500,000
Accumulated Depreciation
595,000
Accounts Payable
152,000
Payable to Home Office
Bonds Payable
400,000
Common Stock
1,000,000
Retained Earnings and
Home Office, from above
82,000 1,070,000
Unrealized Intracompany
Profit
Unrealized Gain on Land
Transfer
Credits
697,000
220,000
3,215,000
617,000
555,000
40,000
85,000
67,000
10,000
(6) 10,000
500,000
582,000
400,000
1,000,000
1,070,000
15,000
(4) 15,000
90,000
(2) 90,000
3,215,000
617,000
3,217,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 618 -
697,000
P11-20*
Trial Balance with Beginning Inventory Profit
Reliable Products Corporation
Financial Statement Workpaper
December 31, 19X2
Item
Combined
Home
Office
Branch
Sales
750,000
Branch Income
Realized Profit on
Branch Shipments
500,000
Credits
750,000
Cost of Goods Sold
20,000
575,000
250,000
410,000
170,000
Eliminations
Debit
Credit
250,000
30,000
(1) 30,000
45,000
(2) 20,000
(3) 25,000
(2)
(3)
25,000
535,000
Depreciation Expense
50,000
Other Expenses
80,000
Debits
(665,000)
Net Income,
carry forward
45,000
85,000
Ret. Earnings, Jan. 1
390,000
Home Office,
preclosing balance
Net Income, from above
45,000
85,000
475,000
Dividends Declared
(25,000)
Ret. Earnings, Dec. 31,
carry forward
45,000
450,000
30,000
20,000
50,000
30,000
(490,000)(220,000)
85,000
30,000
75,000
85,000
280,000
30,000
(1)280,000
75,000
475,000
310,000
390,000
(25,000)
450,000
310,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 619 -
355,000
P11-20*
(continued)
Item
Combined
Cash
130,000
Accounts Receivable
170,000
Inventory
235,000
Inventory──From
Home Office
15,000
Home
Office
Branch
70,000
60,000
80,000
90,000
150,000
55,000
Eliminations
Debit
Credit
(5) 30,000
45,000
(4)
(5)
30,000
Land
135,000
Buildings and Equipment
1,000,000
Investment in
Retail Branch
(1)310,000
Debits
1,670,000
Accum. Depreciation
540,000
Accounts Payable
80,000
Bonds Payable
300,000
Notes Payable
200,000
Common Stock
100,000
Ret. Earnings (and Home
Office), from above
45,000
450,000
Unrealized Intracompany
Profit
Credits
400,000
(1)
(2)
(3)
(4)
(5)
85,000
50,000
600,000
400,000
310,000
1,295,000
700,000
370,000
170,000
60,000
20,000
300,000
200,000
100,000
450,000
310,000
15,000
1,295,000
355,000
(4) 15,000
700,000
400,000
1,670,000
Eliminate intracompany accounts.
Eliminate beginning unrealized intracompany inventory profit.
Eliminate home office profit from cost of goods sold.
Eliminate unrealized intracompany profit at year-end.
Reclassify inventory from home office.
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 620 -
P11-21*
Multiple Branches with Transfers
a.
Credit
Stewart Corporation
Financial Statement Workpaper
December 31, 19X5
Item
Combined
Sales
830,000
Meakinburg Br. Income
Riverdale Br. Income
Realized Intracompany
Profit
Credits
830,000
Cost of Goods Sold
5,000
605,000
Depreciation Expense
65,000
Other Expenses
100,000
Debits
(770,000)
Net Income,
carry forward
5,000
60,000
Ret. Earnings, Jan. 1
437,000
Home Office,
preclosing balance
Net Income, from above
5,000
60,000
497,000
Dividends Declared
(16,000)
Retained Earnings,
carry forward
5,000
481,000
Cash
134,000
Accounts Receivable
230,000
Inventory
330,000
Land
Home
Office
400,000
Meakinburg
Branch
Riverdale
Branch
250,000
180,000
30,000
15,000
Eliminations
Debit
(1) 30,000
(2) 15,000
5,000
(3)
450,000
250,000
180,000
310,000
170,000
130,000
30,000
20,000
15,000
50,000
30,000
20,000
5,000
(3)
(390,000)(220,000)(165,000)
60,000
30,000
15,000
50,000
437,000
280,000
210,000 (1)280,000
(2)210,000
15,000
50,000
60,000
30,000
497,000
310,000
225,000
481,000
310,000
225,000
54,000
60,000
20,000
100,000
90,000
40,000
150,000
100,000
80,000
60,000
50,000
20,000
(16,000)
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 621 -
540,000
130,000
Buildings & Equipment
600,000
20,000 1,280,000
Investment in:
Meakinburg Branch
310,000
(1)310,000
Riverdale Branch
225,000
(2)225,000
Debits
1,499,000
2,104,000
Accum. Depreciation
665,000
Accounts Payable
58,000
Bonds Payable
500,000
Notes Payable
300,000
Common Stock
100,000
Ret. Earnings (& Home
Office), from above
5,000
481,000
Unrealized Intracompany
Profit
Credits
560,000 2,104,000
400,000
300,000
700,000
460,000
370,000
170,000
125,000
28,000
20,000
10,000
200,000
100,000
310,000
225,000
(4)
500,000
100,000
481,000
20,000
1,499,000
540,000
(4) 20,000
700,000
460,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 622 -
560,000
P11-21*
(continued)
Explanation of Elimination Entries:
(1) Eliminate
(2) Eliminate
(3) Eliminate
(4) Eliminate
transfer.
intracompany accounts with Meakinburg Branch.
intracompany accounts with Riverdale branch.
intracompany profit from cost of goods sold.
unrealized intracompany profit from equipment
b.
Stewart Corporation
Income Statement
Year Ended December 31, 19X5
Sales
$830,000
Cost of Goods Sold
Depreciation Expense
Other Expenses
Total Expenses
770,000
Net Income
$ 60,000
$605,000
65,000
100,000
Stewart Corporation
Balance Sheet
December 31, 19X5
Cash
Accounts Receivable
Inventory
Total Current Assets
$ 694,000
Land
130,000
Buildings and Equipment
Less: Accumulated Depreciation
615,000
Total Assets
$1,439,000
Accounts Payable
$
58,000
Bonds Payable
500,000
Notes Payable
300,000
Common Stock
Retained Earnings
581,000
$
$1,280,000
(665,000)
$
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 623 -
134,000
230,000
330,000
100,000
481,000
Total Liabilities and Stockholders' Equity
$1,439,000
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 624 -
(Page Intentionally Left Blank)
Irwin/McGraw-Hill
8 The McGraw-Hill Companies, Inc., 1999
- 625 -