Chapter 13
Problem I
1.
Home Office Books
Branch Current
Shipments to Branch
Branch Books
55,000
Unrealized Int Inv. Profit
50,00
0
5,000
Shipm from Home Office
Home Office Current
55,000
55,00
0
Billed price
P55,000 / 110%
Cost
50,000
Allowance for overvaluation of branch inventory/
_______
Unrealized Intercompany Inventory Profit/Deferred Profit
P 5,000
2.
Sales....................................................................................................................
.................. P140,000
Cost of goods sold:
Merchandise inventory, September 1................................................ P
35,200
Purchases..............................................................................................
24,000
Shipments from home office...............................................................
55,000
Merchandise available for sale.......................................................... P
114,200
Less: Merchandise Inventory, September 30.....................................
30,000
Cost of goods
sold....................................................................................................... 84,200
Gross
profit....................................................................................................................
........P 55,800
Operating expenses:
Selling expenses……………………………………..................................P
8,000
General expenses………………….........................................................
12,000
Total operating
expenses..........................................................................................
20,000
Unadjusted branch net
income...................................................................................... P 35,800
3. Results of Branch Operations:
a. Branch Net Income/Loss from its own operations:
Branch
Current………………........................................................................... 15,800
14
0
Branch Income
Summary...................................................................
15,800
b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation
of Branch Inventory/
Unrealized Intercompany Inventory
Profit:
Unrealized Intercompany Inventory
Profit.................................................... 4,600
Branch Income
Summary..................................................................
4,600
*P 17,600
__55,000
P 72,600
**22,000
Cost
(Billing/1.10
)
P 16,000
__50,000
P 66,000
__20,000
P 50,600
P 46,000
Billing Price
Inventory, 9/1
Shipments during December
Available for Sale (before adjustment)
Less: Inventory, 9/30 (after
adjustment)
Reduction in unrealized profit
account- adjustment to branch profit
for overstated of cost of goods sold
(adjustment)
Unrealized Profit
(Billing Price
Minus Cost)
P 1,600
__ 5,000
P 6,600
__2,000
***P 4,600
* P35,200 x 50% = P17,600
** P30,000 – P8,000
***or, P50,600 x 10/110 = P4,125; Decrease in Unrealized
Intercompany Inventory Profit:
Therefore, the True/Real/Adjusted Branch Net Income or Branch
Net Income in so far as HO is concerned amounted to:
Unadjusted branch net
income...............................................................................P15,800
Add: Allowance for Overvaluation of
CGS……………………………………………. 4,600
Adjusted Branch Net
Income……………………………………………………………..P20,400
Problem II
Books of Home Office
Correcting entries:
A.
Sales...............................................................................................................
42,000
Shipments to Branch................................................................
…………
35,000
Unrealized Intercompany Inventory Profit...........................................
7,000
Cost of merchandise shipped t branch: P42,000/1.20=
P35,000.
Entry Made
Correct/Should be Entry
14
0
Branch Current…………… 42,000
Branch Current………..
42,000
Branch
Sales……………………
35,000
42,000
Shipments to
Unrealized Int.
Inv Pr.
7,000
B. Shipments to
Branch......................................................................................
625
Unrealized Intercompany Inventory
Profit...................................................
125
Sales
Returns...........................................................................................
750
Cost of merchandise returned by branch: P750/1.20= P625.
Entry Made
Correct/Should be Entry
Sales Returns……………… 750
Shipments to
Branch………. 625
Branch Current………
750
Unrealized Int. Inv
Profit…… 125
Branch
Current………….
750
Results of Branch Operations:
A. Branch Net Income/Loss from its own operations:
Branch Income
Summary............................................................................... 2,600
Branch
Current…................................................................................
2,600
B. Adjustment: Overvaluation of CGS/Allowance for Overvaluation
of Branch Inventory/
Unrealized Intercompany Inventory
Profit:
Unrealized Intercompany Inventory
Profit.................................................... 4,125
Branch Income
Summary..................................................................
4,125
0
42,000
_____750
P 41,250
16,500
Cost
(Billing/1.20
)
P
0
35,000
____625
P 34,375
13,750
P 24,750
P 20,625
Billing Price
Inventory, December 1
Shipments during December
Less: Returns
Available for Sale (before adjustment)
Less: Inventory, Dec. 31 (after
adjustment)
Reduction in unrealized profit
account- adjustment to branch profit
for overstated of cost of goods sold
(adjustment)
14
P
0
Unrealized Profit
(Billing Price
Minus Cost)
P
0
7,000
____125
P 6,875
__2,750
*P 4,125
*or, P24,750 x 20/120 = P4,125;
Decrease in Unrealized Intercompany Inventory Profit:
Balance prior to adjustment, 12/31, P7,000 –
P125................... P6,875
Balance required in account, 12/31,P16,500 –
(P16,500/1.20).. 2,750
Decrease in
Allowance................................................................. P4,125
Branch Income Summary (P4,125 –
P2,600)....................................................1,525
Income
Summary....................................................................................
1,525
Therefore, the Real/True/Adjusted Branch Net Income/Branch Net Income in so far
as HO is concerned, amounted to P1,525, computed as follows:
Branch net loss as reported/unadjusted……………………………………………………(P2,600)
Add: Overvaluation of branch inventory/Realized profit from branch sales………..
4,125
Real/True/Adjusted Branch Net Income or Branch NI in so far as HO is concerned P1,525
Problem III
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450
before adjustment on December 31, calculated as follows:
P 16,200
__20,250
P 36,450
__18,900
Cost
(Billing/1.35
)
P 12,000
_ 15,000
P 35,625
_14,000
P 17,550
P 21,625
Billing Price
Inventory, December 1
Shipments during December
Available for Sale (before adjustment)
Less: Inventory, Dec. 31 (after
adjustment)
Reduction in unrealized profit
account- adjustment to branch profit
for overstated of cost of goods sold
(adjustment)
Unrealized Profit
(Billing Price
Minus Cost)
P 4,200
__ 5,250
P 9,450
__4,900
*P 4,550
* or, P17,550 x 35/135 = P4,550
b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of
Branch Inventory/
Unrealized Intercompany Inventory
Profit (refer to “a” for computation):
Unrealized Intercompany Inventory
Profit.................................................... 4,550
Branch Income
Summary..................................................................
4,550
c.
Home Office Books
Shipments to Branch
Unrealized Int Inv. Pr
400
140
Branch Books
Home Office Current
Shipments to Branch
14
0
540
540
Branch Current
540
Cost of merchandise returned: P540/1.35, or P400.
Problem IV
1. The branch office inventory as of December 1 considered of:
Shipments from Home Office (see
below)............................................................. P 12,000**
Purchases from outsiders (balance of
inventory)..................................................
3,000
Total
inventory...........................................................................................................
P 15,000
Goods acquired from home office and included in branch inventory at billed
price are calculated as follows:
**P 12,000
__9,600
P 21,600
__8,400
Cost
(Billing/1.20
)
*P 10,000
_ 8,000
P 18,000
__7,000
P 13,200
P 11,000
Billing Price
Inventory, December 1
Shipments during December
Available for Sale (before adjustment)
Less: Inventory, Dec. 31 (after
adjustment)
Reduction in unrealized profit
account- adjustment to branch profit
for overstated of cost of goods sold
(adjustment)
Unrealized Profit
(Billing Price
Minus Cost)
P 2,000
__ 1,600
P 3,600
__1,400
***P 2,200
*P2,000/20% = P10,000; ***P13,200 x 20/120 = P2,200
2. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of
Branch Inventory/
Unrealized Intercompany Inventory
Profit (refer to “a” for computation):
Unrealized Intercompany Inventory Profit.........................................
2,200
Branch Income Summary..........................................................
2,200
Problems V
(1) Individual Statements
SPENCER CO.
Balance Sheet for Branch
December 31,20x4
Assets
Liabilities____________________
Cash..................................................... P 2,650
payable................................... P 4,200
14
0
Accounts
Accounts receivable........................ 12,850
expenses...................................
105
Merchandise inventory..................... 14,600
office............................................... 29,239
Store supplies......................................
300
Prepaid expenses...............................
120
Furniture and fixtures.............. P 3,600
Less: Accumulated
depreciation..............
576
3,024
________
Total assets....................................... P 33,544
liabilities............................................ P 33,544
Accrued
Home
Total
SPENCER CO.
Income Statement for Branch
For Month Ended December 31, 20x4
Sales....................................................................................................................
....................... P 20,000
Cost of goods sold:
Merchandise inventory, December 1................................................ P
14,400
Purchases..............................................................................................
4,100
Shipments from home office...............................................................
10,200
Merchandise available for sale.......................................................... P
28,700
Less: Merchandise Inventory, December 31.....................................
14,600
Cost of goods
sold....................................................................................................... 14,100
Gross
profit....................................................................................................................
............. P 5,900
Operating expenses:
Advertising expense............................................................................. P
2,800
Salaries and commissions expense.....................................................
2,350
Store supplies expense.........................................................................
280
Miscellaneous selling expense............................................................
1,050
Rent expense........................................................................................
1,500
14
0
Depreciation expense – furniture and fixtures..................................
36
Miscellaneous general expense.........................................................
905
Total operating
expenses..........................................................................................
8,921
Net
loss......................................................................................................................
................ P 3,021
SPENCER CO.
Balance Sheet for Home Office
December 31, 20x4
Assets
Liabilities and
Stockholder’s Equity_______
Cash..................................................... P10,350
Liabilities
Cash in transit.....................................
1,500
Accounts
payable................ P 35,400
Accounts receivable........................
26,200
Accrued
expenses...............
260 P 35,660
Merchandise inventory..................... 24,200
Stockholders’ Equity
Store supplies......................................
380
Capital
Stock......................... P 65,000
Prepaid expenses...............................
350
Less
deficit..............................
4,476
60,524
Furniture and fixtures.............. P 8,500
Less: Accumulated
depreciation.............. 2, 585 5,915
Branch..................................... P29,239
Less: Unrealized intercompany
inventory profit............ 1,950 27,289
Total liabilities and
________
Total assets........................................ P 96,184
stockholder’s
equity............................... P 96,184
SPENCER CO.
Income Statement for Home Office
For Month Ended December 31, 20x4
Sales....................................................................................................................
....................... P 44,850
Cost of goods sold:
14
0
Merchandise inventory, December 1................................................ P
31,500
Purchases..............................................................................................
27,600
Merchandise available for sale.......................................................... P
59,100
Less: Shipments to branch...................................................................
8,500
Merchandise available for own sales................................................ P
50,600
Less: Merchandise Inventory, December 31.....................................
24,200
Cost of goods
sold.......................................................................................... 26,400
Gross
profit....................................................................................................................
............. P 18,450
Operating expenses:
Advertising expense............................................................................. P
2,850
Salaries and commissions expense.....................................................
4,250
Store supplies expense.........................................................................
560
Miscellaneous selling expense............................................................
1,850
Rent expense........................................................................................
2,700
Depreciation expense – furniture and fixtures..................................
85
Miscellaneous general expense.........................................................
2,510
Total operating
expenses............................................................................. 14,805
Net income from own
operations......................................................................................... P 3,645
Less: Branch net
loss................................................................................................................
1,271
Total
income.................................................................................................................
........... P 2,374
2. Refer to Word Document Worksheet
3, Combined Statements
14
0
SPENCER CO.
Combined Balance Sheet for Home Office and Branch
December 31, 20x4
Assets
Liabilities and Stockholders’ Equity
Cash ……………………………….
P 14,500
Accounts Receivable …………
39,050
Merchandise Inv ……………….
36,850
39,965
Store Supplies …………………..
680
Prepaid Expenses ……………..
Furniture & Fixtures ……… P12,100
60,524
Less accumulated
Depreciation …...
3,161
8,939
Total assets ………………………
P100,489
P100,489
Liabilities
Accounts Payable ………..
Accrued Expenses ……….
P39,600
365 P
Stockholders’ Equity
470
Capital Stock ……………… P65,000
Less deficit ………………….
4,476
Total
liabilities
and
SHEquity
SPENCER CO.
Combined Income Statement for Home Office and Branch
For Month Ended December 31, 20x4
Sales ………………………………………………………………………………………………………… P64,850
Cost of goods sold:
Merchandise Inventory, December 1 ……………………………………
P43,900
Purchases ……………………………………………………………………… 31,700
Merchandise available for sale ……………………………………………
P75,600
Less merchandise inventory, December 31 …………………………….
36,850
Cost of goods sold …………………………………………………………..
38,750
Gross profit ………………………………………………………………………………
P26,100
Operating Expenses:
Advertising Expense …………………………………………………………
P 5,650
Salaries and Commissions expense ………………………………………
6,600
Store supplies expense ……………………………………………………..
840
Miscellaneous selling expense ……………………………………………
2,900
Rent expense …………………………………………………………………
4,200
Depreciation Expense – F&F ……………………………………………….
121
Miscellaneous general expense …………………………………………. 3,415
Total operating expense ……………………………………………………………………….
23,726
Net Income ………………………………………………………………………………………………… P 2,374
4. Adjusting and Closing Entries
(a)
Branch Books
Dec
31
Income Summary ……………………………………………..
Merchandise Inventory ……………………………..
31
Merchandise Inventory ………………………………………
14
0
14,400
14,400
14,600
Income Summary …………………………………….
31
Dec.
31
31
31
31
14,600
Store Supplies Expense ……………………………………….
Store Supplies …………………………………………
Store supplies used: P580 – P300, or P280
280
Prepaid Expenses …………………………………………………
Miscellaneous General Expense …………………….
120
Miscellaneous General Expense ………………………………
Accrued Expenses ……………………………………..
105
Depreciation Expense – F&F …………………………………..
Accumulated Depreciation …………………………
Depreciation: 1% of P3,600
36
Miscellaneous General Expense ……………………………..
Home Office Current…………………………………
220
280
120
105
36
220
31
Sales ………………………………………………………………
20,000
Income Summary …………………………………….
31
Income Summary ………………………………………………
22,221
Purchases ………………………………………………
Shipments from Home Office ………………………
Advertising Expense ………………………………….
Salaries and Commissions Expense ……………….
Store Supplies Expense ………………………………
Miscellaneous Selling Expense ……………………..
Rent Expense ………………………………………….
Depreciation Expense – F&F ……………………….
Miscellaneous General Expense ………………….
20,000
31
(b)
Dec
Home Office Current………….……………………………….
Income Summary ……………………………………..
4,100
10,200
2,800
2,350
280
1,050
1,500
36
905
3,021
3,021
Home Office Books
31
31
31
31
31
Income Summary ……………………………………………….
Merchandise Inventory ……………………………….
31,500
Merchandise Inventory ………………………………………...
Income Summary ………………………………………
24,200
Store Supplies Expense ………………………………………….
Store Supplies ……………………………………………
Store supplies used: P940 – P380, or : 560
31,500
24,200
560
560
Prepaid Expense …………………………………………………
Miscellaneous General Expense ……………………
350
Miscellaneous General Expense ……………………………..
Accrued Expenses …………………………………….
260
14
0
350
260
31
31
31
Dec
31
31
31
31
31
Depreciation Expense …………………………………………..
Accumulated Depreciation – F&F ………………….
Depreciation: 1% of P8,500, or P85
85
85
Cash in Transit ………………………………………………….
Branch Current…………………………………………
1,500
Sales ……………………………………………………………
Shipments to branch ……………………….......................
Income Summary ………………………………….
44,850
8,500
1,500
53,350
Income Summary ………………………………………………
42,405
Purchases ………………………………………………
Advertising Expense ………………………………….
Salaries and Commissions Expense ……………….
Store Supplies Expense ………………………………
Miscellaneous Selling Expense ……………………..
Rent Expense ………………………………………….
Depreciation Expense – F&F ……………………….
Miscellaneous General Expense ………………….
Branch Income Summary……………………………………..
Branch Current…………………………………………
3,021
Unrealized Intercompany Inventory Profit ……………….
Branch Income Summary…………………………
Calculation of unrealized profit adjustment:
Balance of unrealized profit account,
December 31 ……………………….. P3,700
Inventory merchandise received from
Home office at billed price on
December 31, P11,700
Inventory at cost: P11,700/ 1.20, or P9,750
Balance of unrealized profit account on
December 31, P11,700 – P9,750 .... 1,950
Required decreased in unrealized profit
Adjustment to branch income for
Overstatement of cost of goods
Sold …………………………………….. P1,750
1,750
Income Summary ……………………………………………
Branch Income Summary…………………….
1,271
Income Summary ……………………………………………
Retained Earnings ………………………………….
2,374
27,600
2,850
4,250
560
1,850
2,700
85
2,510
3,021
1,750
1,271
2,374
Problem VI
1.
Branch
Current
Unadjusted balance, 12/31/20x4
Add (Deduct): Adjustments
1 Cash in transit
2. Merchandise in transit
P 44,000
H. Office
Current
P 9,000
( 10,000)
10,000
14
0
3. Branch expenses paid by home office
12,000
4. Cash in transit from home office
Adjusted balance, 12/31/20x4
_______
P 34,000
3,000
P34,000
2. Refer to PDF Copy of the Worsheet
3. Combined Income Statement
Sales [(P350,000 – P105,000) + P150,000)
………....................................................... P395,000
Less: Cost of goods sold [(P220,000 – P84,000) +
(P93,000 + P3,600 – P21,000 – P1,200)]
…………………………………….
210,400
Gross
profit...................................................................................................................
P184,600
Operating expenses (P70,000 + P41,000 +
P12,000)................................................ 123,000
Net
income.................................................................................................................
.. P 61,600
Problem VII
(1)
PAXTON CO.
Income Statement for Dayton Branch
For Year Ended December 31, 20x5
Sales....................................................................................................................
.......... P315,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P 44,500
Shipments from home office...................................................... 252,000
Merchandise available for sale................................................. P296,500
Less: Merchandise Inventory, December 31, 20x5..................
58,500
238,000
Gross
profit.................................................................................................................
P 77,000
Operating
expenses.................................................................................................
101,500
Net
loss......................................................................................................................
. P 24,500
PAXTON CO.
14
0
Income Statement for Cincinnati Home Office
For Year Ended December 31, 20x5
Sales....................................................................................................................
.......... P1,060,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P115,000
Shipments from home office...................................................... 820,000
Merchandise available for sale................................................. P935,000
Less: Shipments to branch..........................................................
210,000
Merchandise available for own sales....................................... P725,000
Less: Merchandise Inventory, December 31, 20x5..................
142,500
582,500
Gross
profit..................................................................................................................
P477,500
Expenses.............................................................................................................
.........
382,000
Net income from own
operations............................................................................
P 95,500
Add branch net
income...........................................................................................
16,650
Total
income...............................................................................................................
P112,150
(2)
PAXTON CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x5
Sales....................................................................................................................
.......... P1,375,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5...................................P 150,600
Purchases......................................................................................
820,000
Merchandise available for sale................................................. P970,600
Less: Merchandise Inventory, December 31, 20x5..................
191,250
779,350
Gross
profit....................................................................................................................
P595,650
Operating
expenses....................................................................................................
483,500
14
0
Net
income.................................................................................................................
.. P112,150
(3) Merchandise Inventory, December
31................................................................ 58,500
Sales....................................................................................................................
...... 315,000
Income
Summary............................................................................................
373,500
Income
Summary.........................................................................................................
398,000
Merchandise Inventory, January
1................................................................
44,500
Shipments from Home
Office.........................................................................
252,000
Operating
expenses........................................................................................
101,500
Home
Office...............................................................................................................
24,500
Income
Summary..........................................................................................
24,500
(4) Branch Income
Summary........................................................................................
24,500
Branch
Current.....................................................................................................
24,500
Unrealized Intercompany Inventory
Profit...............................................................
41,150
Branch Income
Summary....................................................................................
41,150
Calculation of unrealized profit adjustment:
Branch inventory, January 1, acquired from home office
14
0
at billed price...................................................................................... P
44,500
Less: Cost of inventory (P44,500/1.25).........................................................
35,600
Unrealized Intercompany Inventory Profit Jan. 1....................................... P
8,900
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P252,000, cost of goods, P210,000....................................................
42,000
P 50,900
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 58,500
Less: Cost of inventory to home office,
P58,500/1.20................................................................
48,750
9,750
Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold..................................................................
41,150
Branch Income
Summary........................................................................................... 16,650
Income
Summary............................................................................................
16,650
Merchandise Inventory, December
31...................................................................... 142,500
Sales....................................................................................................................
........... 1,060,000
Shipments to
Branch....................................................................................................
210,000
Income
Summary.............................................................................................
1,412,500
Income
Summary.........................................................................................................
1,317,000
Merchandise Inventory, January
1................................................................
115,000
14
0
Purchases.........................................................................................................
820,000
Expenses...........................................................................................................
382,000
Income
Summary..........................................................................................................
112,150
Retained
Earnings............................................................................................
112,150
Problem VIII
(1)
RUGGLES CO.
Income Statement for Branch
For Year Ended December 31, 20x4
Sales....................................................................................................................
............ P 78,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4......................................... P
32,000
Shipments from home office........................................... P 40,000
Purchases from outsiders.................................................
20,000
60,000
Merchandise available for sale....................................................... P
92,000
Less: Merchandise Inventory, December 31, 20x4........................
31,500
Cost of goods sold.............................................................................
60,500
Gross
profit....................................................................................................................
P 18,000
Operating
expenses....................................................................................................
12,500
Net
income.................................................................................................................
.. P
5,500
RUGGLES CO.
Income Statement for Home Office
14
0
For Year Ended December 31, 20x4
Sales....................................................................................................................
.......... P 256,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 80,000
Purchases......................................................................................
210,000
Merchandise available for sale................................................. P 290,000
Less: Shipments to branch..........................................................
30,000
Merchandise available for own sales....................................... P 260,000
Less: Merchandise Inventory, December 31, 20x4..................
55,000
Cost of goods sold.............................................................................
205,000
Gross
profit...................................................................................................................
P 51,000
Operating
Expenses....................................................................................................
60,000
Net loss from own
operations..................................................................................... P ( 9,000)
Add: Adjusted branch net
income.............................................................................
13,500
Combine net
income.................................................................................................... P
4,500
(2)
RUGGLES CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales....................................................................................................................
.......... P 334,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 107,500
Purchases......................................................................................
230,000
Merchandise available for sale.................................................. P 337,500
Less: Merchandise Inventory, December 31, 20x4...................
80,000
Cost of goods sold.............................................................................
257,500
14
0
Gross
profit....................................................................................................................
P 77,000
Operating
expenses....................................................................................................
72,500
Net
income.................................................................................................................
.. P 4,500
(3) Merchandise
Inventory.........................................................................................
31,500
Sales....................................................................................................................
...... 78,500
Income
Summary............................................................................................
110,000
Income
Summary.........................................................................................................
104,500
Merchandise
Inventory...................................................................................
32,000
Shipments from Home
Office.........................................................................
40,000
Purchases.........................................................................................................
20,000
Expenses....................................................................................................
.......
12,500
Income
Summary.........................................................................................................
5,500
Home
Office.....................................................................................................
5,500
(4)
Branch.................................................................................................................
..... 5,500
14
0
Branch
Income................................................................................................
5,500
Unrealized Intercompany Inventory
Profit...............................................................
8,000
Branch
Income..............................................................................................
8,000
Calculation of unrealized profit adjustment:
Branch inventory, January 1, acquired from home office
at billed price.................................................................................... P
24,500
Less: Cost of inventory (P24,500/1.225)....................................................
20,000
Unrealized Intercompany Inventory Profit Jan. 1................................... P
4,500
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P40,000, cost of goods, P30,000....................................................
10,000
P 14,500
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 26,000
Less: Cost of inventory to home office,
P26,000/1.1/3................................................................ 19,500
6,500
Reduction in unrealized profit account- adjustment to branch
income for overstatement of cost of goods sold...........................
8,000
Branch
Income.............................................................................................................
13,500
Income
Summary............................................................................................
13,500
Merchandise
Inventory................................................................................................ 55,000
Sales....................................................................................................................
........... 256,000
14
0
Shipments to
Branch....................................................................................................
30,000
Income
Summary.............................................................................................
341,000
Income
Summary.........................................................................................................
350,000
Merchandise
Inventory...................................................................................
80,000
Purchases.........................................................................................................
210,000
Expenses...........................................................................................................
60,000
Income
Summary..........................................................................................................
4,500
Retained
Earnings............................................................................................
4,500
Problem IX
1.
Branch
Current
Unadjusted balance, 12/31/20x4
Add (Deduct): Adjustments
1 Remittance
2. Cash in transit
P 60,000
H. Office
Current
P 51,500
I 1,700)
1,800
3. Shipments in transit
5,800
Adjusted balance, 12/31/20x4
P 57,300
P 57,300
2. Income Statement - Branch
Sales....................................................................................................................
............ P 140,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4 (P11,550 – P1,000)....... P 10,550
Shipments from home office (P105,000 + P5,000 – P10,000)........
100,000
Freight-in (P5,500 + P250)……………………………………………..
5,750
14
0
Merchandise available for
sale.....................................................P116,300
Less: Merchandise Inventory, December 31, 20x4......................
14,770
Cost of goods sold.............................................................................
101,530
Gross
profit....................................................................................................................
P 38,470
Operating
expenses....................................................................................................
24,300
Net
income.................................................................................................................
..
P 14,170
Income Statement – Home Office
Sales....................................................................................................................
..........
P 155,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 23,000
Purchases......................................................................................
190,000
Merchandise available for sale................................................. P 213,000
Less: Shipments to branch..........................................................
100,000
Merchandise available for own sales....................................... P 113,000
Less: Merchandise Inventory, December 31, 20x4..................
30,000
Cost of goods sold........................................................................
83,000
Gross
profit...................................................................................................................
P 72,000
Operating
Expenses....................................................................................................
42,000
Net loss from own
operations..................................................................................... P 30,000
Add branch net
income............................................................................................
14,170
Combined net
income.............................................................................................. P
44,170
14
0
3.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales....................................................................................................................
.......... P 295,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 33,550
Purchases......................................................................................
190,000
Freight-in………………………………………………………………
5,750
Merchandise available for sale.................................................. P 229,300
Less: Merchandise Inventory, December 31, 20x4...................
44,770
Cost of goods sold........................................................................
184,530
Gross
profit....................................................................................................................
P 110,470
Operating
expenses....................................................................................................
66,300
Net
income.................................................................................................................
.. P 44,170
Problem X
a. The cost of the merchandise destroyed was P30,000.
Total merchandise acquired from home ofiice, at billed price:
Inventory, January 1......................................................................................
P26,400
Shipments from home office, Jan. 1-17.......................................................
20,000
P46,400
Cost of goods sold, January 1-17, at billed price:
Net sales, P13,000/1.25......................................................................................
10,400
Merchandise on hand, January 17, at billed price.......................................
P36,000
Merchandise on hand, January 17, at cost, P36,000/1.20............................
P30,000
b. Branch Books:
14
0
Loss from Fire (or Home Office)............................................................
36,000
Merchandise Inventory............................................................
36,000
Home Office Books:
No entry needs to be made on the books of the home office until the end of
the fiscal period, when the branch earnings (including the loss from fire) are
recognized and when the balance of the account Unrealized Intercompany
Inventory Profit is adjusted to conform to the branch ending inventory. If it is
desired to recognize the loss from fire on the home office books immediately,
the following entry may be made:
Branch Loss from Fire (or Retained Earnings)......................................
30,000
Unrealized Intercompany Inventory Profit...........................................
6,000
Branch.........................................................................................
36,000
Problem XI
a. Books of Branch A:
Home Office........................................................................................
1,500
Cash.........................................................................................
1,500
b. Books of branch B:
Cash......................................................................................................
1,500
Home Office............................................................................
1,500
c. Books of Home Office:
Branch B...............................................................................................
1,500
Branch A..................................................................................
1,500
Problem XII
a. Books of Branch No. 1 :
Home Office …………………………………………………………….
Shipments from Home
Office……………………………………..
Freight
In………………………………………………………………
b. Books of branch No. 5:
Shipments from Home
1,950
1,600
350
1,600
14
0
Office…………………………………………
Freight
In……………………………………………………………………
Home Office………………………………………………………….
Cash……………………………………………………………………
c. Books of the Home Office
Branch No. 5……………………………………………………………..
Excess Freight on Inter branch Transfer of
Merchandise………..
Branch No. 1…………………………………………………………
Shipments to Branch No.
1……………………………………………..
Shipments to Branch No.
5…………………………………………
400
1,750
250
1,750
200
1,950
1,600
1,600
Multiple Choice Problems
1. c - P50,400, billed price x 40/140 = P 14,400
2. b
Ending inventory in the combined income statement:
From Home Office: (P50,000-P6,600) x 100/140
From Outsiders
P 31,000
6,600
P 37,600
3. a
True Branch Net Income
Branch Net Income
P
5,000
Add (deduct):
Overvaluation of cost of goods sold/realized profit
from sales made by branch:
Shipments from home office.
P
280,000
Less: Ending inventory, at billed
price (P50,000 – P6,600)
43,400
Cost of goods sold from home
office at billed price
P
236,600
Multiplied by: Mark-up
40/140
Unrecorded branch expenses
True Branch Net Income
4. a – P30,000 x (90,000 – 60,000)/90,000
5. a
6. d – (P50,000 – P40,000)/P40,000 = 25% markup on cost
14
0
67,600
( 2,500)
P 70,100
7. c – (P480,000 – P360,000) x (P80,000/P480,000) = P20,000
8. c – P700,000, since the problem stated that the “home office adjusted the intracompany
Profit Deferred account” and the amount of P700,000 is the amount of net income in the
adjusted financial statements of the home office, and therefore it is understood to be
combined net income.
9. b
Reported (unadjusted) branch net income (per branch books) ………………..P 30,000
Branch Income in so far as home office is concerned per home office books. 50,000
Overvaluation of branch cost of goods sold…………………………………………P 20,000
Cost of sales of Home Office…………………………………………………………….P500,000
Cost of sales of Branch…………………………………………………………………… 100,000
Overvaluation of branch cost of sales…………………………………………………( 20,000)
Combined cost of sales…………………………………………………………………...P580,000
10. c – the amount of net income as reported by Home office is considered the combined net
income.
11. a
True Branch Net Income
Less: branch Net Income as reported by the branch
Overvaluation of CGS
Less: Cost of goods sold from home office at BP
Inventory, December 1
Shipment from HO
COGAS
Less: Inventory, December 31
CGS from home office, at cost
Billing Price: P336,000 / P240,000 = 140%.
P156,000
60,000
P 96,000
P 70,000
350,000
P 420,000
84,000
336,000
P 240,000
12. b – Allowance for overvaluation after adjustment / for December 31 inventory: P84,000 x
40/140 = P24,000.
13. b
Net Income as reported by the Branch
Less: Rental expense charged by the home office
(P1,000 x 6 months)
Adjusted NI as reported by the Branch
Add: Overvaluation of CGS
P 20,000
6,000
P 14,000
Billed Price
0
550,000
550,000
75,000
475,000
25/125
MI, beginning
SFHO
COGAS
Less: MI, ending
CGS, at BP
X: Mark-up ratio
True/Adjusted/Real Branch Net Income
95,000
P109,000
14. d
Sales (P537,500 + P300,000)……………………………………………….………. P 837,500
Less: Cost of goods sold
14
0
Merchandise inventory, beg. [P50,000 + (P45,000 / 1.20)]P 87,500
Add: Purchases…………………………………………………. 500,000
Cost of Goods Available for Sale…………………………... P 587,500
Less: MI, ending [P70,000 + (P60,000 / 1.20)]………………. 120,000
467,500
Gross profit……………………………………………………………….
P 370,000
Less: Expenses (P120,000 + P50,000..……………………………….
170,000
Net Income………………………………………………………………
P 200,000
15. d
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment……………….P 7,200
Less: Allowance of ending branch inventory (P20,000 x 84% =
P16,800 x 20/120…………………………………………………………. 2,800
Overvaluation of Cost of Goods Sold……………………………………. ….P 4,400
Adjusted branch net income:
Sales………………………………………………………………………………………P60,000
Less: Cost of goods sold:
Inventory, January 1, 2003……………………………….P 30,000
Add: Purchases…………………………………………..... 11,000
Shipments from home office……………………..
19,200
Cost of Goods available for sale……………………… P 60,200
Less: Inventory, December 31, 2003………………….
20,000
40,200
Gross profit…………………………………………………………………………….. P19,200
Less: Expenses………………………………………………………………………….. 12,000
Unadjusted branch net income…………………………………………………...P 7,800
Add: Overvaluation of Cost of Goods Sold…………………………………….
4,400
Adjusted branch net income……………………………………………………...P 12,000
16. d
Billed
Price
*P 36,000
28,800
Cost
Allowance
Merchandise Inventory, 12/31/2005
P 30,000
P 6,000
Shipments
24,000
4,800
Cost of goods sold
P10,800
From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000.
From outsiders: P45,000 – P36,000 = P9,000
17. d
Billed Price
Merch. Inventory, 12/31/20x4
*P12,000
Shipments
9,600
Cost of Goods Sold
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
Cost
P10,000
8,000
Allowance
P 2,000
1,600
P 3,600
Merchandise inventory, December 1, 20x4…………………………………P 15,000
Less: Shipments from home office at billed price*………………………… 12,000
Merchandise from outsiders……………………………………………………P 3,000
18. d
Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
Home Office, cost………………………………………………
Branch: Outsiders, ……………………………...........................P
14
0
P 3,500
300
From Home Office (P2,500 – P300)/110%.................
2,000
2,300
P
5,800
Add
Purchases
(P240,000
+
P11,000)……………………………..
251,000
COGAS…………………………………………………………………
P256,800
Less: Merchandise Inventory, 12/31/2003
Home Office, cost……………………………………………….
P 3,000
Branch: Outsiders………………………………………………. P
150
From Home Office (P1,800 – P150)/110%................
1,500
1,650
4,650
Cost of Goods Sold…………………………………………………
P252,150
19. d
100%
60%
40%
Billed Price
Cost
Allowance
Merchandise inventory, 1/1/x4
32,000
Shipments
*60,000
36,000
*24,000
Cost of goods available for sale
56,000
Less: MI, 3/31/x4 (25,000 x 40%)
10,000
Overvaluation of CGS**
46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
**Realized Profit from Branch Sales
20. d
Billed
Price
Merchandise inventory, 8/1/x4
Shipments (400,000 x 25%)
Cost of goods available for sale
Less: MI, 8/31/x4 (160,000 x 25%)
Overvaluation of CGS/RPBSales
400,000
160,000
Cost
Allowance
60,000
*100,,000
160,000
40,000
120,000
21. b
(1) Sales
P 40,000
Less: Cost of goods sold:
Inventory, 1/1/2003 (P4,950 / 110%)
P 4,500
Add: Shipments
(P22,000 / 110%)
20,000
COGAS
P 24,500
Less: Inventory, 12/31/2003 (P6,050 / 110%)
5,500
19,000
Gross profit
P 21,000
Less: Expenses
_
13,100
Net income from own operations
P
7,900
(2) Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
of Home Office, cost……………………………………………..P 17,000
of Branch, cost: P4,950 / 110%………………………………….
4,500
P 21,500
Add Purchases………………………………………………………….
50,000
COGAS…………………………………………………………………..
P 71,500
Less: Merchandise Inventory, 12/31/2003
of Home Office, cost……………………………………………… P 14,000
of Branch, cost: P6,050 /100%…………………………………..
5,500
19,500
Cost of Goods Sold…………………………………………………….
P 52,000
22. a - P48,000 / 120% = P40,000
14
0
23. a – P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to
the ending inventory, so, the allowance related to the CGS, which is P10,00 in this case is
considered to be the adjustments in the books of Home Office to determine the adjusted
branch net income)
120%
100%
20%
Billed Price
Cost
Allowance
Merchandise inventory, 1/1/x4
0
Shipments
108,000
Cost of goods available for sale
108,000
Less: MI, 12/31/x4 (P60,000 x 80%)
48,000
Overvaluation of CGS (60,000 x
60,000
10,000*
20/120)
24. b
Sales (P148,000 + P44,000)
Less: Cost of Sales
Inventory, 1/1/20x4
Purchases
Shipments from home office
Cost of goods available for sale
Less: Inventory, 12/31/20x4
Gross profit
Less: Expenses
(P76,000 + P24,000)
Net income, unadjusted
Add: Overvaluation of CGS
Adjusted branch net income
P192,000
P
0
52,000
108,000
P 160,000
60,000
100,000
P 92,000
100,000
P( 8,000)
10,000
P 2,000
25. c
Merchandise inventory, 1/1/x4
Shipments
Cost of goods available for sale
Less: MI, 12/31/x4 (P60,000 x 80%)
Overvaluation
of
CGS(230,000x
25/125)
125%
Billed Price
40,000
250,000
290,000
60,000
230,000
100%
Cost
25%
Allowance
46,000*
26. b – P326,000
Sales (P600,000 + P300,000) ………………………………………………….. P 900,000
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] ………………………. …
P 132,000
Add: Purchases……………………………………
350,000
Cost of goods available for sale………………… P 482,000
Less: MI, ending
[P30,000 + (P60,000/1.25)] …………………………
78,000
404,000
Gross profit………………………………………………………
P 496,000
Less: Expenses (P120,000 + P50,000)……………………….
_ 170,000
Net Income ………………………………………………….
P 326,000
27. b
Sales (P537,500 + P300,000) …………………………………………………
14
0
P 837,500
Less: Cost of goods sold
Merchandise inventory, beg.
[P50,000 + (P60,000/1.20)]……………………………..
P 87,500
Add: Purchases …………………………………….
500,000
Cost of goods available for sale…………………
P587,500
Less: MI, ending
[P70,000 + (P60,000/1.20)] ………………………….
120,000
Gross profit…………………………………………………….. P 370,000
Less: Expenses (P120,000 + P50,000)………………………. _ 170,000
Net Income …………………………………………………… P 200,000
467,500
28. c
Sales (P120,000 + P60,000)………………………………………
P 180,000
Less: Cost of goods sold:
Merchandise inventory, beg. [P40,000 + P6,000 +
(P24,000 / 1.2)]……………………………… P 66,000
Add: Purchases (P70,000 + P11,000)…………………
81,000
Cost of Goods Available for Sale……………………P 147,000
Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200
89,800
Gross profit………………………………………………………
P
90,200
Less: Expenses (P28,000 + P12,000)…………………………
40,000
Net Income…………………………………………………….
P 50,200
29. d
Sales (P100,000 – P33,000 + P50,000)……………………………………
P 117,000
Less: Cost of goods sold:
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 – P500)] P20,000
Add: Purchases (P50,000 + P7,000)……………………………… 57,000
COGAS……………………………………………………………….. P77,000
Less: Inventory, end [P11,000 + P1,050 +
(P6,000- P1,050)/110%]……………………………………… 16,550
60,450
Gross profit……………………………………………………………………
P
56,550
Less: Expenses (P20,000 + P6,000 + P5,000)………………………………
31,000
Combined Net income…………………………………………………….
P 25,550
30. c
Sales ……………………………………………………………………...
P155,000
Less: Cost of Sales
Inventory, 1/1/10…………………………………………….. P 23,000
Purchases ……………………………………………………..
190,000
Cost of goods available for sale ……………………….. P213,000
Less: Shipment/Sales to Branch,
at cost (P110,000/110%)…………………………………………
100,000
Cost of goods available for HO
Sale………………………………………………….. P113,000
Less: Inventory, 12/31/10 ……………………………….....
30,000
83,000
Gross profit ………………………………………………………………...
Less: Expenses
…………………………………………………………….
P 72,000
Net income – home office …………………………………………….
P 20,000
52,000
31. a
14
0
Sales ……………………………………………………………………....
P140,000
Less: Cost of Sales
Inventory, 1/1/x4……………………………………………… P 11,550
Purchases …………………………………………………….
105,000
Freight-in ………………………………………………………
5,500
Shipment in transit (P5,000+P250) ……………………….
5,250
Cost of goods available for sale …………………………. P127,300
Less: Inventory, 12/31/x4
(P10,400 + P520 + P5,250) ……………………………………….
16,170
111,130
Gross profit. …………………………………………………………….
P 28,870
Less: Expenses
…………………………………………………………
28,000
Net income per branch books/unadjusted ………………………
Add: Overvaluation of CGS* ………………………………………..
Net Income of Davao Branch, adjusted ………………………….
MI. 1/1/20x4
Shipments
Available for sale
-: MI, 12/31/x4
CGS
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110
BP
Cost
110,000
100,000
***15,400
P
870
9,600
P 10,470
Allowance
1,000
**10,000
11,000
****1,400
9,600
32. a
Inventory, 1/1 at billed price……………………………………..
P165,000
Add: Shipments at billed price…………………………………..
110,000
Cost of goods available for sale at billed price
………………
P275,000
Less: CGS at BP:
Sales……………………………………………………………… P169,000
Less: Sales returns and allowances …………………..
3,750
Sales price of merchandise
acquired from outsiders
(P7,500 / 120%)……………………………
9,000
Net Sales of merchandise acquired from
home office……………………………………….. P156,250
x: Intercompany cost ratio
………………………………... 100/125
125,000
Inventory, 8/1/2008 at billed price………………………………
P150,000
x: Cost ratio
……………………………………………………………..
100/125
Merchandise inventory at cost destroyed by fire …………………
P120,000
33. d
Freight actually paid by:
Home Office……………………………………………………………………P 500
Branch P…………………………………………………………………………
700
Total………………………………………………………………………………P 1,200
Less: Freight that should be recorded……………………………………………..
800
Excess freight……………………………………………………………………………P 400
34.
d – in arriving at the cost of merchandise inventory at the end of the period, freight
charges are properly recognized as a part of the cost. But a branch should not be charged
14
0
with excessive freight charges when, because of indirect routing, excessive costs are
incurred. Under such circumstances, the branch acquiring the goods should be charged for
no more than the normal freight from the usual shipping point. The office directing the
inter-branch transfers are responsible for the excessive cost should absorb the excess as
an expense because it represents management mistakes (or inefficiencies.)
35. c
Inventory of the Branch:
Shipments from home office at billed price.........................................P 37,700
X: Ending inventory %................................................................................
60%
Ending inventory at billed price……………………………………...……P 22,620
Add: Freight (P1,300 x 60%)………………………………………………......
780
P 23,400
Or, P39,000 x 60% = P23,400
36. b
Inventory in the published balance sheet, at cost
Shipments at cost…………………………………..........................................P 32,500
X: Ending inventory %....................................................................................
60%
Ending inventory at billed price……………………………………………….P19,500
Add: Freight (P1,300 x 60%)………………………………………….......……..
780
P 20,280
37. c
Home Office Books
Davao Branch…39,000
STB, cost…….
32,500
Unrealized profit
5,200
Cash (freight)….
1,300
BC – Baguio……19,630
Excess freight…
520
BC-Davao…….
20,150
Davao Branch
SFHO…………….37,700
Freight-in………. 1,300
HOC…………..
39,000
HOC……………….20,150
SFHO(50%)…
18,850
Freight-in (50%)
650
Cash…………......
650
Baguio Branch
SFHO………18,850
Freight-in..
780
HOC……...
19,630
38. c – (P300,000 x ¼ = P75,000, ending inventory x (P300,000 – P250,000)/P300,000 =
P12,500
39. d
40. d
41. b – refer to No. 21
42. b – refer to No. 21
43. c – refer to No. 21
44. c
45. d
Theories
1 True
.
6.
False
11.
False
14
16.
True
0
21.
D
2
.
3
.
4
.
5
.
False
7.
False
12.
True
17.
True
22.
A
True
8.
False
13.
False
18.
True
23.
d
True
9.
True
14.
True
19.
False
24.
d
False
10.
True
15.
False
20.
d
25.
a
26.
c
14
0