MCG Inc. of Quezon City, a distributor of computer equipment, establishes a branch sales office in Cebu City. Both the home office and the branch use the periodic inventory system. Branch
fixed assets are recorded on the home office books. Transactions during 2016, the first year of branch operations, are summarized below:
a. Cash is sent to Cebu branch, P10,000.
b. Merchandise is shipped to the branch at 30% above cost. The cost is P100,000. Purchases by the Home Office to outside suppliers for its operation totaled P400,000.
c. Store equipment is purchased by the branch and carried in the home office books, P5,000.
d. Credit sales:
Home office, P450,000.
Branch, P120,000.
e. Collection of accounts receivable:
Home office, P500,000.
Branch, P120,000.
f. Operating expenses paid:
Home office, P70,000
Branch, P30,000.
g. Cash remittance by Cebu branch to home office, P50,000
h. Operating expenses charged by home office to branch, P6,000.
Assume the branch reports its inventory at the billed price of P52,000. Home Office reports a beginning inventory of P80,000 and an ending inventory of 90,000.
Requirements:
1. Prepare the necessary journal entries up to the closing entries of the Home Office and the Branch
2. Prepare the Statement of Financial Position and Income Statement of the Branch
3. Given the adjusted trial balance of the Home Office, prepare the WPEE and the Combined Financial Statements.
Home Office
Debits
Cash
Accounts Receivable
Merchandise Inventory, January 1
Plant and Equipment
Investment in Branch
Purchases
Operating Expenses
Total
P54,000
60,000
80,000
200,000
91,000
400,000
70,000
P955,000
Credits
Allowance for overvaluation
Accum. Depn-PPE
Accounts Payable
Capital Stock, 100 par
Retained Earnings, January 1
Sales
Shipments to branch
Total
P30,000
20,000
85,000
200,000
70,000
450,000
100,000
P955,000
Use the below format as guide:
Adjusted Trial Balances
Home Office
Debits
Cash
Accounts Receivable
Merchandise Inventory, January 1
Plant and Equipment
Investment in Branch
Purchases
Shipments from home office
Operating Expenses
Total
70,000
P955,000
Merchandise Inventory, Dec. 31
(SFP)
90,000
Credits
Allowance for overvaluation
Accum. Depn-PPE
Accounts Payable
Home Office
Capital Stock, 100 par
Retained Earnings, January 1
Sales
Shipments to branch
Total
P54,000
60,000
80,000
200,000
91,000
400,000
P30,000
20,000
85,000
200,000
70,000
450,000
100,000
P955,000
Branch
Eliminations
Dr.
Cr.
Combined Statement of CI
Dr.
Cr.
Combined Statement of FP
Dr.
Cr.
Merchandise Inventory, Dec. 31
(SCI)
Total
Comp Income( to SFP)
90,000