CHAPTER 13 MULTIPLE CHOICE 13-1:
c
13-2:
a Goods available for sale: At billed price (P30,000 + P180,000) At cost (P210,000 / 120%) Balance of Allowance for Overvaluation account before adjustment
13-3:
c Inter-company inventory profit (IIP) before closing Less: IIP from shipment from home office Billed price Cost (P300,000 / 120%) IIP from beginning inventory at billed price Divided by Cost of branch’s beginning inventory
13-4:
P300,000 250,000
Billed Price P15,000 110,000
% 150% 150%
Cost P10,000 73,333
5,000
150%
3,333
50,000 P 16,000 ÷ 20% P 80,000
Overvaluation P 5,000 36,667 P41.667 1,667 P40,000
b Shipment to branch, at billed price Shipping cost Total cost Sold (50%) Inventory
13-6:
P 66,000
a Beginning inventory from HO Shipments Balance before adjustment Ending inventory from HO Required adjustments
13-5:
P210,000 175,000 P 35,000
P375,000 2,000 P377,000 188,500 P188,500
a Shipment to branch, at cost Shipping cost Billed price Sold (50%) Inventory, at billed price
P312,500 2,000 P314,500 157,250 P157,250
17
13-7:
c Home office account balance after closing branch profit Less: branch profit Investment in branch account balance before closing branch profit
13-8:
d Branch ending inventory, at billed price Acquired from home office, at billed price: Cost (P6,000 / 20%) Mark-up Purchased from outsiders
13-9:
P765,000 130,000 P635,000
P 50,000 P30,000 6,000
36,000 P 14,000
b Cost of goods sold – Home office Cost of goods sold – Branch: Billed price Less: overvaluation (P110,000 – P90,000) Combined cost of goods sold
P590,000 P300,000 20,000
280,000 P870,000
13-10: c 13-11: d Overvaluation of branch ending inventory acquired from HO: Billed price Cost (P28,600 / 130%) Adjusted balance of allowance for overvaluation account
P 28,600 22,000 P 6,600
13-12: b Shipment from home office Expenses Cash remittance to home office Home Office account balance before closing
P 90,000 17,000 (70,000) P 37.000
13-13: b Shipment to branch, at cost Ending inventory, at cost (P70,000 / 30%) Cost of goods sold Freight (P6,000 x P50,400/P72,000) Total
P 72,000 ( 21,600) P 50,400 4,200 P 54,600
13-14: b (20% of P30,000) 13-15: b (P151,200 / 140%)
18
13-16: c Sales Cost of goods sold Shipments from home office (P151,200/140%) P108,000 Inventory, 1/1 (P28,350 / 140%) 20,250 Inventory, 12/31 (P25,200 / 140%) ( 18,000) Gross profit Expenses Branch profit as far as the home office is concerned
P270,000
110,250 P159,750 90,000 P 69,750
13-17: c Unsold merchandise Less: Merchandise acquired from home office, at billed price Merchandise acquired from outsiders Merchandise acquired from home, at cost (P7,500 / 20%) Branch inventory at cost, 12/31
P 60,000 45,000 P 15,000 37,500 P 52,500
13-18: a Branch inventory, 1/1 Acquired from home office – at billed price: Overvaluation [P99,900 – (P390,000 – P300,000)] Cost (P9,900 / 30%) Purchases from outsiders
P 54,600 P 9,900 33,000
42,900 P 11,700
13-19: c Acquired from home office [(P60,000 x 80%) ÷ 120%] Acquired from outsiders (P60,000 x 20%) Branch inventory, 12/31 – at cost
P 40,000 12,000 P 52,000
13-20: b Sales (P148,000 + P144,000) Cost of sales – at cost to home office: Shipment from home office (P108,000 / 120%) P90,000 Purchases 52,000 Inventory, 12/31 (no. 19 above) (52,000) Gross profit Expenses (P76,000 + P24,000) Branch net income (actual)
P192,000
90,000 P102,000 100,000 P 2,000
13-21: b Allowance for overvaluation account balance Overvaluation on the shipment (P200,000 x 25%) Overvaluation on the branch beginning inventory Cost of branch beginning inventory (P7,500 / 25%) Branch beginning inventory – at billed price
P 57,500 50,000 P 7,500 30,000 P 37,500
19
13-22: b Sales Cost of goods sold – cost to home office Beginning inventory P 30,000 Shipment from home office 200,000 Ending inventory (P40,000 / 125%) ( 32,000) Gross profit Expenses Branch net income as far as the home office is concerned
P400,000
198,000 P202,000 100,000 P102,000
13-23: b Branch inventory, 1/1 Acquired from home- at billed price Overvaluation [P24,000 – (P80,000 – P60,000)] P 4,000 At cost [(P4,000 ÷ (P20,000 / P60,000)] 12,000 Acquired from outsiders
P 20,000 16,000 P 4,000
13-24: a Sales Cost of sales (at cost to home office) Inventory, 1/1 (P12,000 + P4,000) P16,000 Shipments from home office 60,000 Purchases 30,000 Inventory, 12/31 [(P20,000÷133 1/3%) +P6,000] (21,000) Gross profit Expenses Branch net income (actual)
P200,000
85,000 P115,000 60,000 P 55,000
13-25: a Inventory, 1/1 Shipments from home office Overvaluation Cost of goods available for sale Percentage of mark-up (P72,500 / P362,500)
P 75,000 360,000 ( 72,500) P362,500 20%
13-26: b
20
13-27: a Billing percentage above cost (P20,000 / P80,000) Branch inventory, 6/1 – at cost (P12,000 / 125%) Home office inventory, 6/1 Purchases Goods available for sale Inventory, 6/30 – at cost: Branch (P10,000 / 125%) Home office Combined cost of goods sold
25% P 9,600 40,000 160,000 P209,600 P 8,000 60,000
68,000 P141.600
13-28: d Sales Cost of goods sold Gross profit Expenses Combined net income
P450,000 141,600 P308,400 150,000 P158,400
13-29: d Sales Cost of goods sold: Inventory, 1/1: Home office P57,500 Branch (P22,250 / 125%) 17,800 P 75,300 Purchases 410,000 Goods available for sale P 485,300 Inventory, 12/31: Home office P71,250 Branch (P29,250/120%) 24,375 95,625 Gross profit Expenses Combined net income
P687,500
389,675 P297,825 241,750 P 56,075
13-30: a Sales Cost of goods sold: Inventory, 1/1: Home office Branch [P15,000 + (P49,000 / 122.5%)] Purchases Goods available for sale Inventory, 12/31: Home office Branch [P11,000 + (P52,000 / 133 1/3%)] Gross profit Expenses Combined net income
P669,000 P160,000 55,000
P110,000 50,000
P215,000 460,000 P675,000 160,000
515,000 P154,000 145,000 P 9,000
21
13-31: a The entries made by the branch to record the interbranch transfer of merchandise are: Books of Branch 1: Home office 19,500 Freight in 3,500 Shipment from home office 16,000 Books of Branch 3: Shipment from home office 16,000 Freight in 4,000 Cash 2,500 Home office 17,500 Therefore the home office would make the following entry: Investment in Branch 3 17,500 Excess freight 2,000 Investment in Branch 1
19,500
13-32: a Unadjusted balances Error in recording shipment Error in recording expense Unrecorded cash remittance Adjusted balances
(Home office books) Investment in branch 77,000 (31,000) 46,000
(Branch books) Home office 61,000 (10,000) 5,000 46,000
13-33: c 13-34: a Home office books Inv in Bacolod 25,000 Inv in Cebu 25,000
Cebu branch books Home office 25,000 Cash 25,000
Bacolod branch books Cash 25,000 Home office 25,000
Inv in Bacolod 34,300 Inv in Cebu 34,300
Home office 34,300 SD 700 AR 35,000
Cash 34,300 Home office 34,300
Inv in Bacolod 62,500 Home office 212,500 Expenses 150,000 Expenses 37,500 Inv in Cebu 212,500 Cash 250,000
Expenses 62,500 Home office 62,500
Inv in Cebu 253,000 Freight in 3,000 S to branch 200,000 S from HO 250,000 Allowance 50,000 Home office 253,000 Cash 3,000 Inv in Bacolod 252,700 Home office 253,000 Excess freight 300 S from H 253,000 Inv in Cebu 253,000
22
(Home office books) Investment in Cebu Branch 25,000 34,300 212,500 253,000 253,000 524,800 271,800
(Bacolod branch books) Home Office 25,000 34,300 62,500 252,700 374,500
23
PROBLEMS Problem 13-1 (a)
Journal Entries Home Office Books
Branch Books
(1) Investment in branch Cash
18,000
(2) Investment in branch Cash
3,000
(3) Investment in branch Shipment to branch Allowance for overValuation (4)
Equipment Home office
18,000
18,000
Rent expense Home office
3,000
3,000
Shipment from HO Home office
100,000
80,000
100,000
18,000 3,000 100,000
20,000
No entry
Operating expenses Cash Cash
11,000 11,000 105,000
Sales (5) Cash
60,000 Investment in branch
(b)
60,000
Home office Cash
105,000 60,000 60,000
Working Paper Elimination Entries (1)
(2)
(3)
Home office 61,000 Investment in branch To eliminate reciprocal accounts computed as follows: Equipment purchased P 18,000 Rent paid 3,000 Inventory shipped 100,000 Cash transfer ( 60,000) Balance P 61,000 Shipment to branch Allowance for overvaluation of branch inventory Shipment from home office To eliminate inter-company shipments Inventory, 12/31 (Income statement) Inventory, 12/31 (Balance Sheet) To reduce inventory, 12/31 to cost.
61,000
80,000 20,000 100,000 5,000 5,000
24
(c)
Closing Entries – Branch Books Sales Inventory, 12/31 Rent expense Shipment from home office Operating expenses Income summary Income summary Home office
105,000 25,000 3,000 100,000 11,000 16,000 16,000 16,000
Problem 13-2 a.
Branch Books
-
Equipment Shipment from home office Cash Home office
50,000 60,000 10,000
Purchases Cash or accounts payable
30,000
Prepaid rent Home office
10,000
Cash Accounts receivable Sales
40,000 50,000
Advertising expense Salary expense Cash
8,000 5,000
-
-
-
Home office Cash
120,000 30,000 10,000
90,000
13,000 10,000 10,000
Home office Accounts receivable
3,000
Rent expense Prepaid rent
5,000
3,000 5,000
25
Home Office Books -
-
-
Investment in branch 120,000 Equipment Shipment to branch Allowance for overvaluation of branch inventory Cash To record assets sent to branch Investment in branch Cash To record rent expense of the branch
10,000
Cash
10,000 10,000
Cash
3,000
Investment in branch To record collection of branch receivable. b.
20,000 10,000
10,000
Investment in branch To record cash remittance from branch -
50,000 40,000
3,000
Income Statement Sales Cost of goods sold Shipment from home office – at cost Purchases Goods available for sale Ending inventory: From home office (1/3) From outsiders (1/4) Gross profit Expenses: Advertising expense Salary expense Rent expense Net income
P90,000 P40,000 30,000 70,000 P13,333 7,500
(20,833) P 8,000 5,000 5,000
49,167 P40,833
18,000 P22,833
Problem 13-3 a.
Investment in Branch account – beginning balance Cash transfer Inventory transfer Rent allocated Expenses allocated Inventory transfer Transportation allocated Unadjusted balance – Investment in Branch account
P 86,000 ( 32,000) 34,500 1,000 3,000 46,000 3,000 P141,500
26
b.
Home Office account – beginning balance Inventory transfer Rent allocated Expenses allocated Inventory transfer (error made) Cash transfer Home Office account – unadjusted balance
c.
Reconciliation Statement Unadjusted balances, 1/31 Unrecorded cash transfer Error in recording transfer (overstated) Expense allocation not recorded Adjusted balances, 1/31
P 54,000 34,500 1,000 3,000 64,000 ( 74,000) P 82,500 Investment in Branch P141,500 ( 74,000) P 67,500
Home Office P 82,500 18,000 ( 3,000) P 67,500
Problem 13-4 a.
b.
Books of Branch X Shipment from home office Freight-in Home office
5,000 300
Home office Shipment from office
5,800 5,800
Books of Branch Y Shipment from home office Freight-in Home office
c.
5,300
5,000 600 5,600
Books of the Home Office Investment in branch – X Shipment to branch – X Cash
5,300
Investment in branch – Y Inter-branch freight expense Investment in branch – X
5,000 600
Shipment to branch – X Shipment to branch – Y
5,000
5,000 300
5,600 5,000
27
Malakas Company Combination Worksheet Year Ended December 31, 2008
Malakas Debits Cash Accounts receivable Inventory, 12/31 Investment in branch Land, bldg, and equipment Shipment from office Purchases Depreciation expense Advertising expense Rent expense Miscellaneous expense Inventory, 1/1 Total debits
Adjustments and Eliminations Debit Credit
Davao
25,000 108,000 209,000 207,000 340,000 348,000 25,000 36,000 12,000 40,000 175,000 1,525,00 0
18,000 25,000 42,000 112,000 96,000 8,000 15,000 5,000 20,000 35,000 376,000
Credits Accumulated depreciation Accounts payable Notes payable Home office
80,000 37,000 220,000 -
16,000 15,000 176,000
(7)207,000
Common stock Retained earnings, 1/1
100,000 240,000
-
(2) 10,000
Sales
529,000
127,000
Shipment to branch Inventory, 12/31
110,000 209,000
42,000
(4) 14,000
(5) 16,000 (7)207,000
(3) 14,000
(6)110,000
43,000 133,000 249,000 452,000
(1) (1) (1)
9,000 6,000 2,000 (2) 10,000
348,000 33,000 60,000 23,000 62,000 200,000 877,000
96,000 52,000 220,000 -
(1) 17,000 (3) 14,000
100,000 (230,000 ) (655,000 ) (6)110,000 (5) 16,000
(4) 14,000
Combined net income
(249,000 ) (179,000 )
Combined retained earnings Totals
Income Retained Statement Earnings Balance Dr (Cr) Dr (Cr) Sheet
(179,000 ) (409,000 )
1,525,00 0
376,000
388,000
388,000
(409,000) 877,000
Adjustments and Elimination Entries (1)
(2)
Advertising expense Rent expense Miscellaneous expenses Home office Unrecorded expenses allocated to the branch Retained earnings, 1/1 Inventory, 1-1
9,000 6,000 2,000 17,000 10,000 10,000
28
To eliminate unrealized inventory profit of preceding year (3)
(4)
(5)
(6)
(7)
Shipment from home office Home office Unrecorded shipments
14,000
Inventory, 12/31 (debits) Inventory (credits) Shipment not yet received by the branch
14,000
Inventory, 12/31 (debits) Inventory (credits) To reduce ending inventory to cost
16,000
Shipment to branch Shipment from home office To eliminate inter-company shipments
110,000
Home office Investment in branch To eliminate reciprocal accounts
207,000
14,000
14,000
16,000
110,000
207,000
Problem 13-6 a.
Eliminating Entries (1) (2) (3)
(4) (5)
Home office Investment in branch – Silver
395,000
Home office Investment in branch – Opal
260,000
395,000 260,000
Unrealized intra-company profit – Silver Unrealized intra-company profit – Opal Inventory – from home office
20,000 16,000
Inventory Inventory – from home office
90,000
Unrealized intra-company profit – Silver Equipment
40,000
36,000 90,000 40,000
29
Ginto Company Balance Sheet Working Paper December 31, 2008
Cash Accounts receivable Inventory Inventory – from home office Land Buildings and equipment Investment in branch – Silver Investment in branch – Opal Total debits Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Home office Unrealized intra-company profit Silver Opal Total credits
b.
Home Office 81,000 100,000 260,000
Silver Branch 20,000 40,000 50,000 70,000
Opal Branch 15,000 25,000 44,000 56,000
70,000 700,000 395,000 260,000 1,866,000
30,000 350,000
20,000 200,000
560,000
360,000
2,055,000
280,000 110,000 400,000 300,000 700,000 -
120,000 45,000
80,000 20,000
480,000 175,000 400,000 300,000 700,000
395,000
260,000
60,000 16,000 1,866,000
560,000
360,000
Eliminations Debit Credit (4) 90,000
Combined 116,000 165,000 444,000
( 3) 36,000 (4) 90,000 (5) 40,000 (1)395,000 (2)260,000
120,000 1,210,000
(1)395,000 (2)260,000 (3) 20,000 (5) 40,000 (3) 16,000 821,000
821,000
2,055,000
Ginto Company Combined Balance Sheet December 31, 2008 Assets Cash Accounts receivable Inventory Land Buildings and equipment Less: Accumulated depreciation Total assets Liabilities and Stockholders’ Equity Liabilities Accounts payable Bonds payable Total liabilities Stockholders’ Equity Common stock
P 116,000 165,000 444,000 120,000 P1,210,000 480,000
730,000 P1,575,000
P 175,000 400,000 P 575,000 P 300,000
30
Retained earnings Total liabilities and stockholders’ equity
700,000
1,000,000 P1,575,000
Problem 13-7 a.
b.
Books of Branch P Shipment from home office Freight-in Home office
8,000 50
Home office Shipment from home office Freight-in Cash
8,120 8,000 50 70
Books of Branch Q Shipment from home office Freight-in Home office
c.
8,050
8,000 80 8,080
Books of Home Office Investment in branch – P Shipment to branch – P Cash
8,050
Investment in branch – Q Inter-branch freight expense Investment in branch – P
8,080 40
Shipment to branch - P Shipment to branch – Q
8,000
8,000 50
8,120 8,000
Problem 13-8 Debits: Cash = P36,000 (add the book values and include the P9,000 transfer in transit) Accounts receivable = P118,000 Inventory, 12/31 = P151,000 (branch balance would be P81,000 when the shipment in transit is included. This balance must be adjusted to cost of P54,000 (P81,000 ÷ 150%) and then add to home office balance of P97,000. Investment in branch = 0 (eliminated) Land, buildings and equipment = P460,000 Shipment from home office = 0 (eliminated) Purchases = P429,000
31
Depreciation expense = P28,000 (add the two book values and the year-end allocation) Advertising expense = P58,000 (add the two book values and the year-end allocation) Rent expense = P30,000 (add the two book values and the year-end allocation) Miscellaneous expense = P100,000 (add the two book values and the year-end allocation) Inventory, 1/1 = P145,000 (branch balance is adjusted to cost of P24,000 (P36,000 / 150%), and then added to home office balance. Total debits = P1,555,000 (add the above totals) Credits Accumulated depreciation = P108,000 Accounts payable = P104,000 Notes payable = P180,000 Home office = 0 (eliminated) Common stock = P60,000 (home office balance) Retained earnings, 1/1 = P248,000 (home office balance after reduction of P12,000 unrealized profit in beginning inventory of branch. Cost is P24,000 (P36,000 / 150%) which indicates the P12,000 unrealized. Sales = P704,000 Shipment to branch = 0 (eliminated) Inventory, 12/31 = P151,000 Total credits = P1,555,000 (add the above totals) Reconciliation Statement Investment in Branch account balance (Home office books) Unrecorded cash transfer Adjusted balance
P177,000 ( 9,000) P168,000
Home Office account balance (Branch books) Inventory transfer in transit Expense allocated not yet recorded Adjusted balance
P123,000 21,000 24,000 P168,000
Problem 13-9 Home Office Books (1) Investment in branch Shipment to branch Unrealized inventory profit (2) Cash Investment in branch Closing entries: (3) Sales Inventory, 12/31 Shipment to branch Purchases Expenses Income summary (4) Investment in branch Branch income summary Branch income summary Investment in branch
Case A 60,000
Case B 75,000 60,000 -
61,200
Case C 90,000 60,000 15,000
61,200 61,200
130,000 8,000 60,000
60,000 30,000 61,200
61,200 130,000 8,000 60,000
150,000 17,200 30,800
61,200 130,000 8,000 60,000
150,000 17,200 30,800
150,000 17,200 30,800
13,000 13,000 500
14,000 500
14,000
32
Unrealized inventory profit Branch income summary Income summary Income summary Retained earnings
13,500
27,000 500 13,000
43,800
43,800 43,800
14,000 13,000 43,800
43,800
43,800
Ilocos Branch Books Case A (1) Shipment from home office Home office
60,000
(2) Accounts receivable Sales
81,000
(3) Cash
64,000
Case B 75,000
60,000 81,000
14,000
(5) Home office Cash
61,200
90,000 81,000
81,000 64,000
64,000
(4) Expenses Cash
90,000 75,000
81,000
Accounts receivable
Case C
81,000 64,000
64,000 14,000
14,000
64,000 14,000
14,000 61,200
61,200
14,000 61,200
61,200
61,200
Closing entries (6) Sales Inventory 12/31 Shipment from HO Expenses Income summary
81,000 6,000
(7) Income summary Home office
13,000
Home office Income summary
81,000 7,500 60,000 14,000 13,000
81,000 9,000 75,000 14,000
500
90,000 14,000 14,000
13,000 500
14,000 500
14,000
33
Working Paper for Combined Financial Statements December 31, 2008
Home Office
Branch
Eliminations Debit Credit
Combined
Income Statement Sales Merchandise inventory, 12/31 Shipment to branch Total credits
130,000 8,000 60,000 198,000
Shipment from home office Purchases Expenses Total debits Net income(loss) carried forward
150,000 17,200 167,200 30,800
14,000 104,000 (14,000)
150,000 31,200 181,200 43,800
30,800
(14,000)
43,800
30,800
(14,000)
43,800
39,000 45,000 8,000 28,800 120,800
(11,200) 17,000 9,000
27,800 62,000 14,000 103,800
Retained Earnings Statement Net income (loss) from above Retained earnings, 12/31 Carried forward Balance Sheet Cash (overdraft) Accounts receivable Merchandise inventory, 12/31 Investment in branch Total debits Accounts payable Unrealized inventory profit Capital stock Retained earnings, from above Home office Total credits
81,000 9,000 90,000 90,000
20,000 30,000 40,000 30,800 120,800
211,000 14,000 225,000
(3) 3,000 (2) 60,000 (2) 90,000
(3) 3,000 (1) 28,800
14,800 (2) 30,000 (14,000) 28,800 14,800
(1) 28,800 121,800
121,800
20,000 40,000 43,800 103,800
34
Problem 13-10 (1)
Consolidated Working Paper Home Office
Branch A
Branch B
Debits Cash Inventories
33,000 70,000
22,000 21,000
13,000 15,000
Other current assets Investment in Branch A Investment in Branch B Cost of sales *
50,000 45,000 42,000 80,000
25,000
23,000
57,000
45,000
Expenses
90,000 410,000
25,000 150,000
20,000 116,000
40,000 100,000 50,000
15,000
11,000
45,000
30,000
Credits Current liabilities Capital stock Retained earnings, Jan. 1 Home Office Allow. for overvaluation of Branch inv. – Branch A Allow. for overvaluation of Branch inv. – Branch B Sales
13,000 12,000 195,000 410,000
Adj. & Elim. (dr) Cr
Balance Sheet 68,000
A (12,000) B 8,000 D 45,000 D 42,000 B (8,000) C 25,000
110,000 98,000 (165,000) (135,000) 276,000 66,000 100,000 50,000
A 12,000 D (87,000) C (13,000) C (12,000)
90,000 150,000
75,000 116,000
360,000
Net income
•
Income Statement
60,000
60,000 276,000
Book value of cost of sales from home office and branches
Home Office Inventory, January 1, Purchases Shipment to branch Shipment from home office Goods available for sale Inventory, Dec. 31 Cost of sales
P 80,000 160,000 ( 90,000) P150,000 ( 70,000) P 80,000
Investment in Branch A
Investment in Branch B
P 18,000
P24,000
60,000 P 78,000 ( 21,000) P 57,000
36,000 P 60,000 (15,000) P 45,000
35
(2)
Reconciliation of Home Office and Investment in Branch accounts.
Unadjusted balances, Dec.31
Books of Home Office Investment Investment In Branch A In Branch B P 45,000 P 42,000
Books of Branch A Home Office P 45,000
Shipments in transit to Branch B Branch Profit (Schedule 1) Adjusted balances, December 31
Books of Branch B Home Office P 30,000 12,000
8,000 P 53,000
10,000 P 52,000
8,000
10,000
P 53,000
P 52,000
Schedule 1: Sales Cost of sales: Beginning inventory Shipment from home office Goods available for sale Ending inventory Cost of sales Gross profit Expenses Net profit
Branch A P90,000
Branch B P75,000
P18,000 60,000 78,000 21,000 57,000 33,000 25,000 P 8,000
P24,000 48,000 72,000 27,000 45,000 30,000 20,000 P10,000
36
37
