Chapter 13 Problem I 1. Home Office Books Branch Current Shipments to Branch Unrealized Int Inv. Profit
Branch Books
55,000 50,000 5,000
Shipm from Home Office Home Office Current
Billed price Cost Allowance for overvaluation of branch inventory/ Unrealized Intercompany Inventory Profit/Deferred Profit
55,000 55,000
P55,000 / 110% 50,000 _______ P 5,000
2. Sales...................................................................................................................................... P140,000 Cost of goods sold: Merchandise inventory, September 1............................... 1................. ............................. ................. .. P 35,200 Purchases.............................................................................................. 24,000 Shipments from home office................................. office................. ............................ ............................ .................. .. 55,000 Merchandise available for sale.......................................................... P 114,200 Less: Merchandise Inventory, September 30.............................. 30............. ........................ ....... 30,000 Cost of goods sold............................... sold................ .............................. .............................. ............................... ............................... .......................... ........... 84,200 Gross profit............................. profit............... ............................. ............................... ............................... .............................. .............................. ............................... ...................P ...P 55,800 Operating expenses: Selling expenses………………………… expenses……………………………………. …………..................................P .................................P 8,000 General e xpenses………………… xpenses…………………......................................................... ......................................................... 12,000 Total operating expenses........................ expenses....................................... ............................... ............................... .............................. .................... ..... 20,000 Unadjusted branch net income................................ income................... ............................ .............................. .............................. ........................ ......... P 15,800 3. Results of Branch Operations: a. Branch Net Income/Loss from its own operations: Branch Current………………........................................................................... 15,800 Branch Income Summary.................... Summary.................................. .............................. ............................... ................. .. 15,800 b. Adjustment: Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/ Unrealized Intercompany Inventory Profit: Unrealized Intercompany Inventory Profit.............................. Profit............... .............................. ...................... ....... 4,600 Branch Income Summary.................... Summary................................ ............................. ............................... ................. ... 4,600
Inventory, 9/1 Shipments during December Available for Sale (before adjustment) Less: Inventory, 9/30 (after adjustment) Reduction in unrealized profit accountadjustment to branch profit for overstated of cost of goods sold (adjustment) * P35,200 x 50% = P17,600 ** P30,000 – P8,000 P8,000
Billing Price *P 17,600 __55,000 P 72,600 **22,000
Cost (Billing/1.10) P 16,000 __50,000 P 66,000 __20,000
Unrealized Profit (Billing Price Minus Cost) P 1,600 __ 5,000 P 6,600 __2,000
P 50,600
P 46,000
***P 4,600
***or, P50,600 ***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…………………………………… CGS……………………………………………. ………. 4,600 Adjusted Branch Net Income…………………………………… Income…………………………………………………………… ………………………..P20,400 ..P20,400
Problem II Books of Home Office Correcting entries: A. Sales................................. Sales.................. .............................. ............................... ............................ ........................... ............................... .................... .... 42,000 Shipments to Branch................................................................………… Branch................................................................………… 35,000 Unrealized Intercompany Inventory Profit................................ Profit................. .......................... ........... 7,000 Cost of merchandise shipped t branch: P42,000/1.20= P35,000. Entry Made Branch Current…………… 42,000 Sales…………………… 42,000
Correct/Should be Entry Branch Current……….. 42,000 Shipments to Branch 35,000 Unrealized Int. Inv Pr. 7,000
B. Shipments to Branch................................... Branch................... ............................. ............................ ............................. ....................... ......... Unrealized Intercompany Inventory Profit............................. Profit............... .............. ...................... .............. ........ Sales Returns................................ Returns................ .............................. ............................ .............................. .............................. ................ Cost of merchandise returned by branch: P750/1.20= P625. Entry Made Sales Returns……………… Returns……………… 750 Branch Current……… Current………
750
625 125 750
Correct/Should be Entry Shipments to Branch………. 625 Unrealized Int. Inv Profit…… 125 Branch Current…………. 750 750
Results of Branch Operations: A. Branch Net Income/Loss from its own operations: Branch Income Summary................... Summary.................................. ............................. .............................. .............................. ................ 2,600 Branch Current…................................................................................ Current…................................................................................ 2,600 B. Adjustment: Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/ Unrealized Intercompany Inventory Profit: Unrealized Intercompany Inventory Profit.............................. Profit............... .............................. ...................... ....... 4,125 Branch Income Summary............................. Summary................ .............................. ................................ .................... ..... 4,125
Inventory, December 1 Shipments during December Less: Returns Available for Sale (before adjustment) Less: Inventory, Dec. 31 (after adjustment) Reduction in unrealized profit accountadjustment to branch profit for overstated of cost of goods sold (adjustment)
Billing Price P 0 42,000 _____750 P 41,250 16,500
Cost (Billing/1.20) P 0 35,000 ____625 P 34,375 13,750
Unrealized Profit (Billing Price Minus Cost) P 0 7,000 ____125 P 6,875 __2,750
P 24,750
P 20,625
*P 4,125
*or, P24,750 *or, P24,750 x 20/120 = P4,125; Decrease in Unrealized Intercompany Inventory Profit: Balance prior to adjustment, 12/31, P7,000 – P7,000 – P125............... P125................... .... P6,875 Balance required in account, 12/31,P16,500 – 12/31,P16,500 – (P16,500/1.20).. (P16,500/1.20).. 2,750 Decrease in Allowance................................................................. P4,125 Branch Income Summary (P4,125 – (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…………………………………………………… reported/unadjusted ……………………………………………………(P2,600) (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:
Inventory, December 1 Shipments during December Available for Sale (before adjustment) Less: Inventory, Dec. 31 (after adjustment) Reduction in unrealized profit accountadjustment to branch profit for overstated of cost of goods sold (adjustment)
Billing Price P 16,200 __20,250 P 36,450 __18,900
Cost (Billing/1.35) P 12,000 _ 15,000 P 35,625 _14,000
Unrealized Profit (Billing Price Minus Cost) P 4,200 __ 5,250 P 9,450 __4,900
P 17,550
P 21,625
*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 Branch Books Shipments to Branch Unrealized Int Inv. Pr Branch Current
400 140
Home Office Current Shipments to Branch
540 540
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:
Inventory, December 1 Shipments during December Available for Sale (before adjustment) Less: Inventory, Dec. 31 (after adjustment) Reduction in unrealized profit accountadjustment to branch profit for overstated of cost of goods sold (adjustment)
Billing Price **P 12,000 __9,600 P 21,600 __8,400
Cost (Billing/1.20) *P 10,000 _ 8,000 P 18,000 __7,000
Unrealized Profit (Billing Price Minus Cost) P 2,000 __ 1,600 P 3,600 __1,400
P 13,200
P 11,000
***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 Cash..................................................... P 2,650 Accounts receivable........................ 12,850 Merchandise inventory..................... 14,600 Store supplies...................................... 300 Prepaid expenses............................... 120 Furniture and fixtures.............. P 3,600 Less: Accumulated depreciation.............. 576 3,024 Total assets....................................... P 33,544
Liabilities____________________ Accounts payable................................... P 4,200 Accrued expenses...................... ............. 105 Home office............................................... 29,239
________ Total liabilities............................................ P 33,544
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 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 assets........................................ P 96,184
Total liabilities and ________ 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: 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 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 Store Supplies ………………….. 680 Prepaid Expenses …………….. 470 Furniture & Fixtures ……… P12,100 Less accumulated Depreciation …... 3,161 8,939
Liabilities Accounts Payable ……….. P39,600 Accrued Expenses ………. 365 P 39,965 Stockholders’ Equity Capital Stock ……………… P65,000 Less deficit …………………. 4,476 60,524
Total assets ………………………
Total liabilities and SHEquity
P100,489
P100,489
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
31
Dec.
31
31
31
31
31
14,400 14,400
Merchandise Inventory ……………………………………… Income Summary …………………………………….
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
14,600
280
120
105
Depreciation Expense – F&F ………………………………….. Accumulated Depreciation ………………………… Depreciation: 1% of P3,600
36
Miscellaneous General Expense …………………………….. Home Office Current…………………………………
220
Sales ……………………………………………………………… Income Summary …………………………………….
36
220 20,000 20,000
31
31
(b) Dec
22,221
Home Office Current………….………………………………. Income Summary ……………………………………..
3,021
4,100 10,200 2,800 2,350 280 1,050 1,500 36 905
3,021
Home Office Books 31
31
31
31
31
31
31
31
Dec
Income Summary ……………………………………………… 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 ………………….
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
560
Prepaid Expense ………………………………………………… Miscellaneous General Expense ……………………
350
Miscellaneous General Expense …………………………….. Accrued Expenses …………………………………….
260
Depreciation Expense ………………………………………….. Accumulated Depreciation – F&F …………………. Depreciation: 1% of P8,500, or P85
85
Cash in Transit …………………………………………………. Branch Current…………………………………………
1,500
31,500
24,200
560
350
260
85
1,500
Sales …………………………………………………………… Shipments to branch ………………………....................... Income Summary ………………………………….
44,850 8,500
Income Summary ……………………………………………… Purchases ……………………………………………… Advertising Expense …………………………………. Salaries and Commissions Expense ………………. Store Supplies Expense ……………………………… Miscellaneous Selling Expense …………………….. Rent Expense …………………………………………. Depreciation Expense – F&F ………………………. Miscellaneous General Expense ………………….
42,405
53,350 27,600 2,850 4,250 560 1,850 2,700 85 2,510
31
31
31
31
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
3,021
1,750
1,271
2,374
Problem VI 1.
Unadjusted balance, 12/31/20x4 Add (Deduct): Adjustments 1 Cash in transit 2. Merchandise in transit 3. Branch expenses paid by home office 4. Cash in transit from home office Adjusted balance, 12/31/20x4
Branch Current P 44,000
H. Office Current P 9,000
( 10,000)
_______ P 34,000
10,000 12,000 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.............................................................................................................................. 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 Gross profit................................................................................................................. Operating expenses....................................................................................... .......... Net loss................................................... ....................................................................
P315,000
238,000 P 77,000 101,500 P 24,500
PAXTON CO. 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 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................................................................ Shipments from Home Office......................................................................... Operating expenses........................................................................................
44,500 252,000 101,500
Home Office............................................................................................................... Income Summary..........................................................................................
24,500 24,500
(4) Branch Income Summary.................................................................................. ...... 24,500 Branch Current..................................................................................................... 24,500 Unrealized Intercompany Inventory Profit............................................................... 41,150 Branch Income Summary.................................................................................... Calculation of unrealized profit adjustment: Branch inventory, January 1, acquired from home office 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 Reduction in unrealized profit account- adjustment to branch income for overstatement of cost of goods sold..................................................................
41,150
9,750
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 Purchases......................................................................................................... 820,000 Expenses........................................................................................................... 382,000 Income Summary.......................................................................................................... 112,150 Retained Earnings............................................................................................ 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
112,150
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 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 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............................................................................. Gross profit.................................................................................................................... Operating expenses....................................................................................... ............. Net income...................................................................................................................
334,500
257,500 P 77,000 72,500 P 4,500
(3) Merchandise Inventory......................................................................................... 31,500 Sales.......................................................................................................................... 78,500 Income Summary............................................................................................ 110,000 Income Summary......................................................................................................... 104,500 Merchandise Inventory...................................... ............................................. Shipments from Home Office......................................................................... Purchases......................................................................................................... Expenses...........................................................................................................
32,000 40,000 20,000 12,500
Income Summary......................................................................................................... Home Office.....................................................................................................
5,500
(4) Branch...................................................................................................................... Branch Income................................................................................................
5,500
Unrealized Intercompany Inventory Profit............................................................... Branch Income..............................................................................................
5,500
5,500 8,000 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 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.......................................................................................................... Retained Earnings.................................................................................... ........
4,500 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 Adjusted balance, 12/31/20x4
P 57,300
5,800 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 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 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: 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………………………………………………………………
1,600 350
b. Books of branch No. 5: Shipments from Home 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……………………………………………..
1,950
1,600 400 1,750 250
1,750 200 1,950 1,600
Shipments to Branch No. 5…………………………………………
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 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
P
5,000
67,600 ( 2,500) P 70,100
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 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 MI, beginning SFHO COGAS Less: MI, ending CGS, at BP X: Mark-up ratio True/Adjusted/Real Branch Net Income
P 20,000 6,000 P 14,000 Billed Price 0 550,000 550,000 75,000 475,000 25/125
95,000 P109,000
14. d Sales (P537,500 + P300,000)……………………………………………….………. P Less: Cost of goods sold 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 Gross profit………………………………………………………………. P Less: Expenses (P120,000 + P50,000..………………………………. Net Income……………………………………………………………… P
837,500
467,500 370,000 170,000 200,000
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 P 30,000 24,000
Merchandise Inventory, 12/31/2005 Shipments Cost of goods sold From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000. From outsiders: P45,000 – P36,000 = P9,000
Allowance P 6,000 4,800 P10,800
17. d Merch. Inventory, 12/31/20x4 Shipments Cost of Goods Sold *P2,000 / 20% = P10,000 + P2,000 = P12,000.
Billed Price *P12,000 9,600
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……………………………………………… P 3,500 Branch: Outsiders, ……………………………...........................P 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
Cost
Allowance 60,000 *100,,000 160,000 40,000 120,000
400,000 160,000
21. b (1) Sales Less: Cost of goods sold: Inventory, 1/1/2003 (P4,950 / 110%) Add: Shipments (P22,000 / 110%) COGAS Less: Inventory, 12/31/2003 (P6,050 / 110%) Gross profit Less: Expenses Net income from own operations
P 40,000 P 4,500 20,000 P 24,500 5,500
19,000 P 21,000 _ 13,100 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 Add Purchases…………………………………………………………. COGAS………………………………………………………………….. Less: Merchandise Inventory, 12/31/2003 of Home Office, cost……………………………………………… P 14,000 of Branch, cost: P6,050 /100%………………………………….. 5,500 Cost of Goods Sold…………………………………………………….
P 21,500 50,000 P 71,500
19,500 P 52,000
22. a - P48,000 / 120% = P40,000 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 20/120) 60,000 10,000* 24. b Sales (P148,000 + P44,000) Less: Cost of Sales Inventory, 1/1/20x4 Purchases
P192,000 P
0 52,000
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
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% 100% Billed Price Cost 40,000 250,000 290,000 60,000 230,000
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) ………………………………………………… 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
P 837,500
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……………………………………………………… Less: Expenses (P28,000 + P12,000)………………………… Net Income…………………………………………………….
P P
90,200 40,000 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 ……………………………………………………………. Net income – home office …………………………………………….
P 72,000 52,000 P 20,000
31. a 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 ……………………… P 870 Add: Overvaluation of CGS* ……………………………………….. 9,600 Net Income of Davao Branch, adjusted …………………………. P 10,470
MI. 1/1/20x4 Shipments
BP
Cost
110,000
100,000
Allowance 1,000 **10,000
Available for sale -: MI, 12/31/x4 CGS **110,000 x 10/110 ***10,400 + 5,000, in transit ****15,400 x 10/110
***15,400
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 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 20,150 BC-Davao…….
38. 39. 40. 41. 42. 43. 44. 45.
Davao Branch SFHO…………….37,700 Freight-in………. 1,300 HOC………….. 39,000
Baguio Branch
HOC……………….20,150 SFHO(50%)… 18,850 Freight-in (50%) 650 Cash…………...... 650
SFHO………18,850 Freight-in.. 780 HOC……... 19,630
c – (P300,000 x ¼ = P75,000, ending inventory x (P300,000 – P250,000)/P300,000 = P12,500 d d b – refer to No. 21 b – refer to No. 21 c – refer to No. 21 c d
Theories 1. True 2. False 3. True 4. True 5. False
6. 7. 8. 9. 10.
False False False True True
11. 12. 13. 14. 15.
False True False True False
16. 17. 18. 19. 20.
True True True False d
21. 22. 23. 24. 25. 26.
D A d d a c
