HOME OFFICE, AGENCY AND BRANCH 1. On November 2, 2015, L Sison Company created an agency in Davao, and transferred merchandise samples costing P15,000, equipment worth P36,000 and a cash working fund of P10,000 to be maintained on an imprest basis. The agency transmitted to the home office sales orders which were billed at P90,000 of which P46,550 was collected net of a 2% discount. The agency also paid for its operating expenses of P7,500 including supplies of P2,000. The agency received replenishment thereof from the home office before the year ended. On December 31, the agency samples were estimated to be useful over a period of 5 months while the equipment is estimated to have a useful life of eight years. Unused supplies on Dec 31 amounted to P1,000. Home office maintains a gross profit rate of 25% of cost. a. How much is agency profit at the end of December? b. Give the agency real accounts that will be presented in the Dec. 31 balance sheet. b. Give the cost of sales of Home Office if its Inventory on Nov 2 is P1,250,000 while on hand at Dec 31 went down to 20% of total stock . Net purchases was P2,750,000 including freight of P50,000. 2. Celestial Corporation shows the following balance sheet accounts as at Jan 1, 2015: Cash P 93,750 Accounts Receivable 7,250 Inventory Payable Furniture & Fixtures 2,500,000 Allowance for Bad Debts 263,250
P476,500
Accumulated Depreciation
1,050,000
Accrued Expenses 1,300,000 Accounts 743,750 750,000 Capital Stock 31,500
Retained
Earnings
On this date, management decided to establish a branch in Baguio and reported the following transactions for the first quarter of 2015: a) Transferred cash P150,000, merchandise P500,000 with freight prepaid based on 2% of its shipment cost. b) Home office approved on Feb 1, the purchase by the branch of its furniture and fixtures costing P75,000 for its own use. Home office policy was to maintain and control all fixed assets. c) The branch was authorized to take over P60,000 home office accounts from its Baguio customers and make the necessary collections. Home Office issued a debit memo for this. d) Summary of account sales and (collections) for the quarter : Home Office- P1,865,000 and (1,499,400 net of a 2% discount) and for the Branch- P655,000 (P565,000). e) Summary of account purchases and (payments): Home OfficeP790,000 and (P745,000) and for the Branch- P150,000 and (P88,755 net of a 3% discount). f) Operating Expenses paid including accrued expenses, if anyHome Office, P230,000 and Branch, P 131,250. g) Returns from the original shipment amounted to P75,000. Freight on returns was paid by the branch. Allocated freight and freight paid by branch were all charged to home office as a loss account. h) From the Baguio accounts turned over in c), collections were made accordingly less a discount of 2% which the branch charged to the home office. i) P11,875 of the expenses paid by home office in f) were charged to the branch. j) Cash remittance was made by the branch in excess of original cash transfer. k) Depreciation was recorded at a rate of 12%. l) Unpaid utility bills: P67,500 for home office and P18,500 for the branch.
m) Policy on doubtful accounts was to be maintained based on the previous rate. Required: 1) Entries to record transactions a) to m) in parallel column. 2) Closing Entries (one entry to close all the nominal accounts) including set up of inventory per count: Home Office P785,500 and Branch P130,750. 3) Present the Plant Asset section of the Statement of Financial Position of the Home Office. 4) Present the Income statement of the Home Office and the Branch using the following format:
Income Statement Combined
Home Office
Branch
Sales Less Sales Discounts
(___________)
(___________)
(_________)
Net Sales
____________
___________
__________
Cost of Sales: Inventory, Beginning Net Purchases Shipments from Home Office Freight In
____________
___________
__________
(
(
(___________)
)
)
____________
___________
____________
____________
___________
____________
(
(
(
)
)
)
(
(
(
)
)
)
(
(
(
)
)
)
(
(
(
Total Shipments to branch
( )
Inventory, Ending
Gross Profit Less Operating Expenses: Bad Debts
Depreciation
Utilities
Other operating expenses
)
)
)
____________
___________
__________
P__________
P_________
Net Profit from Operation Branch Profit (Loss) Loss on Branch Transfers Net Profit
P___________
SOLUTION 3BAC Home Office, Agency and Branch 1. a) Income & Expense Summary Samples Used 6,000 Sales 90,000 Supplies 1,000 Cost of Sales 72,000 Depreciation 750 Other expenses 5,500 Sales discount 950 Balance
2. Home Office Books Investment in branch 660,000 Cash Shipments to Branch Furn & Fix, Branch Investment in Branch
75,000
Investment in Branch Accts Receivable
60,000
Accts receivable Sales
1,865,000
Cash Sales Discount Accts. Receivable
1,499,400 30,600
3,800
b. Real Accounts: Agency Samples Working Fund, Dvo Agency Supplies, DvoAgency Equipment, DvoAgency Accum Depn c. Home Office Cost of Sales 4.Inventory, Nov 2 Net Purchases Freight In Shipments Inventory, Dec 31
Home Office Equity Cash
75,000
Acct Receivable Home Office Equity
60,000
60,000
Accts Payable Cash
745,000
Operating Expenses Accrued Expenses
222,750 7,250
790,000 745,000
660,000 75,000 60,000
Accts Receivable Sales
655,000
Cash
565,000
655,000
Accts Receivable Purchases Accts Payable
35,250
P1,250,000 2,700,000 50,000 ( 87,000) (800,000) P3,113,000
75,000
1,530,000 790,000
P 36,000 ( 750)
Branch Books Cash 150,000 160,000 Freight In 10,000 500,000 Shipments from H.O. 500,000 Home office Equity
1,865,000
Purchases Accts Payable
P 9,000 10,000 1,000
565,000 150,000 150,000
Accts Payable Cash Purchase Discount
91,500
Operating Expenses Cash
131,250
88,755 2,745 131,250
Cash
230,000
Shipments to Branch Freight loss Investment in Branch
75,000 3,000
Home office Equity Cash 78,000 Freight In Shipments from HO
78,000
Sales Discount Investment in Branch
1,200
Home office Equity 1,200 Cash Accts. Receivable
1,200 58,800
Investment In Branch Operating Expenses
11,875
Cash Investment in Branch
327,295
Investment in Branch AccumDepn,Furn &Fixtures,Branch
11,875
2,250
Depreciation Expense Acc Depn,Furn & Fix 750,000 x 12%x 3/12
22,500
Utility Expense Utility Payable
67,500
Bad Debts Allowance for Bad Debts 1,325,000x.03=39,750-31,500 Inventory, End Sales Shipments to Branch Inventory Beg Purchases Bad Debts Depreciation Sales Discount Other Operating Expenses Utility Expense Income and Expense S
Depreciation Expense Home Office Equity 2,250 75,000 x 12% x 3/12
Utility Expense 67,500 Utility Payable
8,250 8,250 785,500 1,865,000 425,000 1,300,000 790,000 8,250 22,500 31,800 210,875 67,500 644,575 38,420
Branch Income & Expense Inc & Exp Summary Freight Loss
38,420
Req. 3 Furniture & Fixtures Accum Depreciation
Home Office Equity 327,295 Cash
38,420 35,420 3,000 679,995 679,995 750,000 116,250
633,750
Furniture & Fixtures-Baguio 75,000 Accum Depreciation 2,250
72,750
Total
60,000 11,875 11,875 327,295 327,295
2,250 2,250
22,500
Investment in Branch Branch Inc & Exp Sum=
Income & Expense S Retained Earnings
Operating Expenses Home Office Equity
1,500 1,500 75,000
P706,500
Bad Debts Allow for Bad Debts 90,000 x .03 Inventory, End Sales Purchase Discount Bad Debts Shipments from H.O Purchases Freight In Depreciation Other Operating Exp Utility Expense Income & Expense S Income & Expense S Home Office Equity
18,500 18,500 2,700 2,700 130,750 655,000 2,745 2,700 425,000 150,000 8,500 2,250 143,125 18,500 38,420 38,420 38,420
Income Statement Sales Less Discounts,returns,allowances Net Sales Cost of Sales: Inventory, Beginning Net Purchases Shipments to Branch Freight In Shipments from Home Office Inventory, Ending Gross Profit Less Operating Expenses: Bad Debts Depreciation Utility Other operating expenses Net Profit from Operation Branch Profit Loss on Branch Transfers Net Profit (Loss)
Home Office 1,865,000 ( 31,800) 1,833,200 1,300,000 790,000 (425,000) (785,500) 879,500 953,700 8,250 22,500 67,500 210,875 309,125 644,575 38,420 (3,000) 679,995
Branch 655,000 655,000 147,255 8,500 425,000 (130,750) 450,005 204,995
Combined 2,520,000 ( 31,800) 2,488,200 1,300,000 937,255 8,500 (916,250) 1,329,505 1,158,695
2,700 2,250 18,500 143,125 166,575 38,420
10,950 24,750 86,000 354,000 475,700 682,995
______ 38,420
(3,000) 679,995
HOME OFFICE, AGENCY AND BRANCH 1. On November 2, 2015, L Sison Company created an agency in Davao, and transferred merchandise samples costing P15,000, equipment worth P36,000 and a cash working fund of P10,000 to be maintained on an imprest basis. The agency transmitted to the home office sales orders which were billed at P90,000 of which P46,550 was collected net of a 2% discount. The agency also paid for its operating expenses of P7,500 including supplies of P2,000. The agency received replenishment thereof from the home office before the year ended. On December 31, the agency samples were estimated to be useful over a period of 5 months while the equipment is estimated to have a useful life of eight years. Unused supplies on Dec 31 amounted to P1,000. Home office maintains a gross profit rate of 20% of cost. a. How much is agency profit at the end of December? b. Give the agency real accounts that will be presented in the Dec. 31 balance sheet. b. Give the cost of sales of Home Office if its Inventory on Nov 2 is P1,250,000 while on hand at Dec 31 went down to 20% of total stock . Net purchases was P2,750,000 including freight of P50,000. 2. Celestial Corporation shows the following balance sheet accounts as at Jan 1, 2015: Cash P 93,750 Accounts Receivable 7,250 Inventory Payable Furniture & Fixtures 2,500,000 Allowance for Bad Debts 263,250
P476,500
Accumulated Depreciation
1,050,000
Accrued Expenses 1,300,000 Accounts 743,750 750,000 Capital Stock 31,500
Retained
Earnings
On this date, management decided to establish a branch in Baguio and reported the following transactions for the first half of 2015: a) Transferred cash P150,000, merchandise P500,000 with freight prepaid based on 2% of its shipment cost. b) Home office approved on Feb 1, the purchase by the branch of its furniture and fixtures costing P75,000 for its own use. Home office policy was to maintain and control all fixed assets. c) The branch was authorized to take over P60,000 home office accounts from its Baguio customers and make the necessary collections. Home Office issued a debit memo for this.
d)
Summary of account sales and (collections) for the quarter : Home Office- P1,865,000 and (1,499,400 net of a 4% discount) and for the Branch- P655,000 (P565,000). e) Summary of account purchases and (payments): Home OfficeP790,000 and (P745,000) and for the Branch- P150,000 and (P88,755 net of a 3% discount). f) Operating Expenses paid including accrued expenses, if anyHome Office, P230,000 and Branch, P 131,250. g) Returns from the original shipment amounted to P75,000. Freight on returns was paid by the branch. Allocated freight and freight paid by branch were all charged to home office as a loss account. n) From the Baguio accounts turned over in c), collections were made accordingly less a discount of 2% which the branch charged to the home office. o)P11,875 of the expenses paid by home office in f) were charged to the branch. p) Cash remittance was made by the branch in excess of original cash transfer. q) Depreciation was recorded at a rate of 12%. r) Unpaid utility bills: P67,500 for home office and P18,500 for the branch. s) Policy on doubtful accounts was to be maintained based on the previous rate. Required: 1) Entries to record transactions a) to m) in parallel column. 2) Closing Entries (one entry to close all the nominal accounts) including set up of inventory per count: Home Office P785,500 and Branch P130,750. 3) Present the Asset section of the Statement of Financial Position of the Home Office, Branch and Combined. 4) Present the Income statement of the Home Office and the Branch using the following format:
Statement of Financial Position Assets Cash Accounts Receivable Allowance for Bad Debts Inventories Investment in Branch Furniture and Fixtures Accumulated Deprreciation Furnitures & Fixtures,Branch Accum Dep- Furn & Fix, Branch Total Assets Liabilities and Equity Accounts Payable Accrued Expenses Capital Stock Retained Earnings Home Office Equity Total Liabilities & Equity
Home Office
Branch
Combined
SOLUTION 3AAc Home Office, Agency and Branch 1. a) Income & Expense Summary Samples Used 6,000 Sales 90,000 Supplies 1,000 Cost of Sales 75,000 Depreciation 750 Other expenses 5,500 Sales discount 950 Balance
2. Home Office Books Investment in branch 660,000 Cash Shipments to Branch Furn & Fix, Branch Investment in Branch
75,000
Investment in Branch Accts Receivable
60,000
800
b. Real Accounts: Agency Samples Working Fund, Dvo Agency Supplies, DvoAgency Equipment, DvoAgency Accum Depn c. Home Office Cost of Sales 4.Inventory, Nov 2 Net Purchases Freight In Shipments Inventory, Dec 31
P 9,000 10,000 1,000 P 36,000 ( 750) P1,250,000 2,700,000 50,000 ( 90,000) (800,000) P3,110,000
Branch Books Cash 150,000 160,000 Freight In 10,000 500,000 Shipments from H.O. 500,000 Home office Equity 75,000
Home Office Equity Cash
Acct Receivable 60,000 Home Office Equity
35,250
660,000
75,000 75,000 60,000 60,000
Accts receivable Sales
1,865,000
Cash Sales Discount Accts. Receivable
1,499,400 62,475
1,865,000
1,561,875
Purchases Accts Payable
790,000
Accts Payable Cash
745,000
Operating Expenses Accrued Expenses Cash
222,750 7,250
Accts Receivable Sales
655,000
Cash
565,000
Accts Receivable
Purchases 790,000 Accts Payable 745,000
655,000
565,000 150,000 150,000
Accts Payable Cash Purchase Discount
91,500
Operating Expenses Cash
131,250
88,755 2,745 131,250
230,000
Shipments to Branch Freight loss Investment in Branch
75,000 3,000
Home office Equity Cash 78,000 Freight In Shipments from HO
78,000
Sales Discount Investment in Branch
1,200
Home office Equity 1,200 Cash Accts. Receivable
1,200 58,800
Investment In Branch Operating Expenses
11,875
Cash Investment in Branch
327,295
11,875 327,295
Investment in Branch AccumDepn,Furn &Fixtures,Branch
3,750
Depreciation Expense Acc Depn,Furn & Fix 750,000 x 6%
45,000
Utility Expense Utility Payable
67,500
Home Office Equity Cash
Depreciation Expense Home Office Equity 3,750 75,000 x 12% x 5/12
60,000 11,875 11,875 327,295 327,295
3,750 3,750
45,000
67,500
Bad Debts Allowance for Bad Debts 1,293,125 x.03=38,793.75-31,500 Inventory, End Sales Shipments to Branch Inventory Beg Purchases Bad Debts Depreciation Sales Discount Other Operating Expenses Utility Expense Income and Expense S
Operating Expenses Home Office Equity
1,500 1,500 75,000
7,293 7,293.75
785,500 1,865,000 425,000 1,300,000 790,000 7,293.75 45,000 63,675 210,875 67,500 591,156.25
Investment in Branch Branch Inc & Exp Sum=
36,920
Branch Income & Expense Inc & Exp Summary
36,920
36,920 33,920
Utility Expense Utility Payable Bad Debts Allow for Bad Debts 90,000 x .03 Inventory, End Sales Purchase Discount Bad Debts Shipments from H.O Purchases Freight In Depreciation Other Operating Exp Utility Expense Income & Expense S Income & Expense S Home Office Equity
18,500 18,500 2,700 2,700 130,750 655,000 2,745 2,700 425,000 150,000 8,500 3,750 143,125 18,500 36,920 36,920 36,920
Freight Loss Income & Expense S Retained Earnings
3,000 625,076.25 625,076.25
Requirement 3
Balance Sheet
Home Office
Branch
Combined
Assets Cash Accounts Receivable Allow for Bad Debts Inventory Investment in Branch Furniture and Fixtures Accumulated Depn
1,168,825.0 1,293,125.0 (38,793.75)
750,000.00 138,750.00
Fur & Fixtures-Branch Accum Dep Fur & Fix Br Total Assets
Income Statement Sales Less Discounts,returns,allowances Net Sales Cost of Sales: Inventory, Beginning Net Purchases Shipments to Branch Freight In Shipments from Home Office Inventory, Ending Gross Profit Less Operating Expenses: Bad Debts Depreciation Utility Other operating expenses Net Profit from Operation Branch Profit Loss on Branch Transfers Net Profit (Loss)
75,000.0 0 3,750.00
1,254,331.2 5 785,500.0 369,050.0
150,000 112,500 (5,625)
1,318,825 1,405,625 106,875 (44,418.75) 1,361,206.25 130,750
916,250 750,000.00 (138,750)
611,250.0
611,250.00
75,000.00 71,250.0 4,260,206.2 5
Home Office 1,865,000 ( 63,675) 1,801,325 1,300,000 790,000 (425,000) (785,500) 879,500 921,825 7,293.75 45,000 67,500 210,875 330,668.75 591,156.25 36,920 (3,000) 625,076.25
_______ 387,625
Branch 655,000 655,000 147,255 8,500 425,000 (130,750) 450,005 204,995
Combined 2,520,000 ( 63,675) 2,456,325 1,300,000 937,255 8,500 (916,250) 1,329,505 1,126,820
2,700 3,750 18,500 143,125 168,075 36,920
9,993.75 48,750 86,000 354,000 498,743.75 628,076.25
______ 36,920
(3,000) 625,076.25
3,750.00
71,250.00 4,278,781.25
