Chapter 9 Home office, Branch and Agency Accounting
PROBLEM 9-1: THEORY 1. B 6. D 2. D 7. D 3. C 8. D 4. D 9. A 5. C 10. A
B B C A D
11. 12. 13. 14. 15.
PROBLEM 9-2: COMPUTATIONAL 1. Solutions: Requirement (a):
Home office books
Branch books
Jan . 1, 20x1
Jan . 1, 20x1
Investment in branch……...500K Cash………………………….…500K
Cash……………………...500K Home office..…………… 500K
(a)
(a)
Investment in branch……...100K Accounts payable……………100K
Inventory…………………200K Accounts payable 100K Home office………………100K
(b)
(b)
No entry
Equipment………………120K Cash……………………….120K
(c)
(c)
Investment in branch……... 60K Accum. depreciation…..……300K Equipment………………….. 360K
Equipment……………….60K Home office………………..60K
(d)
(d)
No entry
Cash ……………………..600K Sales……………………… 600K Cost of goods sold……...180K (200K – 20K unsold) Inventory…………………180K
1
(e)
(e)
Cash…………………………..80K Investment in branch………..80K
Home office……………80K Cash……………………….80K
(f)
(f)
Investment in branch………25K Expenses…………………….25K
Expenses(150K + 25K) 175K Depreciation expense…. 10K Cash………………………150K Accum. depn………………10K Home office……………….25K
(g)Closing entries:
(g) Closing entries:
Sales……………………..600K Cost of goods sold………180K Expenses…………………175K Depreciation expense…….10K Income summary……….. 235K Investment in branch…..235K Income summary…………….235K
Income summary………235K Home office……………235K
Requirement (b): Investment in branch Jan. 1
500,000
(a) (c) (f)
100,000 60,000 25,000
(g)
235,000
80,000
(e)
840,000
Home office 500,00 0 100,00 0 80,000 60,000 25,000 235,00 0 840,00 0
Requirement (c): Cash Inventory Equipment Accum. Depreciation Total assets
750,000 20,000 180,000 (10,000) 940,000
Accounts payable Home office
100,000 840,000
2
Jan. 1 (a) (c) (f) (g)
Total liabilities & equity
940,000
Sales Cost of goods sold Gross profit Expenses Depreciation expense Profit
2.
Solution:
Cash Accounts receivable Inventory Investment in branch Land Building-net Total assets Accounts payable Ordinary share capital Share premium Retained earnings Home office Total liabilities & equity
3.
600,000 (180,000) 420,000 (175,000) (10,000) 235,000
Home office 500,000 1,000,000 680,000 400,000 2,000,000 4,000,000 8,580,000
Branch 200,000 400,000 300,000 -
900,000
Combined 700,000 1,400,000 980,000 2,000,000 4,000,000 9,080,000
4,000,000
500,000
4,500,000
2,000,000 200,000 2,380,000
400,000
2,000,000 200,000 2,380,000 -
8,580,000
900,000
9,080,000
Solutions:
Requirement (a):
Home office books
Branch books
(a)
(a)
Investment in branch……...470K (300K x 150%) + 20K Shipments to branch…….. 300K Allowance for mark-up…… 150K Cash………………………… 20K
Shipments from HO…..450K Freight-in……………… 20K Home office…………… 470K
3
(b)
(b)
No entry
Purchases……………..100K Freight-in…………………2K Cash……………………….102K
(c)
(c)
No entry
Cash…………………..500K Sales……………………… 500K
(d)
(d)
Inventory – end.,,,,,,, 235K (470K x ½) Income summary……..235K Requirement (b): Sales Cost of goods sold: Shipments from HO
500,000 450,000
Freight-in Purchases
22,000
Ending inventory
(235,000)
100,000 (337,000)
Individual gross profit
163,000
Requirement (c): Sales Cost of goods sold: Shipments from HO
500,000 300,000
Freight-in Purchases
22,000
Ending inventory
(160,000)
100,000
Individual gross profit
(262,000) 238,000
Requirement (d): 150,000 allow. for markup x 50% sold = 75,000
4
PROBLEM 9-3: MULTIPLE CHOICE - COMPUTATIONAL 1. B Solution: Sales 112,500 Shipments from home office 120,000 Inventory, Dec. 31 (30,000) (90,000) Gross profit 22,500 Expenses (8,100) Profit 14,400 2. D Solution: Home office Current, unadjusted Profit of branch
90,000 14,400
Adjusted balance of reciprocal accounts
104,400
3. A (see solutions below) 4. C Solutions: (Home office books) Investment in Branch Unadjusted balances
175,520
(a) Charge recorded twice (b) Mathematical mistake in recording (895 – 89.5) (c) Mathematical mistake in recording (980-890) (d) Mathematical mistake in recording (400-350) (e) Unrecorded charge (f) Erroneous credit to investment (g) Erroneous debit to HO account (h) Erroneous correcting entry
(Branch books) Home office 184,279.50 (500) 805.50 90 50 425
5,000 370 (5,000)
Adjusted balances
180,520
Notes: 5
180,520
squeez e
(d) A credit by the home office means a deduction to the “Investment” account which should have a corresponding deduction also to the “Home office” account. The deduction of ₱350 was recorded by the branch as ₱400 resulting to over-deduction. Thus the adjustment is an addition of ₱50. (e) The branch failed to record the charge as a credit to the “Home Office” Account. Instead, branch recorded the charge as a liability. Thus, the proper adjustment is an increase to the “Home Office” Account. (f) No adjustment is needed for the “Home Office” account because the branch did not take up initially (see ‘h’ below) the erroneous credit by the home office. (g) Initially, the branch did not take up the erroneous credit by the home office in ‘f;’ however, on June 30, 20x1 (cut-off date), the branch finally recorded the erroneous credit. The proper adjusting entry is to reverse this. A credit to the “Home Office” account means an increase; therefore, the correction is a decrease. 5. C Solution: Inventory, Dec. 31
28,000
Less: Inventory, Dec. 31 from local purchase Inventory, Dec. 31 from home office at billed price Divide by: Inventory from home office at cost Add: Inventory, Dec. 31, from local purchase Total ending inventory at cost
(7,000) 21,000 140% 15,000 7,000 22,000
6. D Solution: 180,00 0
Net sales Merchandise from home office at cost (98K / 140%)
Merchandise purchased locally by branch Total goods available for sale Total ending inventory at cost True gross profit
70,000 40,000 110,000 (22,000)
7. A Solution: Inventory, Dec. 31 Multiply by:
(88,000 ) 92,000
30,000 80% 6
Inventory, Dec. 31 from home office at billed price Divide by: Inventory from home office at cost Add: Inventory, Dec. 31, from local purchase (30K x 20%) Total inventory at cost
6,000 26,000
8. C Solution: Sales on account Sales on cash basis
74,000 22,000
Merchandise from home office at cost (54K / 120%)
Purchase of merchandise for cash Total goods available for sale Total ending inventory at cost Gross profit
45,000 26,000 71,000 (26,000 )
Expenses paid Expenses unpaid Profit (loss) 9. C Solution: Shipments sent by home office to branch, at billed price (30K x 12%)
Shipments from home office received by branch, at billed price Shipment in transit, at billed price
24,000 120% 20,000
(45,000 ) 51,000 (38,000 ) (12,000 ) 1,000
37,500 (32,500 ) 5,000
10. A Solution: Home office Beginning inventory, at cost: Home Office, acquired from outsiders, at cost Branch: Acquired from outsiders at cost Acquired from Home Office, in 20x1, at cost (24K / 120%) Net purchases, at cost: Purchase from outsiders
7
Branch
80,000 7,500 20,000 200,000
15,000
Shipments to branch, at cost Total goods available for sale Ending inventory, at cost: Home Office, acquired from outsiders at cost Branch: Acquired from outsiders at cost Acquired from Home Office, in 20x1, at cost (21K / 125%) Shipment in transit, at cost (5K / 125%) Cost of goods sold
Combined cost of goods sold
(30,000) 250,000 (55,000)
(5,500)
195,000
241,200
(195K +46.2K)
8
30,000 72,500
(16,800) (4,000) 46,200
PROBLEM 9-4: EXERCISES - COMPUTATIONAL 1. Solutions: Requirement (a):
Home office books
Branch books
Jan . 1, 20x1
Jan . 1, 20x1
Investment in branch……...600K Cash………………………….…600K
Cash……………………...600K Home office..…………… 600K
(a)
(a)
Investment in branch……...25K Accounts payable…………… 25K
Prepaid supplies………100K Accounts payable …………75K Home office……………… 25K
(b)
(b)
No entry
Equipment………………80K Cash……………………….80K
(c)
(c)
Investment in branch……...120K Accum. depreciation…..…… 80K Equipment………………….. 200K
Equipment……………….120K Home office………………120K
(d)
(d)
Accounts payable……..25K Cash………………………….25K
No entry
(e)
(e)
No entry
Accounts payable ………50K Cash……………………….50K
(f)
(f)
No entry
Cash ……………………..800K Service fees……………… 800K
(g)
(g)
Cash…………………………..180K Investment in branch………180K
Home office……………180K Cash……………………….180K
(h)
(h)
Investment in branch………60K Expenses…………………….60K
Expenses……………… 250K Depreciation expense…. 40K Advertising expense …….60K Supplies expense………..95K Cash………………………250K Accum. depn………………40K Home office……………….60K Prepaid supplies…………. 95K
9
(i)Closing entries:
(i) Closing entries:
Investment in branch…..355K Income summary…………….355K
Service fees…………….800K Expenses……………… 250K Depreciation expense…. 40K Advertising expense …….60K Supplies expense………..95K Income summary……….. 355K Income summary………355K Home office……………355K
Requirement (b): Investment in branch Jan. 1 (a)
600,000 25,000
(c) (h)
120,000 60,000
(i)
355,000
180,000
(g)
980,000
Requirement (c): Cash Prepaid supplies Equipment Accum. Depreciation Total assets
Home office 600,00 0 25,000 180,00 120,00 0 0 60,000 355,00 0 980,00 0
840,000 5,000 200,000 (40,000) 1,005,000
Accounts payable Home office Total liabilities & equity
25,000 980,000 1,005,000
Service fees Expenses Depreciation expense Advertising expense Supplies expense Profit
800,000 (250,000) (40,000) (60,000) (95,000) 355,000
10
Jan. 1 (a) (c) (h) (i)
2.
Solution:
Cash Accounts receivable Inventory Investment in branch Land Building-net Total assets Accounts payable Ordinary share capital Share premium Retained earnings Home office Total liabilities & equity
3.
Home office 600,000 1,200,000 816,000 480,000 2,400,000 4,800,000 10,296,000 4,800,000 2,400,000 240,000 2,856,000 10,296,000
Branch 240,000 480,000 360,000 1,080,000 600,000 480,000 1,080,000
Combined 840,000 1,680,000 1,176,000 2,400,000 4,800,000 10,896,000 5,400,000 2,400,000 240,000 2,856,000 10,896,000
Solutions:
Requirement (a):
Home office books
Branch books
(a)
(a)
Investment in branch……...500K (400K x 120%) + 20K Shipments to branch…….. 400K Allowance for mark-up…… 80K Cash………………………… 20K
Shipments from HO…..480K Freight-in……………… 20K Home office…………… 500K
(b)
(b)
No entry
Purchases……………..80K Freight-in…………………2K Cash……………………….82K
(c)
(c)
No entry
Cash…………………..600K Sales……………………… 600K
(d)
(d)
Inventory – end…… 125K (500K x ¼ ) Income summary……..125K
11
Requirement (b): Sales Cost of goods sold: Shipments from HO
600,000 480,000
Freight-in
22,000
Purchases
80,000
Ending inventory
(125,000)
(457,000)
Individual gross profit
143,000
Requirement (c): Sales Cost of goods sold: Shipments from HO
600,000 400,000
Freight-in
22,000
Purchases
80,000
Ending inventory
(105,000)
Individual gross profit
(397,000) 203,000
Requirement (d): 80,000 allow. for markup x ¾ sold = 60,000 4.
Answer: 250,000 - Only the sales by the branch to outside parties. Intracompany billings are eliminated in the combined financial statements.
12
PROBLEM 9-5: CLASSROOM ACTIVITIES ACTIVITY #1: Solutions: Requirement (a):
Home office books
Branch books
Jan . 1, 20x1
Jan . 1, 20x1
Investment in branch……...10M Cash………………………….… 10M
Cash……………………...10M Home office..…………… 10M
(a)
(a)
Investment in branch……...30M Cash………………..………… 30M
Land………………………10M Building…………………..20M Home office……………… 30M
(b)
(b)
Investment in branch……20.5M Shipments to the branch……..20M Cash………………………… 500K
Shipments from HO……20M Freight-in………………..500K Home office…………… 20.5M
(c)
(c)
Investment in branch……... 5M Shipments to the branch……. 5M
Shipments from HO…… 5M Freight-in………………..100K Home office……………… 5M Cash………………………100K
(d)
(d)
Equipment…………… 900K Investment in branch……900K
Home office……………900K Cash………………………900K
(e)
(e)
No entry
Furniture………… ……600K Cash………………………600K
(f)
(f)
No entry
Purchases…………….. 10M Accounts payable………..10M
(g)
(g)
No entry
Cash……………………50M Accounts receivable….50M Sales…………………….100M
(h)
(h)
Cash…………………………10M Investment in branch………10M
Cash……………………30M Home office…………...10M Accounts receivable……..40M
13
(i)
(i)
Cash…………………….35M Home office………………….35M
Home office……….35M Cash…………………….35M
(j)
(j)
No entry
Accounts payable……8M Cash…………………..8M
(k)
(k)
Expenses…………………1M Investment in branch………..1M
Expenses……………14M Home office………….1M Cash…………………..15M
(l)
(i)
Investment in branch……3M Expenses……………………….3M
Expenses………………3M Home office……………3M
(m)
(m) Adjusting entry:
No entry
Inventory – end. ………7.675M (20.5M x ¼) + (5.1M x ½)
Income summary………7.675M (o) Adjusting entry:
(o) Adjusting entry:
Investment in branch…..135K Accum. Depn. – Equipt…….135K
Depreciation – Bldg. 1M Depreciation – Equpt. 135K Depreciation – Furn. 75K Acc. Dep. – Bldg………. 1M Acc. Dep. – Furn……… 75K Home office………….. 135K
(p)Closing entries:
(p) Closing entries:
Investment in branch…..53.865M Income summary…………53.865M
Sales……………. 100M Income summary (m) 7.675M Shipments from HO…….25M Freight-in………………. 600K Purchases………………..10M Expenses……………… 17M Depreciation expense….1.21M Income summary……53.865M Income summary……53.865M Home office…………53.865M
14
Requirement (b): Investment in branch Jan. 10,000,00 1 0 (a) (b) (c) (l) (o) (p)
30,000,00 0 20,500,00 0 5,000,000 3,000,000
Home office
900,000 10,000,00 0 35,000,00 0 1,000,000
(d) (h) (i) (k)
900,000 10,000,00 0 35,000,00 0 1,000,000
135,000 53,865,00 0
10,000,00 0 30,000,00 0 20,500,00 0
Jan. 1
5,000,000 3,000,000
(c) (l) (o)
135,000 53,865,00 0 75,600,00 0
(a) (b)
(p)
75,600,00 0
Requirement (c): Cash Accounts receivable Inventory Land Building Accum. Depn. - Bldg. Furniture Accum. Depn. - Furniture Total assets
30,400,000 10,000,000 7,675,000 10,000,000 20,000,000 (1,000,000) 600,000 (75,000) 77,600,000
Accounts payable Home office Total liabilities & equity
2,000,000 75,600,000 77,600,000
Sales Cost of goods sold:
100,000,000
Shipments from HO
25,000,000
Freight-in
600,000
Purchases
10,000,000
Ending inventory
(7,675,000)
15
(27,925,000)
Gross profit
72,075,000
Expenses
(17,000,000)
Depreciation expense
(1,210,000)
Profit
53,865,000
16
ACTIVITY #2: Solutions: Requirement (a):
Home office books
Branch books
(a)
(a)
Investment in branch……200 Shipments to the branch……..200
Shipments from HO……200 Home office…………… 200
No entry
Home office…………… 50 Shipments from HO……
50
(b)
(b)
Investment in branch……... 100 Cash………………………... 100
Cash……………… 150 Home office……………… 150
(c)
(c)
No entry
Home office……… 20 Cash (or Expense) ……
(d)
(e)
Investment in branch …………10 Expense……………………….10
No entry
Requirement (b): Investment in branch Jan. 1 1,000 (a) 200 (b) 100 (d) 10
20
Home office 1,00 0
(a) (c)
50 20
1,310
200 150
Jan. 1 (a) (b)
1,280
Difference = 30 Requirement (c):
Home office books
Branch books
(a)
(a)
Shipments to the branch….. 50 Investment in branch……….. 50 (b)
(b)
Home office……….. 50 Cash………………………. 50 (c)
(c)
17
Expenses…………….. 20 Investment in branch………..20 (d)
(d)
Expense 10 Home office………………10
Requirement (d): Investment in branch Unadj . 1,310 50 20
Home office
(a) (c)
(b )
18
Unadj.
10
(d)
50
1,24 0
1,240
1,280
