Chapter 13 Problem I Sales........ Sales................ ................. ................ ................. .................. ................. .................. ................ ................. .................. ................. .................. ................ ......... 42,000 Ship Shipme ment ntss to Newa Newark rk Bran Branch ch.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. 35,0 35,000 00 Unre Unreal aliz ized ed Inte Interc rco ompan mpany y Inv Invento entory ry Pro Profit. fit... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. 7,00 7,000 0 Cost of merchandise shipped t branch: P42,000/1.20= P35,000. Shipments to Newark Branch......................... Branch............................................ .......................................... ............................... ........ .. Unreal Unrealize ized d Interco Intercompan mpany y Inventor Inventory y Profit... Profit....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ ....... ... Sales Retur turns. ns...... ........ ....... ........ ....... .......... ........ ......... ......... ....... ........ ........ ....... ....... ............ ....... ........ ....... .......... ... Cost of merchandise returned by branch: P750/1.20= P625.
625 125
Newark Branch Income......................... Income............................................. ........................................ ........................................ .................... Newar wark Bra Branch...... ........ ....... ........ .......... ........ ....... ....... ........... ....... ......... ....... ....... ........... ........ ....... ........ .......... ...
2,600
Unrealized Intercompany Inventory Profit.......................................... Profit.................. ...................................... .............. Newar wark Bra Branch...... ........ ....... ........ .......... ........ ....... ....... ........... ....... ......... ....... ....... ........... ........ ....... ........ .......... ... Decrease in Unrealized Intercompany Inventory Profit: Profit: Balance prior prior to adjustment, adjustment, 12/31, 12/31, P7,000 – P125.......... P125............... ..... P6,875 P6,875 Balance required in account, 12/31, P16,500 P16,500 – (P16,500/1. (P16,500/1.20)..... 20)............ ............... ................. .................. ................. ................. ............. .... 2,750 Decrease.................................................................................... P4,125
4,125
750
2,600
4,125
Newark Branch Income...................................................................................... 1,525 Inc Income Summary ary... ........ ....... ...... ...... ....... ........ ........ ......... ........ ....... ......... ........ ...... ..... ........ ....... ........ ....... .......... ....
1,525
Problem II a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on December 31, calculated as follows:
Merchandise transferred by home office at billed price, 35% above cost cost (P16,200 plus P20,250)....................... P20,250)............................................. ...................... P36,450 Merchandis Merchandise e transferre transferred d by home home office office at cost, cost, P36,450/1. P36,450/1.35.... 35.... 27,000 27,000 Additions to unrealized profit account resulting from transfers by home office....... office............... .................. ........................ ....................... ................. ................. ................. ................. ............ ... P9,450 P9,450 b. Unrealized Intercompany Inventory Profit.................................................. 4,550 Cash Cash.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ...... .... .... .... .... .... .... .... ..
4,55 4,550 0
Balance of unrealized profit account at December 31 (as calculated above).......................................................................................................... P 9,450 Required balance, December 31, to reduce inventory to cost: Ending inventory of merchandise shipped to branch by home office: At billed price......... price................. ................. ................. ................. .................. ................ ......... .................. .......................... ................. ........... .. P 18,900 At cost (P 18,900/1.35) 18,900/1.35)........ ............... ..................... ....................... ...................... ..................... ............... ................ ................ ....... 14,000 4,900 Required decrease in unrealized profit account as a result of branch sales......... sales................ ................ ................. ......................... ......................... .................. .................. ........................ ....................... ................. .................. .......... P4,550 P4,550
c. Branch Books: Home Office........................................................................................... 540 Shipm hipmen ents ts fro from m Home Home off offic ice. e... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Home Office Books: Shipments to Branch.............................................................................. 400 Unrealized Intercompany Inventory Profit........................................... 140 Bran Branch ch.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Cost of merchandise returned: P540/1.35, or P400.
540 540
540 540
Problem Proble m III a. The branch office inventory as of December 1 considered of: Shipments from Home Office (see below)............................................................. P 12,000 Purchases Purchases from outsiders outsiders (balance (balance of inventory).. inventory).......... ................ ................ ................. .................. ............... ...... 3,000 Total inventory.. inventory.......... ................. ................. ....................... ........................ ................... ................. ................ ................. ................. ................... ............. ... P 15,000 Goods acquired from home office and included in bra nch inventory at billed price are calculated as follows: Balance of unrealized intercompany inventory profit, December 31.................... 31 .................... P 3,600 Additions to unrealized profit account during December, 20% of shipments shipments to branch (20% x P8,000)....... P8,000)............... ................. .................. ................ ................ .................. ................. ................. ........... .. 1,600 Balance of unrealize unrealized d profit account, account, December 1............ 1..................... ................. ................ .................. ............. ... P 2,000 Balance of unrealized profit account, December 1, P2,000 / 20% markup on cost equals December 1 inventory at cost............................................. cost.......................... ...................................... ................... P 10,00 0 Add 20% markup......... markup.................. ................. ................. ................ ................ ................... .................. ................. ................ ................ ................... ............. ... 2,000 Goods in branch inventory inventory at billed price........................... price.............................................. ...................................... ................... P 12,000 b. Unrealized Intercompany Inventory Profit......................................... 2,200 Bra Branch Inc Income....... ....... ........ ....... .......... ........ ....... ...... ...... ....... ........ ........ ....... ....... ............ ....... ......
2,200 200
Calculation of reduction in Unrealized Intercompany Inventory Profit: Balance of unrealized profit account, December 31.........................P 3,600 Required balance, December 31, to reduce inventory to cost At billed price......................................... price.................... .......................................... .......................... ..... P8,400 At cost cost (P8,40 (P8,400/1. 0/1.20). 20)..... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... .. 7,000 7,0 00 1,400 Required decrease in unrealized profit account as a result of branch sales......... sales................ ................ ................. ................. .................. ................ ................. .................. ................. ............ ... P 2,200 Prob Proble lem m IV (1) Dec.31 Selling Expenses........................... Expenses............................................... .......................................... ............................. ....... 260 Stor Store e Supp Supplilies es.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Suppli Supplies es used used:: P400 P400 – P140, P140, or or P260. P260. 31
Selling Expenses.......................... Expenses................................................ .......................................... ............................ ........ 80 Accumul mulated ted Depre preciatio tion-S n-Store Furnitur ture... ....... ........ ....... .......... ...... Depreciation:1% of P8,000, or P80.
260 260
80
31 Selling Selling Expenses........ Expenses............... ............... ................. .................. ................ ................. .................. ................. ........... Accrued Expenses Payable.................................................
120 120
31 Prepaid Prepaid Sellin Selling g Expens Expenses. es..... ........ ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ ........ ...... . 150 Selling Expen penses....... ....... ......... ......... ........ ....... ........ ........ ....... ........ .......... ........ ....... ........... ... 31 Income Summary........................ Summary............................................. ........................................ ............................ ......... 16,000 Merc Mercha hand ndis ise e Summar mmary. y... .... .... .... .... .... .... .... .... .... .... ..... ..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... 31 Merchandise Merchandise Summary Summary........ ................ ................. ................. .......... ................ ........................ ............... ....... 16,950 Inco Income me Summ Summar ary. y... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ...... ...... .... .... .... .... .... .... .... .... .... .... .... .... 31 Notes Payable........................................ Payable................. ................................... ............ .............................. .................. ............ 1,000 Home Home Offi Office ce.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... 31
150 16,0 16,00 00
16,9 16,950 50 1,00 1,000 0
Sales.................................................................................................20,500 Inco Income me Summ Summar ary. y... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
20,5 20,500 00
31 Income Summary Summary......... ................. ................ ................ ................. ............................ ............................ .............. ..... 21,900 Purc Purcha hase ses. s... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Ship Shipme ment ntss from from Home Home Offi Office ce.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Sell Sellin ing g Expe Expens nses es.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ...... ...... .... .... .... .... .... .... .... .. Gene Genera rall Expe Expens nses es.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....
5,00 5,000 0 10,5 10,500 00 4,56 4,560 0 1,84 1,840 0
31 Home Office....... Office................ ................. ................. ................ ................ .............................. ............................. ................ .......... 450 Inco Income me Su Summar mmary. y... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
450
(2) Dec.31 Dec.31 Branch No. 1.............. 1....................... .................. ................ ................. .................. .......... .................. .......................... ........ 1,000 Cash Cash.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ..... .... .... .... .... ..... ..... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Branch Branch No. 1 Income.... Income....... ....... ........ ........ ........ ........ ....... ....... ........ ......... ............ ........... ........ ........ ........ ....... ... Bran Branch ch No. 1... 1..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ..... .... .... .... .... .... .... .... .... .... .... .... .... ....
1,00 1,000 0
450
31 Unrealized Intercompany Intercompany Inventory Inventory Profit.................... Profit............................. ................. .......... .. 2,200 Bran Branch ch No. No. 1 Inco Income me.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ...... ...... .... .... .... .... .... .... .... .... .... .... .... .... ....
450 450
2,20 2,200 0
Calculations of unrealized profit adjustment on merch andise shipped by home office: Billing to Cost Unrealized Branch (Billing/1.1/ Profit 3) (Billing Price Minus Cost) Inventory, Dec.1............................................................ P 12,500 P 9,375 P 3,125 Shipments during December........... ........................... 10,500 7,875 2,625 Total in unrealized profit on December 31................. P 5,750 Inventory, Dec.31......................................................... 14,200 10,650 3,550 Reduction in unrealized profit accountadjustment to branch profit for overstat ed of cost of g go oods so sold................................................................. P2 2,,200 31 Branch No. 1 Income............................................................... 1,750 Income Su Summary.............................................................
1,750
Problems V (1) SPENCER CO. Balance Sheet for Branch December 31,20x4 Assets Cash... Cash....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ .... P 2,6 2,650 50 Acco Accoun unts ts rece receiv ivab able le.. ..... ...... ..... .... ..... ...... ..... ..... ..... 12,8 12,850 50 Mercha Merchandi ndise se invent inventory ory... ....... ........ ........ ........ ...... .. 14, 14,600 600 Store supplies...................................... supplies.................... .................. 300 Prepaid expenses.......................... expenses............................... ..... 120 Furniture and fixtures.............. P 3,600 Less: Accumulated depreciation.............. 57 6 3 , 02 4 Total Total asset assets. s... ..... ..... ..... ...... ...... ...... ..... ..... ..... ..... ..... ..... ..... .... .. P 33, 33,54 544 4
Liabilities____________________ Accoun Accounts ts payable payable... ....... ........ ........ ........ ........ ....... ....... ........ ...... P 4,2 4,200 00 Accru Accrued ed expe expens nses es... ..... ..... ..... ..... ..... ..... ...... ..... .... ..... ...... ...... ..... 105 Home office office.... ........ ........ ........ ....... ....... ........ ........ ....... ....... ........ ........ ...... 29, 29,239 239
________ Total Total liabil liabilit itie ies. s.... ..... ..... ..... ..... ..... ..... ..... ..... ...... ..... ..... ..... ..... ..... ..... ..... .. P 33, 33,54 544 4
SPENCER CO. Income Statement for Branch For Month Ended December December 31, 20x4 Sales........................................................................................................................................... P 20,000 Cost of goods sold: Merchandise inventory, December 1........................................ 1.................... ............................ ........ P 14,400 Purchases.............................................................................................. 4,100 Shipments Shipments from home office........ office............... ................ .................. .................. ................. ................ ............. ..... 10,200 10,200 Merchandise available for sale...................................... sale................... ....................................... .................... P 28,700 Less: Merchandis Merchandise e Inventory, Inventory, December December 31.............. 31...................... ............... ............... ........ 14,600 14,600 Cost of goods sold... sold.......... ................ ................. ................. ................. ................ .................. .................. ................. ................. ................ ................ ........ 14,100 Gross profit............. ......................................... ................... ....................................... ........................................ ......................................... ................................... ................. P 5,90 0 Operating expenses: Advertising expense........................... expense................................................ ......................................... ............................. ......... P 2,800 Salaries and commissions expense...................... expense............................................. ............................... ........ 2,350 Store supplies expense....................... expense.............................................. ........................................... .................... ....... 280 Miscellaneous selling expense.................... ................................... ............... ......................... ..... 1,050 Rent expense....................... expense.............................................. ......................................... ....................................... ........................ ... 1,500 Depr Deprec ecia iati tion on expe expens nse e – furn furnit itur ure e and and fixt fixtur ures es.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. 36 Misc Miscel ella lane neou ouss gene genera rall expe expens nse. e... .... ..... ..... ..... ..... ..... ...... ..... ..... ..... ..... ...... ...... ..... ..... ...... ..... ..... ...... ...... ..... 905 905 Total Total operati operating ng expense expenses.. s...... ........ ....... ....... ........ ........ ........ ........ ....... ....... ......... ......... ....... ....... ........ ........ ........ ........ ........ ....... ....... ........ ....... ... 8,921 8,9 21 Net loss.......... loss..................... .................... .................. ................ ................ .................. ................. .................. ................. ................ .................. ................. ................. ................. .......... .. P 3,021 SPENCER CO. Balance Sheet for Home Office December December 31, 20x4 Assets Liabilities and Stockholder’s Equity_______ Cash..................................................... P10,350 Liabilities Cash in transit....... transit.............. ................. .................. ............. ..... 1,500 Accounts Accounts payable......... payable................ ....... P 35,400 35,400 Accou ccoun nts receivable..... ....... ......... ....... ........ ... 26,200 Accrue rued expenses.... ........ ....... ..... 260 P 35,66 5,660 0 Merchandise inventory..................... 24,200 Stockholders’ Equity Stor Store e supp supplie lies. s... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... .. 380 380 Capit Capital al Stoc Stock. k.... ...... ..... ..... ..... ..... ..... ..... ..... .... P 65,0 65,000 00 Prepa repaid id expe expens nses es.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... 350 350 Less ess defic eficit it...... ...... .... .... .... .... .... .... .... .... .... .... .... .... 4,4 4,476 60,5 60,524 24 Furniture and fixtures.............. P 8,500
Less: Accumulated depr deprec ecia iati tion on.. .... .... .... .... .... .... .. 2, 585 585 5,91 5,915 5 Branch..................................... P29,239 Less: Unrealized intercompany inv invento entory ry prof profit it.. .... .... .... .... .... .. 1,95 1,950 0 27,28 7,289 9 Total Total asset assets. s... ..... ..... ..... ...... ...... ...... ..... ..... ..... ..... ..... ..... ..... ..... ... P 96,1 96,184 84
Tota Totall liliab abililiitie ties and and ____ ______ ___ __ stoc stockh khol olde der’ r’ss equi equity ty... ..... ..... ..... ..... ..... ..... ...... ..... ..... ..... ..... ... P 96, 96,18 184 4
SPENCER CO. Income Statement for Home Office For Month Ended December December 31, 20x4 Sales........................................... Sales........................ ......................................... ....................................... ........................................ ...................................... ............... ................... ................ ... P 44,850 Cost of goods sold: Merchandise inventory, December 1........................................ 1.................... ............................ ........ P 31,500 Purchases.. Purchases.......... ................ .................. ................. ............... ................. .................. ................. ................. ................. ................ ........ 27,600 27,600 Merchandise available for sale.......................... sale................... ....................... ................................ ................ P 59,100 Less: Less: Shipmen Shipments ts to branch... branch....... ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ....... ... 8,500 8,5 00 Merchandise available for own sales................................................ sales..................................... ........... P 50,600 Less: Merchandise Merchandise Inventory, Inventory, December December 31.............. 31...................... ................. ............... ...... 24,200 24,200 Cost of goods goods sold......... sold.................. ................. ................. .................. ................ ................. .................. ................. .................. ............ ... 26,400 Gross profit................................................................................................................................. P 18,450 Operating expenses: Advertising expense........................... expense................................................ ......................................... ............................. ......... P 2,850 Salaries and commissions expense................................. expense............. ........................................ .................... 4,250 Store supplies expense....................... expense.............................................. ........................................... .................... ....... 560 Miscellaneous selling expense....................... expense.......................................... ................................... ................ .. 1,850 Rent expense....................... expense.............................................. ......................................... ....................................... ........................ ... 2,700 Depreciation Depreciation expense expense – furniture furniture and fixtures..... fixtures............. ................ ................. ............. .... 85 Miscel Mis cellan laneou eouss general general expense expense..... ......... ....... ....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ....... ... 2,510 2,5 10 Total operating operating expenses.... expenses........... ................ ................. ................. .................. ................. ................. ................. .............. ...... 14,805 Net income from own operations.................... operations........................................... ......................... ................................... ................ ............................. .......... P 3,645 Less: Branch net loss........ loss................. ................. ................. ................. ................ .................. .................. ................. ................. ................ .................. ............ ........ 1,271 Total income.......... income................... ................. ................ .......................... ......................... ................. .................. ................. .................. ................ ................. .................. ........... ... P 2,374 2. WORKSHE WORKSHEET ET – ref refer er to a sepa separat rate e sheet sheet SPENCER CO. Combined Balance Sheet for Home Office and Branch December 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 Total assets ……………………… P100,489
Liabilities Accounts Payable ……….. P39,600 Accrued Expenses ………. 365 Stockholders’ Equity Capital Stock ……………… P65,000 Less deficit …………………. 4,476
P 39,965
60,524
Total liabilities and stockholders’ equity …………… P1 P100,489
SPENCER CO.
Combined Income Statement for Home Office and Branch For Month Month Ended December December 31, 31, 20x4 Sales ……………………………………………… ……………………………………………………………………………………… ………………………………………………………… ………………… P64,850 Cost of goods sold: Merchandise Merchandise Inventory, Inventory, December December 1 ………………………… …………………………………… ………… P43,900 P43,900 Purchases Purchases ……………… ………………………… ……………………… ……………………… ……………………… …………………… ……… 31,700 31,700 Merchandise available for for sale …………………………………………… …………………………………………… P75,600 Less merchandis merchandise e inventory inventory,, December December 31 ………………… ……………………………. …………. 36,850 36,850 Cost of goods sold ………………………………………………………….. 38,750 Gross pr profit … …… …………………………………………………………………………… P26,100 Operating Expenses: Advertisin Advertising g Expense Expense …………… ………………………… ……………………… ……………………… …………………… ……… P 5,650 Salari Salaries es and Commis Commissio sions ns expens expense e ………… ……………… …………… ……………… ……………… ……… 6,600 6,6 00 Stor Store e supp supplilies es expe expens nse e …… ………… ………… ………… ………… ………… ………… ………… ………… ………… …….. .. 840 840 Misc Miscel ella lane neou ouss selli selling ng expe expens nse e …………… ………………… ………… ………… ………… ………… ………… …… 2,90 2,900 0 Rent Rent expe expens nse e ………… ……………… ………… ………… ………… ………… ………… ………… ………… ………… ………… ……… … 4,20 4,200 0 Depr Deprec ecia iati tion on Exp Expe ense nse – F&F ……… ………… ……… ……… ……… ……… ……… ……… ……… ………… ………. …. 121 121 Miscel Mis cellan laneou eouss genera generall expense expense ……… ……………… ……………… ……………… ……………… …………. …. 3,415 3,4 15 Total operating operating expense …………… ………………………… ……………………… …………………… ……………………… ………………………. …………. 23,726 23,726 Net Income …………………………………………… …………………………………………………………………………………… …………………………………………………… …………… P 2,374
(a) Dec
Branch Books 31
31
31
Dec.
31
31
31
31
31
Income Summary …………………………………………….. Merchandise Inventory ……………………………..
14,400
Merchandise Inventory ……………………………………… Income Summary …………………………………….
14,600
Store Supplies Expense ………………………………………. Store Supplies ………………………………………… Store Store suppli supplies es used: used: P580 P580 – P300, P300, or P280 P280
280
14,400
14,600
28 0
Prepaid Expenses ………………………………………………… Miscellaneous General Expense …… … ………………….
120
Miscellaneous General Expense ……………………………… Accrued Expenses ……………………………………..
105
Depreciation Expense – F&F ………………………………….. Accumulated Depreciation ………………………… Depreciation: 1% of P3,600
36
Miscellaneous Ge General E Exxpense …… …………………………….. Home Office ……………………………………………
220
Sales ……………………………………………………………… Income Summary …………………………………….
20,000
1 20
10 5
36
220
20,000
31
31
(b) Dec
22,221
Home Office ……………………………………………………. Income Summary ……………………………………..
3,021
4,100 10,200 2,800 2,350 280 1,050 1,500 36 90 5
3,021
Home Office Books 31
31
31
31
31
31
31
31
Dec
Income Su 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 Inv Inventory ……… ………………………………………. ….... Income Summary ………………………………………
24,200
Store Su Supplies Expense …………………………………………. Store Supplies …………………………………………… Store supplies supplies used: used: P940 P940 – P380, or : 560 560
5 60
Prepaid Expense ………………………………………………… Miscellaneous General Expense ……………………
350
Miscellaneous General Expense …………………………….. Accrued Expenses …………………………………….
260
Depreciation Expense ………………………………………….. Accumulated Depreciation – F& F&F …………………. Depreciation: 1% of P8,500, or P85
85
31,500
24,200
560
350
2 60
85
Cash in Transit …………………………………………………. Branch …………………………………………………
1,500
Sales …… … ………………………………………………………… Shipm hipmen ents ts to bran branch ch …… ………… ……… ……… ……… ……. …... .... .... .... .... .... .... .... .... .... .... .. Income Summary ………………………………….
44,850 8,500 ,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
1,500
53,350
27,600 2,850 4,250 560 1,850 2,700 85 2,510
31
31
31
31
Branch Income …… ……………………………………………….. Branch …………………………………………………
3,021
Unrealized Intercompany Inventory Profit ………………. Branch Income ……………………………………… Calculation of unrealized profit adjustment: Balance of unrealized profit account, Dece Decemb mber er 31 …… ………… ………… ………… ………. …... P3,7 P3,700 00 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 ber 31, P11, P11,7 700 – P9,750 .... 1,950 Required decreased in unrealized profit Adjustment to branch income for Overstatement of cost of goods Sold Sold …… ………… ………… ………… ………… ………… ………… …….. .. P1,7 P1,750 50
1,750
Income Summary …………………………………………… Branch Income …………………………………….
1,271
Income Summary ………………………… ………………… Retained Earnings ………………………………….
2,374
3,021
1,750
1,271
2,374
Problem VI 1. Branch Current 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
P 4 4,00 0
H. Office Current P 9,000
( 10,000)
_______ P 3 4 ,0 0 0
1 0 ,0 0 0 12,000 3,000 P34,000
2. Combined Income Statement Sales [(P350,000 [(P350,000 – P105,000) P105,000) + P150,000)…… P150,000)………........ …............... ................ ...................... ....................... ................. ......... P395,000 Less: Less: Cost Cost of good goodss sold sold [(P220 [(P220,00 ,000 0 – P84,00 P84,000) 0) + (P93 (P93,0 ,000 00 + P3,6 P3,600 00 – P21, P21,00 000 0 – P1,2 P1,200 00)] )]…… ………… ………… ………… ………… ………… ………… …….. 210, 210,40 400 0 Gross profit......... profit.................. .................. ................ ................ .................. ................. ................. ................. ................. .................. ................ ................. ............. ... P184,600 P184,600 Operating Operating expenses expenses (P70,000 (P70,000 + P41,000 P41,000 + P12,000 P12,000)......... ).................. ................ ................ .................. .............. ..... 123,000 123,000 Net income......... income................. ................. ................ ................ .................. ................. .................. ................. ................ .................. ................. ................. ............. .... P 61,600 61,600 Problem VII (1) PAXTON CO. Income Statement for Dayton Branch For Year Ended Ended December December 31, 20x5
Sales.............................................................................................................................. P315,000 Cost of goods sold: Merchandise inventory, January 1, 20x5................................... 20x5.................. ................. P 44,500 Shipments Shipments from from home office... office.......... ..................... ....................... .................. ................. ............ .... 252,000 252,000 Merchandise available for sale................................................. P296,500 Less Less:: Merc Mercha hand ndis ise e Inve Invent ntor ory, y, Dece Decemb mber er 31, 31, 20x5. 20x5... ..... ..... ..... ..... ..... ..... .. 58,5 58,500 00 238, 238,00 000 0 Gross profit................. ..................................... ................. ....................................... .......................................... ....................................... .................. P 77,000 Operating Operating expense expenses..... s.............. ................. ................. ................ ................ ................... .................. ................. ................ ................ ................ ....... 101,500 101,500 Net loss.......... loss..................... .................... .................. ................ ................ .................. ................. .................. ................. ................ .................. ................. ............ .... P 24,500 24,500
PAXTON CO. Income Statement for Cincinnati Home Office For Year Ended Ended December December 31, 20x5 Sales........ Sales................ ................. ................ ................. .......................... ......................... ................. ................. ................. ................. .................. ................ ................ ......... P1,060,000 P1,060,000 Cost of goods sold: Merchandise inventory, January 1, 20x5................................... 20x5.................. ................. P115,000 Shipments Shipments from from home office... office.......... ............... ................. .......................... ......................... .......... .. 820,000 820,000 Merchandise available for sale................................................. P935,000 Less: Shipmen Shipments ts to branch....... branch............... ................ ................. ................. ................. ................ ......... .. 210,000 210,000 Merchandise available for own sales....................................... P725,000 Less Less:: Mer Merch chan andi dise se Inve Invent ntor ory, y, Dece Decemb mber er 31, 31, 20x5 20x5.. .... .... .... .... .... .... .... .... .. 142, 142,50 500 0 582, 582,50 500 0 Gross profit..................................... profit................. ....................................... ...................................... .......................................... ............................. ...... .......... P477,500 Expens Expenses. es.... ....... ........ ........ ....... ....... ........ ........ ....... ....... ........ ........ ........ ........ ....... ....... ........ ........ ......... ........ ....... ........ ........ ........ ....... ....... ........ ........ ........ ........ ...... . 382,00 382,000 0 Net income income from own operati operations ons.... ........ ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ ........ ...... ........ ............ ......... ..... P 95, 95,500 500 Add Add branch branch net income income... ....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ........ ......... ........ ........ ........ ........ ....... ....... ........ ....... ....... ........ ....... ... 16,650 16, 650 Total income...... income............... .................. ................ ................ ................. ................. ................... ................. ............................... ................................ ............. ..... P112,150 P112,150 (2) PAXTON CO. Combined Income Statement for Home Office and Branch For Year Ended Ended December December 31, 20x5 Sales........................................... Sales........................ ......................................... ....................................... ............................... .............. .............................. ............. ................. P1,375,000 Cost of goods sold: Merchandise inventory, January 1, 20x5...................................P 20x5.................. .................P 150,600 Purchases...................................................................................... 820,000 Merchandise available for sale..................................... sale................... .............................. ............ P970,600 Less Less:: Merc Mercha hand ndis ise e Inve Invent ntor ory, y, Dec Decem embe berr 31, 31, 20x5 20x5.. .... .... .... .... .... .... .... .... .. 191, 191,25 250 0 779, 779,35 350 0 Gross profit..................................... profit................. ....................................... ..................................... .................. ...................................... ....................... ................... .... P595,650 Operating Operating expenses.... expenses............. ................. ................ ................ ................. ................... .................. ................ ................ ................. ................... ............ 483,500 483,500 Net income........ income................ ................ ................ ................ ................. ................. .......... .. ................. ......................... ................. ................. ................. .............. ..... P112,150 P112,150 (3) Merchandise Inventory, December 31........................................... 31................... ......................................... ..................... .... 58,500 Sales.......................................................................................................................... 315,000 Inco Income me Summ Summar ary. y... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....
373, 373,50 500 0
Income Summary......................................................................................................... 398,000 Merc Mercha hand ndis ise e Inve Invent ntor ory y, Janu Januar ary y 1... 1..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Ship Shipme ment ntss from from Home Home Offi Office ce.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ...... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Oper Operat atin ing g expe expens nses es.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
44,5 44,500 00 252, 252,00 000 0 101, 101,50 500 0
Home Office........ Office................ ................. ................ ................ ................. ............................ ............................ ................. ................ ................ .................. .........
24,500
Inco Income me Summa ummary ry.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
24,5 24,500 00
(4) Branch Income....... Income................ ................. ................. ................ ......... ................. ......................... ................. ................. ................ .................. .......... Bran Branch ch.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
24,500 24,500
Unrealized Unrealized Intercompany Intercompany Inventory Inventory Profit............. Profit...................... ................ ................ ................. ................. ................. ........ Bran Branch ch Inc Income. ome... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Calculation of unrealized profit adjustment: Branch inventory, January 1, acquired from home office at billed price........................... price.............................................. ...................................... ....................................... ...................... P 44,500 Less: Cost of inventory inventory (P44,500/1. (P44,500/1.25)..... 25)............. ............... ................. .................. ................. ............ .......... ....... 35,600 Unrealized Intercompany Inventory Profit Jan. 1...................................... 1................... ..................... P 8,900 Add: Increase in unrealized profit for shipments made during year, billed price of goods, P252,000, P252,000, cost of goods, goods, P210,000..... P210,000............. .................. .................. ................. ................ ............ ..... 42,000 P 50,900
41,150
Deduct balance to remain in unrealized profit account: Branch inventory, December 31, acquired from home office....................................... office....................... ................ P 58, 500 Less: Cost of inventory to home office, P58, P58,50 500/ 0/1. 1.20 20.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. 48,7 48,750 50 Reduction Reduction in unrealized unrealized profit profit accountaccount- adjustment adjustment to branch income for overstatement of cost of goods sold.......................... ...................... ........................
24,5 24,500 00
41,1 41,150 50
9,75 9,750 0
41,150
Branch Income......................... Income............................................... ...................................... ........................................ .......................................... ...................... .... 1 6,650 Inco Income me Summa ummary ry.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
16,6 16,650 50
Merchandise Inventory, December 31.......................................... 31.................... .......................................... ............................ ........ 142,500 Sales............................................................................................................................... 1,060,000 Shipments to Branch......................... Branch............................................ ...................................... ....................................... ..................................... ................. 21 0,000 Inco Income me Summ Summar ary. y... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. 1,41 1,412, 2,50 500 0 Income Summary.......................... Summary............................................. ....................................... .......................................... ...................................... .................. .. 1,31 7,000 Merc Mercha hand ndis ise e Inve Invent ntor ory y, Janu Januar ary y 1... 1..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Purc Purcha hase ses. s... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Expe Expens nses es.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....
115, 115,00 000 0 820, 820,00 000 0 382, 382,00 000 0
Income Summary..... Summary.............. ................. ............... ................ .................. .................. ................. ................ ................. .................. ................ .......... ... ...... 112,150 112,150 Reta Retain ined ed Earn Earnin ings gs.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
112, 112,15 150 0
Problem VIII (1) RUGGLES CO. Income Statement for Branch For Year Ended Ended December December 31, 20x4 Sales......................................... Sales...................... .......................................... ....................................... ................................ ................ ................................ ............... ................. P 78,500 Cost of goods sold: Merchandise inventory, January 1, 20x4...................................... 20x4.................. ....................... ... P 32,000 Shipments from home office...................................... office.................... ....................... ..... P 4 0,000
Purc Purchas hases es from from outs outsid ider ers. s... ..... ..... ..... ...... ..... ..... ..... ..... ..... ..... ...... ..... .... ..... ..... ..... ...... ..... .. 20,00 20, 000 0 60, 60,00 000 0 Merchandise available for sale...................................... sale................... .................................. ............... .. P 92,000 Less: Less: Mercha Merchandi ndise se Invent Inventory ory,, Decemb December er 31, 20x 20x4... 4....... ........ ........ ....... ....... ...... .. 31,500 31,500 Cost Cost of goods goods sold.. sold...... ....... ....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ......... ......... ........ ........ ....... ....... ...... .. 60,500 60, 500 Gross profit................................ profit................. ............... ..................................... ...................... ....................................... ........................................... ....................... .... P 18,000 Operati Operating ng expens expenses. es.... ....... ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ ......... ........ ....... ........ ........ ........ ........ ....... ....... ........ ........ ......... ....... .. 12,500 12,500 Net income........ income................... ................... ................ ................. ................. ................ .................. .................. ................. ................ ................ ................... ............ .. P 5,500 RUGGLES CO. Income Statement for Home Office For Year Ended Ended December December 31, 20x4 Sales........ Sales................ ................. ................ ................. .................. ........................... .......................... ................. .................. ................. ................. ................ ............... ....... P 256,000 256,000 Cost of goods sold: Merchandise inventory, January 1, 20x4................................... 20x4.................. ................. P 80,000 Purchases.. Purchases.......... ................ .................. ................. ............... ................. ............................. ............................ .............. ...... 210,000 210,000 Merchandise available for sale................................................. P 290,000 Less: Less: Shipment Shipmentss to branch... branch....... ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ..... .. 30,000 30, 000 Merchandise available for own sales................... sales....................................... .................... P 260,000 Less: Less: Mercha Merchandi ndise se Invent Inventory ory,, Decemb December er 31, 20x 20x4... 4....... ........ ........ ....... ... 55,000 55, 000 Cost Cost of goods sold.... sold........ ........ ........ ........ ....... ....... ........ ........ ........ ........ ....... ....... ........ ........ ....... ....... ........ ........ ....... ..... 205,00 205,000 0 Gross profit..................................... profit................. ....................................... ...................................... .......................................... ...................................... ............... .. P 51,000 Operati Operating ng Expense Expenses.. s...... ....... ....... ........ ........ ........ ........ ....... ....... ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... ....... ........ ........ ........ ....... ..... ..... ..... 60,000 60, 000 Net loss from own operations........................ operations......................................... ........................................ ........................................ ..................... .... P 9, 000 Add Add branc branch h net net income income... ....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ........ ......... ........ ........ ........ ........ ....... ....... ........ ....... ....... ...... ....... ....... 13,500 13,500 Total Total income. income..... ........ ....... ....... ........ ........ ....... ....... ........ ........ ........ ........ ....... ....... ........ ........ ......... ........ ....... ........ ........ ........ ....... ....... ........ ........ ........ ........ ....... ... P 4,500 4,5 00 (2) RUGGLES CO. Combined Income Statement for Home Office and Branch For Year Ended Ended December December 31, 20x4 Sales........................................... Sales........................ ......................................... ....................................... ............................... .............. .............................. ............... ............... P Cost of goods sold: Merchandise inventory, January 1, 20x4................................... 20x4.................. ................. P 107,500 Purchases...................................................................................... 230,000 Merchandise available for sale.................................................. P 337,500 Less: Less: Mercha Merchandi ndise se Invent Inventory ory,, Decemb December er 31, 20x 20x4... 4....... ........ ........ ........ .... 80,000 80, 000 Cost Cost of goods goods sold.. sold...... ....... ....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ......... ......... ........ ........ ....... ....... ...... .. Gross profit..................................... profit................. ....................................... ...................................... ......................................... ...................... ................... ............... .... Operati Operating ng expens expenses. es.... ....... ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ ......... ........ ....... ........ ........ ........ ........ ....... ....... ........ ........ ......... ....... .. Net income........ income................ ................ ................ ................ ................. ................. ................. .................. .............. ..... ................ ......................... ................... ..........
334,500
257,50 257,500 0 P 77,000 72,500 72,500 P 4,500
(3) Merchandise Inventory.......................... Inventory............................................. .......................................... ......................................... ..................... ... 31,500 Sales.......................................................................................................................... 78,500 Incom Income e Summ Summary ary... ..... ..... ...... ...... ...... ..... ..... ..... ..... ...... ...... ...... ..... ..... ...... ..... .... ..... ...... ...... ...... ..... ..... ..... ..... ...... ...... ...... ..... ..... ..... ..... ..... .... 110, 110,00 000 0 Income Summary......................................................................................................... 104,500 Merc Mercha hand ndis ise e Inve Invent ntor ory. y... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Shipments from Home Office........................................ Office....................... ................. ................................. ...................... ........... Purc Purcha hase ses. s... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Expe Expens nses es.. ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ...... ..... ..... ..... ..... ..... ....... ........ ...... ..... ..... ...... ...... ..... ..... ..... ..... ...... ..... ..... ..... ..... ...... ...... .....
32,0 32,000 00 40,000 20,0 20,000 00 12,5 12,500 00
Income Summary.......................... Summary............................................. ....................................... .......................................... ...................................... .................. .. 5, 500 Home Office......................................... Office..................... ........................ ....................... ....................................... ..................................... .................
5,500
(4) Branch............................................ Branch..................... .......................................... ....................................... ....................................... ................................ ............. ... Branch Income..................... ........................................ ....................... ...................................... ................................... ..............
5,500
Unrealized Intercompany Inventory Profit.......................................... Profit.................. ........................................... ..................... .. Bran Branch ch Inco Income me.. .... .... .... .... .... .... .... .... .... .... ..... ..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....
5,500
8,000 8,00 8,000 0
Calculation of unrealized profit adjustment: Branch inventory, January 1, acquired from home office at billed price........................... price...................................... ........... ...................................... ................ .............................. ........ P 24,500 Less: Cost of inventory inventory (P24,500/1. (P24,500/1.225)... 225)........... ................. ................. ................ ................. ................ ....... 20,000 Unrealized Intercompany Inventory Profit Jan. 1................................... 1................... ................ P 4,500 Add: Increase in unrealized profit for shipments made during year, billed price of goods, P40,00 P40,000, 0, cost of goods, goods, P30,000 P30,000... ....... ........ ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ....... ... 10,000 10,000 P 14,500 Deduct balance to remain in unrealized profit account: Branch inventory, December 31, acquired from home home office....................................... P 26,000 Less: Cost of inventory to home office, P26, P26,00 000/ 0/1. 1.1/ 1/3.. 3..... ..... ..... ...... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ...... ..... ..... ..... ..... ..... ....... ....... ..... ..... 19,5 19,500 00 6,500 6,500 Reduction Reduction in unrealized unrealized profit profit account- adjustment adjustment to branch inco income me for for ove overs rstat tatem emen entt of cos costt of goo goods ds sold sold... ..... ..... ..... ..... ..... ..... ..... ..... ...... ..... 8,000 8,0 00 Branch Income......................... Income............................................... ........................... ..... ....................................... ................... ...................................... .................. 13,500 Inco Income me Summ Summar ary. y... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....
13,5 13,500 00
Merchandise Inventory............................. Inventory................................................ ....................... .... ........................................ .................... .................... .... 55,000 Sales........................................... Sales........................ ......................................... ....................................... ........................................ ...................................... ............... ....... 256,000 Shipments to Branch......................... Branch......................................... ................ ....................................... ................ ....................................... .................... .... 30,000 Incom Income e Summ Summary ary... ..... ..... ...... ...... ...... ..... ..... ..... ..... ...... ...... ...... ..... ..... ...... ..... .... ..... ...... ...... ...... ..... ..... ..... ..... ...... ...... ...... ..... ..... ..... ..... ..... .... .. 341,0 341,000 00 Income Summary.......................... Summary........................................... ................. ....................................... ................ .......................................... ....................... .... 350,000 Merchandise Inventory............................ Inventory............................................... ...................................... .................................... ................. 8 0,000 Purc Purchas hases. es... ..... ...... ..... ..... ..... ..... ..... ..... ...... ..... .... ..... ..... ..... ........ ....... ..... ..... ..... ...... ...... ...... ..... ..... ...... ...... ..... ..... ...... ..... ..... ...... ...... ..... ..... ...... ..... .... .. 210,0 210,000 00 Expe Expens nses es.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... 60,0 60,000 00 Income Summary..................... ..................................... ..................... ....................................... .......................................... ......................... ...... Reta Retain ined ed Earn Earnin ings gs.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
4,500 4,50 4,500 0
Problem IX 1. Branch Current Unadjusted balance, 12/31/20x4 Add (Deduct): Adjustments 1 Remittance 2. Cash in transit 3. Shipments i n transi t
P 6 0,00 0
H. Office Current P 5 1,500
I 1,700) 1,800 5,800
Adjusted balance, 12/31/20x4
P 57 57,300
P 5 7 ,3 0 0
2. Incom Income e Stateme Statement nt - Branch Branch Sales.......................................... Sales...................... ....................................... ...................................... ................................... ................ ................................ ..................... ........... P 140,000 Cost of goods sold: Merchandise Merchandise inventory inventory,, January 1, 20x4 (P11,550 – P1,000)...... P1,000)........ P 10,550 Shipments Shipments from from home office office (P105,00 (P105,000 0 + P5,000 P5,000 – P10,000).... P10,000)........ .... 100,000 Frei Freigh ght-i t-in n (P5 (P5,5 ,500 00 + P250 P250)… )……… ………… ………… ………… ………… ………… ………… …………. ……... 5,75 5,750 0 Merchandise available for sale..................................................... P116,300 Less: Less: Merchan Merchandis dise e Inventor Inventory, y, Decembe Decemberr 31, 20x4...... 20x4.......... ........ ....... ....... ...... 14,770 14,770 Cost of goo goods sold.... ........ ....... ........ ........ ....... ....... ......... ........ ........ ....... ........ .......... ........ ........ ....... ..... 101,530 Gross Gross profit.. profit..... ....... ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... ....... ........ ........ ........ ....... ........ ......... ...... .. P 38,470 38,470 Operati Operating ng expe expense nses... s....... ........ ........ ....... ....... ........ ........ ........ ........ ....... ....... ......... ......... ........ ....... ....... ........ ........ ........ ........ ....... ....... ........ ........ ....... ..... 24,300 24, 300 Net income. income.... ....... ........ ........ ........ ........ ....... ....... ........ ........ ........ ....... ....... ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... ....... ........ ........ ........ ........ ........ ...... .. P 14, 14,170 170 Income State Income Statement ment – Home Home Office Office Sales......... Sales................ ................ ................... .................. ................. .......................... ........................... .................. ................. ................. ................ .................. .............. .... P 155,000 155,000 Cost of goods sold: Merchandise Merchandise inventory inventory,, January 1, 20x4................ 20x4.......................... .................. .......... P 23,000 23,000 Purchases.. Purchases.......... ................ .................. ................. ............... ........................... ............................. ................. .............. ....... 190,000 190,000 Merchandise available for sale................................................. P 213,000 Less: Shipments Shipments to branch........ branch................ ................. ................. ................ ................. ................. ........ 100,000 100,000 Merchandise available for own sales....................................... sales...................... ................. P 113,000 Less: Less: Merc Merchan handis dise e Inven Inventor tory, y, Dece Decembe mberr 31, 31, 20 20x4.. x4...... ........ ........ ....... ..... 30,000 30, 000 Cost of goods sold........................................................................ 83,000 Gross profit........ profit................. .................. ................. ................ ................. ................. .................. ................. ................ .................. ................. .................. ............ .. P 72,000 Operati Operating ng Expe Expense nses.. s..... ....... ........ ........ ........ ........ ....... ....... ........ ........ ....... ....... ........ ........ ....... ....... ............. ............. ........ ........ ........ ........ ........ ........ ...... 42,000 42, 000 Net loss from own operations..... operations............ ............... ................. .................. ................ ................ .................. ................. ................. .............. ..... P 30,000 Add Add bran branch ch net income income.... ........ ........ ........ ....... ....... ........ ........ ....... ........ ......... ............ ........... ....... ........ ....... ....... ........ ........ ........ ........ ....... ....... .... 14,170 14, 170 Combine Combined d net income income... ....... ........ ........ ........ ....... ....... ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... ....... ........ ........ ........ ........ ........ ........ ...... P 44, 44,170 170 3. Combined Income Statement for Home Office and Branch For Year Ended December 31, 20x4 Sales........ Sales............... ................ ................... .................. ................. ................ ................ ................... .................. ................. ........... .. ................ .......................... .............. .... P 295,000 295,000 Cost of goods sold: Merchandise Merchandise inventory, inventory, Januar January y 1, 20x4....... 20x4....................... ....................... ............ ..... P 33,550 Purchases.. Purchases.......... ................ .................. ................. ............... ................. .................. ................. ................. ................. ........ 190,000 190,000 Fre Freight ight-i -in n……… ……… ……… ……… ……… ………… ……… ……… ……… ……… ……… ………… ……… ……… 5,75 5,750 0 Merchandise available for sale................... ............................... ................. .............. P 229,300 Less: Less: Merc Merchan handis dise e Inven Inventor tory, y, Dece Decembe mberr 31, 31, 20 20x4.. x4...... ........ ........ ....... ..... .. 44,770 44, 770 Cost of goo goods sold.... ........ ....... ........ ........ ....... ....... ......... ........ ........ ....... ........ .......... ........ ........ .... 184,5 4,530 Gross profit........ profit................. .................. ................. ................ ................. ................. .................. ................. ................ .................. ................. .................. ............ ... P 110,470 110,470 Operati Operating ng expens expenses. es..... ........ ....... ....... ........ ........ ........ ........ ........ ....... ....... ........ ........ ....... ....... ........ ........ ....... ....... ........ ........ ........ ....... ... ........ ............ .... 66,300 66, 300 Net income....... income............... ................. ................. ................ ................. ................. .................. .................. ................ ................ ................. ................... ............... ..... P 44,170 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................................ 1-17......... ....................................... ................ ....... 20,000 P46,400
Cost of goods sold, January 1-17, at billed price: Net sales, P13,000/1.25.......................... P13,000/1.25............................................... ......................................... ....................................... ................... 10,400 Merchandise on hand, January 17, at billed price....................................... price..................................... .. P36,000 Merchandise on hand, January 17, at cost, P36,000/1.20....................... P36,000/1.20............................ ..... P30,000 b. Branch Books: Loss from Fire (or Home Office)........................................ Office)..................... ................................ ............. ....... 36,000 Merchandise Inventory............................... Inventory................................................ ............................. ............ 36,000 Home Office Books: No entry needs to be made on the t he books of the home office until the end of the fiscal period, w hen the branch earnings (including the loss from fire) are recognized 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 desired to recognized the loss from fire on the home office office books immediately, the following entry may be made: Branch Loss from Fire (or Retained Earnings)...................................... 30,000 Unrealized Intercompany Inventory Profit........................................ Profit................. .......................... ... 6,000 Branch......................................................................................... 36,000 Problem XI a. Books of Branch A: Home Office........................................................................................ 1,500 Cash. ash... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
1,500 ,500
b. Books of branch B: Cash...................................................................................................... 1,500 Home Home Offi Office ce.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
1,500 ,500
c. Books of Home Office: Branch B............................................................................................... 1,500 Bran Branch ch A.... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....
1,50 1,500 0
Problem XII a. Books of Branch No. 1 : Home Of Office …… ………………………………………………………… ……… …. Shipments from Home Office…………………………………….. Freight In……………………………………………………………… b. Books of branch No. 5: Shipm hipmen ents ts from from Home Home Offic ffice e…… ……… ……… ……… ……… ………… ………… ……… ……… ……… … Freight In… In………………… ……… …………………………………… ……… ……… ……… …… Home Office…………………………………………………………. Cash…………………………………………………………………… c. Books of the Home Office Branc anch No. No. 5… 5……… ……… …………………………………… ……… ……… ……… ……….. Exce Excess ss Freig reight ht on Inte Interr bran branch ch Tran Transsfer fer of Merc Mercha hand ndis ise… e…… ……. …... Branch No. 1………………………………………………………… Ship Shipme ment ntss to Bran Branch ch No. No. 1… 1……… ………… ………… ………… ………… ………… ………… ………… …….. .. Shipments to Branch No. 5…………………………………………
1,950 950 1,600 35 0
1,60 1,600 0 400 1,750 2 50
1,750 750 200 200 1,950 1,60 1,600 0 1,600
Multiple Choice Problems 1. c - P50,40 P50,400, 0, billed billed pric price e x 40/140 40/140 = P 14,400 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 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 – P30,00 P30,000 0 x (90,000 (90,000 – 60, 60,000 000)/9 )/90,0 0,000 00 5. a 6. d – (P50,0 (P50,000 00 – P40,00 P40,000)/ 0)/P40 P40,00 ,000 0 = 25% marku markup p on cost cost 7. c – (P480, (P480,000 000 – P360,00 P360,000) 0) x (P80,0 (P80,000/ 00/P48 P480,0 0,000) 00) = P20,00 P20,000 0 8. c – P700,000, P700,000, since since the problem problem stated that the “home “home office adjusted adjusted the the intracomp intracompany any Profit 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 Note to teachers: The Intercompany Profit Deferred amounting to P6,000 should be in the column of Home Office Reported (unadjusted) branch net income (per branch books) … ……………..P 30,000 Branch Income Income in so so far as home office office is concern concerned ed per home home office office books. 50,000 Overvaluation of branch cost cost of goods sold…………………………………………P sold…………………………………………P 20,000 20,000 Cost of sales of Home Office………………………………… Office…………………………………………………………….P ………………………….P 500,000 Cost of sales of Branch……………………………………………… Branch…………………………………………………………………… …………………… 100,000 Overvaluati Overvaluation on of branch branch cost of sales…… sales……………… ……………………… ……………………… ……………………( …………( 20,000) 20,000) Combined cost of sales…………………………………………………… sales…………………………………………………………………...P580,000 ……………...P580,000
10. c – the amount amount of net net income income as reported reported by Home office is conside considered red the combine combined d net income. 11. c 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
P156,000 60,000 P 96,000 P 70,000 350,000 P 420,000 84,000
336,000 P 240,000
Billing Price: P336,000 / P240,000 = 140%. 12. c – 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 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 837,500 Less: Cost of goods sold Merchandise inventory, beg. [P50,000 + (P45,000 (P45,000 / 1.20)]P 87,500 Add: Purchases… Purchases……………… ………………………… ………………………… ……………………. ………. 500,000 500,000 Cost of Goods Available for Sale…………………………... P 587,500 Less Less:: MI, MI, endi ending ng [P70 [P70,0 ,000 00 + (P60 (P60,0 ,000 00 / 1.20 1.20)] )]…… ………… ………… …….. 120, 120,00 000 0 467, 467,50 500 0 Gross pr profit………………………………………………………………. P 370,000 Less: Expenses (P120,000 + P50,000..………………………………. 170,000 Net Income……………………………………………………………… P 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 P16,800 x 20/120……………… 20/120………………………… ……………………… ……………………… …………………. ………. 2,800 Overvaluation of Cost of Goods Sold……………………………………. Sold……………………………………. ….P 4,400
Adjusted branch net income: Sales………………………………………………………………………………………P60,000 Less: Cost of goods sold: Inventory, January 1, 2003……………………………….P 30,000 Add: Add: Purcha Purchases ses……… ……………… ……………… ……………… ……………… ………….. …..... ... 11, 11,000 000 Ship Shipme ment ntss from from home off offic ice… e……… ………… ………… ………. …... 19,2 19,200 00 Cost of Goods available for sale……………………… P 60,200 Less: Inventory, December ber 31, 2003…………………. 20,000 40,200 Gross profit……………………………………………………………… profit…………………………………………………………………………….. …………….. P 19,200 Less: Less: Expenses……… Expenses…………………… ………………………… ……………………… ………………………… …………………………… …………….. .. 12,000 12,000 Unadjusted Unadjusted branch net income…………………… income……………………………… ……………………… …………………….P ……….P 7,800 Add: Add: Over Overva valu luati ation on of Cos Costt of Goods Goods Sol Sold… d……… ………… ………… ………… ………… ………… ………. …. 4,40 4,400 0 Adjusted branch net income………………………… income………………………………………………………..P ……………………………..P 12,000 16. d Billed Price *P 36,000 28,800
Cost P 30,000 24,000
Allowance Merchandise Inventory, 12/31/2005 P 6 6,,000 Shipments 4,800 Cost of goods sold P10,800 From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 P6,000 = P36,000. From outside outsiders: rs: P45,000 P45,000 – P36,000 P36,000 = P9,000 P9,000 17. d Billed Price *P12,000 9,600
Merch. Inventory, 12/31/20x4 Shipments Cost of Goods Sold *P2,000 / 20% = P10,000 + P2,000 = P12,000.
Cost P10,000 8,000
Allowance P 2,000 1,600 P 3,600
Merchandise inventory, December 1, 20x4…………………………………P 15,000 Less: Shipmen Shipments ts from from home office office at billed billed price*………… price*…………………… ……………… …… 12,000 12,000 Merchandise from outsiders…………………………… outsiders……………………………………………………P ………………………P 3,000 18. d Combined Cost of Goods Sold: Merchandise Inventory, 1/1/2003: Home Office, Office, cost………………… cost……………………………… ……………………… ……………… …… P 3,500 Branch: Outsiders, ……………………………...........................P 300 From From Home Home Offi Office ce (P2, (P2,500 500 – P300 P300)/ )/11 110%. 0%.... ...... ..... ..... ..... ..... ... 2,00 2,000 0 2,300 2,300 P 5,80 5,800 0 Add Purchases (P240,000 + P11,000)…………………………….. 251,000 COGAS………………………………………………………………… P256,800 Less: Merchandise Inventory, 12/31/2003 Home Office, cost……………………………… cost………………………………………………. ………………. P 3,000 Branch: Outsiders……………………………… Outsiders………………………………………………. ………………. P 150 From From Home Office Office (P1,80 (P1,800 0 – P150)/ P150)/110 110%... %....... ....... ....... ...... .. 1,5 1,500 00 1,650 1,650 4,650 4,6 50 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
400,000 160,000
21. b (1) Sales Less: Cost of goods sold: Inventory, 1/1/2003 (P (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
Cost
Allowance 60,000 *100,,000 160,000 40,000 120,000 P 40,000
P 4,500 20,000 P 24,500 5,500
19,000 P 21,000 _ 13 13,100 P 7,900
(2) Combined Cost of Goods Sold: Merchandise Inventory, 1/1/2003: of Home Office, cost……………………………………… cost……………………………………………..P ……..P 17,000 of Bran Branch ch,, cost cost:: P4, P4,950 950 / 110% 110%…… ……… ……… ……… ……… ………… ………… ………. …. 4,5 4,500 Add Purchases…………………………………………………………. COGAS………………………………………………………………….. Less: Merchandise Inventory, 12/31/2003 of Home Office, cost……………………………………………… cost……………………………………………… P 14,000 of Branch, co cost: P6 P6,050 /1 /100%………………………………….. 5,500 Cost of Goods Sold…………………………………………………….
P 21,5 21,50 00 50,000 P 71,500
19,500 P 52,000
22. 22. a - P48, P48,00 000 0 / 120% 120% = P40, P40,00 000 0 23. a – P48,000 P48,000 x 20/120 = P8,000 P8,000 (note: adjuste adjusted d allowance allowance refers to the allowance related 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 12/31/x4 (P (P60,000 x 80 8 0%) 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 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
P192,000 P
0 52,000 108,000 P 160,000 60,000
1 00 , 00 0 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 12/31/x4 (P (P60,000 x 80 8 0%) Overvaluation of CGS(230,000x 25/125)
125% Billed Price 40,000 250,000 290,000 60,000 230,000
100% Cost
25% Allowance
46,000*
26. 26. d – P326, P326,00 000 0 Sales Sales (P600 (P600,00 ,000 0 + P300 P300,00 ,000) 0) Less: Cost of goods sold Merchandise inventory, beg. [P100,000 + (P40,000/1.25)] Ad d : Pu r cha se s Cost of goods available for sale Less: MI, ending [P 30, 0 0 0 + (P 60, 0 0 0/1 . 2 5 )] Gr os s pro f it Le ss : Ex pe ns e s (P 120 ,0 0 0 + P 50, 00 0) Ne t In com e
P 900,0 900,000 00
P132,000 35 0, 000 P482,000 78 ,0 0 0
40 4 , 00 0 P 49 6, 00 0 _ 1 7 0, 0 00 P 3 2 6 ,0 00
27. b Sales (P537,500 + P300,000) Less: Cost of goods sold Merchandise inventory, beg. [P50,000 + (P60,000/1.20)] Ad d : Pu r cha se s Cost of goods available for sale Less: MI, ending [P 70, 0 0 0 + ( P 60, 0 0 0/1 .2 0) ] Gr os s pro f it Le ss : Ex pe ns e s (P 120 ,0 0 0 + P 50, 00 0) Ne t In com e
P 837,500
P 87,500 50 0, 000 P587,500 12 0, 0 00
46 7 ,50 0 P 3 70, 0 00 _ 17 0 ,00 0 P 2 00 , 0 00
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: Add: Purc Purchas hases es (P7 (P70, 0,00 000 0 + P11, P11,000 000)… )……… ………… ………… …… 81,0 81,000 00
Cost of Goods Available Available for Sale……………………P 147,000 Less Less:: MI, MI, endi ending ng [P4 [P40, 0,00 000 0 + P3,2 P3,200 00 + (P1 (P16, 6,80 800 0 / 1.20 1.20)] )] 57,2 57,200 00 89,8 89,800 00 Gross profit……………………………………………………… P 9 0 , 20 0 Less: Expenses (P28,000 + P12,000)………………………… 4 0 , 00 0 Net Income……………………………………………………. P 5 0 , 20 0 29. d Sales (P (P100,000 – P33,000 + P5 P50,000)…………………………………… P 117,000 Less: Cost of goods sold: Inventory, Inventory, beg. beg. [P15,000 [P15,000 + (P5,500 (P5,500/110%) /110%) or or (P5,500 (P5,500 – P500)] P500)] P20,000 P20,000 Add: Purchases Purchases (P50,0 (P50,000 00 + P7,00 P7,000)………… 0)……………………… …………………… ……… 57,000 57,000 COGAS……………………………………………………………….. COGAS………………………………………… …………………….. P77,000 Less: Inventory, end [P11,000 + P1,050 + (P6,000(P6,000- P1,050)/110 P1,050)/110%]………… %]…………………… …………………… ………………… ……… 16,550 16,550 60,450 Gross prof rofit…… t………………………………………………………… ……… ……… ……… … P 56, 56,550 550 Less: Expenses (P20,000 + P6,000 + P5,000)……………………………… 31 , 00 0 Combin bined Net income come…… ……… …………………………………… ……… ……… ……… …. P 25,55 5,550 0 30. c S al es Less: Cost of Sales I nv en t or y , 1 /1/ 10 P ur ch a se s Cost of goods available for sale Less: Shipment/Sales to Branch, a t c os t ( P1 10 ,0 00 /11 0 % ) Cost of goods available for HO S ale L es s : In ven t ory , 12 /31 /1 0 G ro s s p r of it L es s : E x pe nse s Net income – home office
P 15 5, 00 0 P 2 3,0 00 19 0, 000 P213,000 1 0 0 ,0 00 P 11 3, 000 3 0,0 0 0
8 3,0 00 P 7 2, 00 0 5 2 ,00 0 P 2 0, 00 0
31. a S al es P 14 0, 00 0 Less: Cost of Sales I nv en t or y , 1 /1/ 10 P 1 1,5 50 P ur ch a se s 10 5, 000 F re ig h t- i n 5 ,5 00 Ship Shipme ment nt in tran transi sit t (P5, (P5,00 000+ 0+P2 P250 50) ) 5,25 5,250 0 Cost of goods available for sale P127,300 Less: Inventory, 12/31/10 (P10,400 + P520 + P5,250) 1 6,1 7 0 11 1 , 130 G ro s s p r of it P 2 8, 87 0 L es s : E x pe nse s 2 8 ,00 0 N e t i nc o m e pe r br a nc h bo ok s/u n adj us te d P 8 70 A dd : Ov e rv alu a tio n o f CG S* 9 ,6 00 N e t I nc o m e o f Dav a o B ra n c h , ad ju st ed P 10 , 470 BP
C os t
A ll ow anc e 1,0 0 0
10 0 ,00 0
* *1 0, 000
MI . 1/1 /2 0 1 0 Shipments 1 10 ,0 00
Av ai lab l e f o r s al e - : M I , 12 /3 1/ 10 ** *1 5,4 0 0 CG S **110,000 x 10/110 ***10,400 + 5,000, in transit ****15,400 x 10/110
11 ,00 0 ** * * 1, 400 9, 60 0
32. a Inv en t o ry , 1/ 1 a t bil le d pri c e P 16 5,0 00 Add : S h ip me nt s a t bil le d pri c e 1 1 0 ,0 00 Cost of goods available for sale at billed price P2 7 5 ,00 0 Less: CGS at BP: S ale s P 169 ,0 00 Less: Sales returns and allowances 3,750 Sales price of merchandise acquired from outsiders ( P7 ,50 0 / 1 2 0% ) 9,0 00 Net Sales of merchandise acquired from ho m e o ffi ce P1 56 ,25 0 x : I nt er co mp a n y co st ra t io 1 00 /1 2 5 1 25, 0 00 Inv en t o ry , 8/ 1/2 0 0 8 a t bi lle d pr ic e P1 5 0, 0 00 x : Cos t ra ti o 10 0/ 12 5 Merchandise i in n v en tor y a at t c co ost d de estroyed b by y f fi ir e P12 0 , 000
33. d Freight actually paid by: Home Office……………………………………………… Office……………………………………………………………………P ……………………P 500 Bran Branch ch P… P……… ………… ………… ………… ………… ………… ………… ………… ………… ………… ………… ………… ………… ……… … 700 700 Total………………………………………………………………………………P Total…………………………………………… …………………………………P 1,200 Less: Less: Freigh Freightt that that shou should ld be record recorded… ed………… ……………… ……………… ……………… ……………… ………….. ….. 800 Excess Excess freigh freight…… t…………… ……………… …………… …………… ……………… ……………… ……………… ……………… ……………… …………P …P 400 34. d – in arriving at the cost of merchandise inventory 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 Ending invent inventory ory %...... %.......... .......... ......... ....... ........ ........ ........ ........ ........ ....... ....... ........ ....... ....... ........ ........ ............ ........... ... 60% Ending inventory inventory at billed price……………………………………...……..P price……………………………………...……..P 22,620 Add: Freight (P1,300 x 60%)…………………………………………… 60%)………………………………………………...... …...... 780 P 23,400 Or, P39,000 P39,000 x 60% 60% = P23,400 P23,400 36. b Inventory in the published balance sheet, at cost Shipments at cost…………………………………..........................................P 32,500 X: Ending Ending inventory inventory %............... %....................... ................. ................ ................ .................. ................. ............. .............. .............. ..... 60% Ending inventory at billed price…………………………………… price……………………………………………….P19,500 ………….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 (f (freight)…. 1,300 BC – Baguio Baguio……1 ……19,6 9,630 30 Excess freight… 520 BC-Davao……. 20,150
38. 39. 40. 41. 41. 42. 42. 43. 43. 44. 45.
Davao Branch SFHO…………….37,700 Freight-in………. 1,300 HOC………….. 39,000
Baguio Branch
HOC……………….20,150 SFHO(50%)… 18 , 85 0 Freight-in (50%) 6 50 Cash…………...... 650
SFHO………18,850 Freight-in.. 780 HOC……... 19,630
c – (P300,000 (P300,000 x ¼ = P75,000, P75,000, ending ending invent inventory ory x ((P300,0 P300,000 00 – P250,000)/P P250,000)/P300,00 300,000 0 = P12,500 P12,500 d d b – refe referr to No. No. 21 b – refe referr to No. No. 21 c – refe referr to No. No. 21 c d
Quiz – XIII 1. P63, P63,000 000 Merchandis Merchandise e inventory, inventory, December 31 at cost – From From outs outsid ider erss (se (see e no. no.2) 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From From home home offic ffice e (se (see e no. no.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. P18,0 18,000 00 Branch inventory, 12/31 per books . . . . . . . . . . . . . . . . . Less Branch inventory from HO at billed price: Over Ov erva valu luat atio ion n of bran branc ch inve invent ntor ory y ........... Cost of branch inventory (P9,000 ÷ 20%) . . . . . . . Branch inventory from outsiders . . . . . . . . . . . . . . . . . . . 3. P93,6 93,600 00 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales: Pur Purchas chase es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shipm hipme ents nts from from HO at cos cost (P2 (P216 16,0 ,000 00 ÷120 ÷120%) %) . . . Cos Cost of of goo good ds avai availa labl ble e per per sal sale e . .. .. . .. .. .. . Less inventory, 12/31 (see no.1) . . . . . . . . . . . . . . . Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Branch net income as far as the HO is concerned . . . 4. P14,0 14,040 40 Allowance for overvaluation of branch inventory . . . Less Overvaluation of shipments from HO:
P 18, 18,00 000 0 45,0 45,000 00 P63,000
P 72,000 P 9,00 9,000 0 45,000
54,000 P 18,000
P 351,000 54,0 54,000 00 180, 180,0 000 234, 234,0 000 63,000
171,000 180,000 86,400 P 93,600
P119,880
Bil Billed price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost (P468,000 ÷ 130%) . . . . . . . . . . . . . . . . . . . . . Overvaluation of beginning inventory from HO: . . . . Add Beginning inventory from HO, at cost (11,880 ÷ 30%) . Beginning inventory from HO, at billed price . . . . . . .
468,000 360,000
39,600 P 51,480
Merchandise inventory, January 1 . . . . . . . . . . . . . . . . Less Beginning inventory from HO, at billed b illed price (see above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beginning inventory from outsiders . . . . . . . . . . . . . . . 5. P47,3 47,340 40 Sales ……………………………………………………… Cost of sales: Merchandise inventory January 1-. . . . . . . . . . . . From rom outs outsid ide ers (see see no. no.4) 4) . . . . . . . . . . . . . . . . . From HO, at cost (see no.4) . . . . . . . . . . . . . . . Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shipments from HO, at cost (equal Shipments to Branch) . . . . . . . . . . . . . . . . . . CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less Merchandise inventory, December December 31 From outsiders (P (P58,500– P46,800) . . . . . . . . . . From HO, at cost (P46,800 ÷ 130%) . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Branch net income income in so far as the HO is concerned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 65,520 51,480 P 14,040
P648,000
P14, P14,04 040 0 39,600
P 53,640 173,520 360,000 587,160
11,700 36,000
6. P45,0 45,000 00 Balance of Allowance for overvaluation of branch inventory account before adjustment . . . . . . . . . Less Overvaluation of shipments from HO: Billed price (P240,000 x 125%). . . . . . . . . . . . . . . . . Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overvaluation of beginning inventory. . . . . . . . . . . . . Add Beginning inventory at cost (P11,640 ÷ 25%) . . . . Branch beginning inventory at billed price . . . . . . . . . 7. P63,0 63,000 00 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales: (see no.6) . . . . . . . . . . . . . . . . . . . . . . . . . Beginning inventory. . . . . . . . . . . . . . . . . . . . . . . . . Shipments from HO (P240,000 x 125%). . . . . . . . . . CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less ending inventory. . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Branch net income, per books . . . . . . . . . . . . . . . . . . .
108,000 P 11,880
47,700
539,460 108,540 61,200 P 47,340
P 69,000 P 250,000 200,000
60,000 9,000 36,000 P 45,000
P 480,000 P 45,000 300,000 345,000 48,000
297,000 183,000 120,000 P 63,000
8. P122,40 P122,400 0 Branch net income, per books (see no. 7) . . . . . . . . . Add realized realized profit profit Allowance for overvaluation of branch inventory Less Overvaluation of branch ending inventory: Bill Billed ed pric price. e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost (P48,000 ÷ 125%). . . . . . . . . . . . . . . . . . . . True branch net income. . . . . . . . . . . . . . . . . . . . . . . .
P 63,000 P 69,000 P 48, 48,00 000 0 38,400
9,600
59,400 P 122,400
9. 20% Inven Inventor torie ies, s, Janu Januar ary y 1, 20x 20x5 5 at at bill billed ed pric price. e. . . . . . . . . . . . . . . . . . . . . . Shipm Shipmen ents ts from from HO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less Less Allllow owan ance ce for for ove overv rval alua uati tion on of bran branch ch inve invent ntor ory. y. . . . . . . . . . . . Cost Cost of merc mercha hand ndis ise e from from home home off offic ice e . .. . .. . .. . .. . .. . .. . .. . ..
P 90, 90,00 000 0 432, 432,00 000 0 522, 522,00 000 0 87,0 87,000 00 P435 P435,0 ,000 00
Allow Allowan ance ce for for ove overv rval alua uati tion on of branc branch h inv inven ento tory ry . . . . . . . . . . . . . . . Divide Divide by Cost Cost of mercha merchandi ndise se from from HO (see (see above above)) . . . . . . . . . . . . Percentag tage of pro profit on on cos cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 87, 87,00 000 0 P 435, 435,000 000 20%
10. 10. P360 P360,0 ,000 00 Shipme Shipments nts from from HO, HO, at billed billed price price . . . . . . . . . . . . . . . . . . . . . . . . . . . . Divi Divide de by the the bil billiling ng perc percen enta tage ge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balan Balance ce of ship shipme ments nts to Branc Branch h acco accoun unt. t. . . . . . . . . . . . . . . . . . . . . .
P 432, 432,000 000 120% 120% P 360 360,0 ,000 00
11. 11. P129 P129,0 ,000 00 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales: Inve Invent ntor orie ies, s, Janu January ary 1 at cost cost (P9 (P90, 0,00 000 0 ÷ 120 120%) %) . . . . . . . . . . Ship Shipme ment ntss fro from m HO, HO, at at cos costt (se (see e no. no. 10) 10) . . . . . . . . . . . . . . . . CGA CGAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories, De December 3 31 1 at at co cost (P (P100,800 ÷ 120%) . . . . . . Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted branch profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. 12. P4,8 P4,800 00 Inventory , January 1 per books . . . . . . . . . . . . . . . . . . . . . . . . . . . Less Inventory, January 1 from HO at billed price Allo Allowan wance ce for for ove overva rvalu luati ation on of branc branch h inv inven ento tory ry . . . . . . . . Over Ov erv valu aluatio ation n of shipm hipmen ents ts from from HO (P96, P96,00 000 0 – P72, P72,00 000) 0) . . Over Ov erv valu aluatio ation n of beg beginni inning ng inv invento entory ry fro from HO . . . . . . . . . . Add Inventory for HO, at cost (P (P4,800 ÷ 33.33%) . . . . . . . . . . Inventory, January 1 from outsiders. . . . . . . . . . . . . . . . . . . . . . . . . 13. 13. P66, P66,00 000 0 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales:
P 720,000 P 75, 75,00 000 0 360, 360,00 000 0 435, 435,00 000 0 84,000
351,000 369,000 240,000 P 129,000
P 24,000 P 28, 28,90 900 0 24,0 24,00 00 4,80 4,800 0 14,500
19,200 P 4,800
P 240,000
Inventory, January 1(cost) From From outsi outsider derss (see (see no.1 no.12) 2) . . . . . . . . . . . . . . . . . . . . . From From HO, HO, at at cos costt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shipments from HO, at cost . . . . . . . . . . . . . . . . . . . . . . CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less Inventory Inventory,, December 31 (cost) (cost) From From outs outsid ider ers. s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From HO, at cost (P24,000 ÷ 133%). . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . True branch net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 4, 4,800 800 14,5 14,500 00
P 19,2 19,200 00 36,000 72,000 127,200
7,20 7,200 0 18,000
14. 25% Shipme Shipments nts from from home home offic office e (bille (billed d price price)) . . . . . . . . . . . . . . . . . . . . . . . . . Divi Divide de by ship shipme ment ntss to to branc branch h (cos (cost) t) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bill Billin ing g per perce cent ntag age. e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less Less perc perce entag ntage e at cost ost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate ate of of mar markk-u up on on cos costt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,200
P 450,0 450,000 00 360, 360,00 000 0 125% 125% 100 100 25% 25%
15. 15. P24, P24,00 000 0 Balan Balance ce of of allo allowan wance ce for for over overva valu luati ation on of of branc branch h inve invent ntor ory y acco accoun untt
P 94, 94,80 800 0
Less Less Ov Over erva valu luat atio ion n of ship shipme ment ntss from from HO (P45 (P450, 0,00 00 – P360 P360,0 ,000 00)) . . . . . . .
90,0 90,000 00
Over Ov erva valu luat atio ion n of of beg begin inni ning ng inve invent ntor ory y from from HO . . . . . . . . . . . . . . . . . . . . .
102,000 138,000 72,000 P66,000
4,80 4,800 0
Add Cost Cost of begi beginn nnin ing g inv inven ento tory ry from from HO (P4 (P4,8 ,800 00 ÷ 25% 25%)) . . . . . . . . . . . .
19,2 19,200 00
Branch Branch begi beginni nning ng inve invento ntory ry from from HO . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 24,0 24,000 00
16. 16. P89, P89,04 040 0 Balance of allowance for overvaluation of branch inventory Less Overvaluation of branch ending inventory: Bille Billed d pri price ce (P49 (P49,6 ,680 80 – P20, P20,88 880) 0) . . . . . . . . . . . . . . . . . . . . . Cost (P28,800 ÷ 125%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Realized profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 94,800 P 28, 28,80 800 0 23,040
5,760 P89,040
17. 17. P36, P36,00 000 0 Balance Balance of Allow Allowanc ance e for overva overvalua luatio tion n of branch branch invent inventory ory . . . . . . . Less Less Ov Over erva valu luat atio ion n of ship shipme ment ntss from from HO (P11 (P115, 5,20 200 0 – P96, P96,00 000) 0) . . . . . . . Over Ov erva valu luati ation on of begin beginni ning ng inve invento ntory ry from from HO . . . . . . . . . . . . . . . . . . . . Add Add Cos Costt of begi beginn nnin ing g inv inven entor tory y fro from m HO (P24 (P24,0 ,000 00 ÷ 20%) 20%) . . . . . . . . . . . Beginn Beginning ing invent inventory ory from from HO, at bille billed d price price.. . . . . . . . . . . . . . . . . . . . . . .
P 43, 43,200 200 19,2 19,200 00 24,0 24,000 00 120, 120,00 000 0 P 144,0 144,000 00
Mercha Merchandi ndise se inve invento ntory, ry, January January 1 per books books . . . . . . . . . . . . . . . . . . . . . . Less Less begin beginni ning ng inve invent ntor ory y fro from m HO HO (se (see e abov above) e) . . . . . . . . . . . . . . . . . . . . . Branch Branch begi beginni nning ng inve invento ntory ry from from outside outsiders rs . . . . . . . . . . . . . . . . . . . . . . . .
P 180,0 180,000 00 144, 144,00 000 0 P 36,0 36,000 00
18. 18. P26, P26,40 400 0 Balance of allowance for overvaluation of branch inventory Less Overvaluation of branch ending inventory from HO: Bille Billed d pri price ce (P12 (P120,0 0,000 00 – P19, P19,20 200) 0) . . . . . . . . . . . . . . . . . . . . Cost (P100,8 0,800 ÷ 120%) . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 43,200 P100, P100,80 800 0 84,000
16,800
Realized branch profit to be adjusted . . . . . . . . . . . . . . . . . . . 19. 19. P9,9 P9,990 90 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales: Inve Invent ntor ory, y, Janu Januar ary y 1 at cost cost (P27, (P27,00 000÷ 0÷ 125%) 125%) . . . . . . . . Ship Shipme ment ntss fro from m HO, HO, at cost cost . . . . . . . . . . . . . . . . . . . . . . . CGAS CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventory, December 31 at cost P35,100 ÷ 120%) . . . . . Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . True branch income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. 20. P67, P67,29 290 0 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales: Inve Invent ntor ory, y, Janu Januar ary y 1. 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purc Purchas hases es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CGAS CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less Less Ship Shipme ment nt to branc branch h .. .. .. .. .. .. .. .. .. .. .. .. .. Cost Cost of goods goods avai availab lable le for for own own sale sale . . . . . . . . . . . . . . . Less Inventory, December 31. . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income of home office . . . . . . . . . . . . . . . . . . . . . . . . . . . Add Branch net income (see no. 19) . . . . . . . . . . . . . . . . . . . Combined net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 26,400
P 189,000 P 21, 21,36 360 0 126, 126,00 000 0 147, 147,36 360 0 29,250
P 636,000 P 69, 69,00 000 0 492, 492,00 000 0 561, 561,00 000 0 126, 126,00 000 0 435, 435,00 000 0 85,500
21. Branch Inventory, Inventory, 12/31/20x4: 12/31/20x4: P30,000 x 60%............ 60%.................... ................. ...............P ......P 18,000 22. Branch Inventory, Inventory, at cost: (P25,000 (P25,000 + P1,000) x 60%.................. 60%.........................P .......P 15,600 15,600 23. P30,00 P30,000 0 Merchandise inventory, January 1 Shipments from home office Cost of goods available for sale Less: Cost of goods sold, at BP: Sales P 15,000 Less: Sales returns ___2,000 Net sales P 13,000 Divided by: SP based on cost ____125% Merchandise inventory, ending at BP Divided by: Billed price Merchandise inventory, ending at cost lost due to fire)
Theories 1. 2.
True False
6. 7.
False False
11 . 12 .
False True
16 . 17 .
True True
118,110 70,890 60,900 P 9,990
21. 22.
D A
349,500 286,500 229,200 57,300 9,990 P 67,290
P 26,400 __20,000 P 46,400
__10,400 P 36,000 ____120% P 30,000
3. 4. 5.
True True False
8. 9. 10.
False True True
13 . 14 . 15 .
False True False
18 . 1 9. 20 .
True False d
23. 24. 25. 26.
d d a c
