Chapter 12

Chapter 12 Problem I (a)Working Fund – Agency ……………………………… ……………………….. Cash …………………………………………………………………………. (b)Accounts Receivable …………………………………..................................... Sales-Agency ……………………………………………………………….

5,000 5,000 50,000 50,000

(c)Cash ………………………………………………………..................................... Accounts Receivable ……………………………………………………..

35,000 35,000

(d)Expenses-Agency ……………………………………………………………….. Cash ………………………………………………………………………….

4,500

(e)Expenses-Agency ……………………………………………………………….. Cash ………………………………………………………………………….

2,250

4,500 2,250

(f)Cost of Goods Sold-Agency …………………………………………………… 36,000 Merchandise Shipments-Agency ………………………………………. 36,000 Problem II (a) Branch Books: (a) Cash ………………………………………………………….. Home Office ……………………………………………

42,500

(b) Shipments from Home Office …………………………… Home Office …………………………………………...

50,200

(c) Accounts Receivable ……………………………………. Sales ……………………………………………………..

60,000

(d) Purchases …………………………………………………… Accounts Payable ……………………………………

22,500

(e) Home Office ……………………………………………….. Accounts Receivable …………………………..

53,400

(f) Accounts Payable ………………………………………... Cash ……………………………………………………..

12,250

(g) Furniture & Fixtures ………………………………………… Cash …………………………………………………….. (h) Expenses …………………………………………………….. Cash ……………………………………………………..

(b) Home Office Books:

42,500 50,200 60,000 22,500 53,400 12,250

8,000 8,000 18,000

18,000

(a) Branch ………………………………………………………. Cash …………………………………………………….

42,500

(b) Branch ……………………………………………………… Shipments to Branch ………………………………..

50,200

(c) Accounts Receivable …………………………………... Sales ……………………………………………………

105,000

(d) Purchases …………………………………………………. Accounts Payable ………………………………….

122,500

(e) Cash ……………………………………………………….. Accounts Receivable ………………………………

113,600

(f) Accounts Payable ………………………………………. Cash ……………………………………………………

124,000

(g) Expenses …………………………………………………… Cash ……………………………………………………

26,600

(h) Cash ……………………………………………………….. Branch ………………………………………………...

53,400

(i) Retained Earnings ………………………………………. Cash …………………………………………………...

10,000

42,500 50,200 105,000 122,500 113,600 124,000 26,600 53,400 10,000

BARTON CO. Balance Sheet for Branch December 31, 20x4 Assets

Liabilities

Cash …………………………… 10,250 Accounts Receivable ……… 300 Merchandise Inv……………... 37,900 Prepaid Expenses …………… Furnitures & Fixtures …. P 8,000 Less accum. Depr …… 650 Total Assets …………………… ………………….P48,450

P 4,250

Accounts Payable ………… P

12,600

Accrued Expenses ……………

23,500

Home Office …………………..

750 7,350 P48,450

Total Liabilities

BARTON CO. Income Statement for Branch For Year Ended December 31, 19X6 Sales …………………………………………………………………………… P66,000 Cost of Goods Sold: Purchases ……………………………………………………………

P22,500

Shipments for home office ………………………………………. Merchandise available for sale ………………………………… Less merchandise inv, December 31 ………………………….. Cost of Goods Sold ……………………………………………….. Gross Profit ……………………………………………………………………. Expenses ……………………………………………………………………… Net loss ………………………………………………………………………...

50,200 P72,700

23,500 49,200 P16,800 18,200 P 1,400

BARTON CO. Income Statement for Branch For Year Ended December 31, 20x4 Assets

Liabilities & Stockholders Equity

Cash …………………………….. P 23,200 Liabilities Accounts Receivable ……….. 19,050 Accounts payable ………… P 21,300 Merchandise Inventory……… 48,500 Accrued Expenses …………. 1,350 P22,650 Prepaid Expenses ……………. 2,050 Stockholders Equity Furniture & Fixtures …. P 20,000 Capital stock, P20 par……… P50,000 Less accum. Depr….. 5,580 14,420 Retained Earnings …………. 72,740 122,470 Branch ………………………… 37,900 Total liabilities and stockholders’ Total Assets …………………... P145,120 equity ………………… P145,120 BARTON CO. Income Statement for Home Office For Year Ended December 31, 20x4 Sales ……………………………………………………………………………....... Cost of goods sold: Merchandise inventory, January 1 …………………………………. Purchases ………………………………………………………………... Merchandise available for sale ……………………………………… Less shipments to branch ……………………………………………... Merchandise available for own sale ……………………………….. Less merchandise inventory, December 31 ………………………. Cost of Goods Sold ……………………………………………………. Gross Profit ………………………………………………………………………… Expenses …………………………………………………………………………… Net income from own operations …………………………………………….. Deduct branch net loss …………………………………………………………. Total Income ……………………………………………………………………….

P105,000 P 40,120 122,500 P162,620 50,200 P112,420 48,500

63,920 P 41,080 27,630 P 13,450 1,400 P 12,050

BARTON CO. Income Statement for Home Office For Year Ended December 31, 20x4 Sales …………………………………………………………………………………. Cost of goods sold: Merchandise inventory, January 1 ………………………………….. Purchases ………………………………………………………………… Merchandise available for sale ………………………………………

P171,000 P 40,120 145,000 P185,120

Less merchandise inventory, December 31 ……………………….. Cost of goods sold ………………………………………………………. Gross profit ………………………………………………………………………….. Expenses …………………………………………………………………………….. Net Income ………………………………………………………………………….

72,000 113,120 P 57,880 45,830 P 12,050

(a) Branch Books: Expenses ………………………………………………………………. Accumulated Depreciation – F&F……………………….

650 650

Sales …………………………………………………………………… Merchandise Inventory ……………………………………………. Income summary …………………………………………..

66,000 23,500

Income Summary …………………………………………………… Shipments from Home Office …………………………… 50,200 Purchases …………………………………………………… 22,500 Expenses ……………………………………………………..

90,900

Home Office ………………………………………………………… Income Summary …………………………………………

89,500

18,200 1,400 1,400

(b) Home Office Books Expenses ………………………………………………………………. Accumulated Depreciation – F&F………………………. Sales …………………………………………………………………… Merchandise Inventory ……………………………………………. Shipments to Branch ……………………………………………….. Income summary ………………………………………….. Income Summary …………………………………………………… Merchandise Inventory …………………………………… Purchases ……………………………………………………. Expenses ……………………………………………………..

1,180

105,000 48,500 50,200 203,700 190,250 40,120 122,500 27,630

Branch Income ……………………………………………………… Branch ……………………………………………………….

1,400

Income Summary ………………………………………………….. Branch Income ……………………………………………

1,400

Income Summary ………………………………………………….. Retained Earnings ………………………………………..

12,050

Problem III (a) Branch Books:

1,180

1,400 1,400 12,050

Jan.

1

1

1,500

Shipments from home office ……………. Home Office ………………………

10,200

1,500

10,200

1

Home Office ……………………………….. Cash ………………………………..

900

1

Accts. Rec. – Home office ………………. Home Office ………………………

2,600

1-31

Accts. Rec.-Home Office ………………. Sales ………………………………..

6,200

1-31

Cash ……………………………………….. Accounts Receivable …………..

2,600

1-31

Purchases …………………………………. Accounts Payable ………………

3,000

1-31

Accounts Payable ………………………. Cash ………………………………..

1-31 Jan.

Cash …………………………………………. Home Office ………………………

1-31

Expenses ………………………………….. Cash ………………………………. Cash ………………………………………… Accts. Rec.-Home Office ……...

2,600

3,000

1,450 1,450 1,250

1,250

1,600 1,600

Home Office ……………………………… Accts. Rec.-Home Office …….

150

1-31

Shipments from Home Office ………… Home Office …………………….

1,250

Home Office ……………………………… Cash ………………………………

6,200 2,600

1-31

1-31

900

150 1,250

1,000

1,000

(b) Home Office Books: Jan.

1 1 1 1

Branch …………………………………….. 1,500 Cash ……………………………… Branch …………………………………….. 10,200 Shipments to Branch ………….. Store Furniture and Fixtures Branch ….. 3,000 Store Furniture and Fixtures …...

1,500 10,200 3,000

Accumulated Depr. Store F&F ……….. 750 Accumulated Depr. Store Furniture And Fixtures, Branch ………….. 750 Calculation of depreciation: 2.5years at P300, (10% of

P3,000), or P750 1

Store Furniture and Fixtures Branch ….. Branch ……………………………

900 900

1

Branch …………………………………… 2,600 Accounts Receivable ….........

2,600

1-31

Accounts Receivable ………………… 34,600 Sales ………................................

34,600

1-31

Cash ………………………………………. 40,000 Accounts Receivable …………

40,000

1-31

Purchases ………………………………….31,600 Accounts Receivable ………….

31,600

1-31

Accounts Payable ……………………… 36,200 Cash ……………………………...

36,200

1-31

Accrued Expenses Payable …………. Expenses …………………………………. Cash ……………………………..

1-31

250 8,950

9,200

Allowance for Doubtful Accounts ….. Branch …………………………..

150

1-31

Branch ……………………………………. Shipments to Branch …………

1,250

1-31

Cash ……………………………………… Branch ………………………….

150 1,250

1,000 1,000

EAGLE CO. Balance Sheet January 31, 20x4 Assets

Liabilities

Cash …………............................ Accounts Receivable ………….. Accts. Rec.-home office ………. Merchandise Inventory ………… Merchandise in Transit …………. Total assets ………………… P37,200

P 1,100 3,600 850 9,800 600 P37,200

Accounts Payable ………………. P 2,400 Accrued expenses ………………. 400 Home Office ……………………… 14,050 Total Liabilities …………………….

EAGLE CO. Income Statement for Branch For Month Ended January 31, 20x4 Sales …………………………………………………………………………………………. Cost of Goods Sold:

P 6,200

Purchases …………………………………………………… P 3,000 Shipments from home office ……………………………. 11,450 Shipments from home office in transit ………….......... 600 Merchandise Available for Sale ……………………….. P15,050 Less merchandise inv. Dec 31, 19X9 ……................P9,800 Merchandise in transit ………………………….. 600 10,400 Cost of Goods Sold ……………………………………………………………. 4,650 Gross Profit ………………………………………………………………………………… P 1,550 Expenses …………………………………………………………………………………… 2,110 Net Loss ………………………………………………………………………………….. .. P

560

EAGLE CO. Balance Sheet for Home Office January 31, 20x4 Assets Cash …………………………………………………………………… Accounts Receivable ……………………………………………… P34,000 Less allowance for doubtful accounts ……………….. 1,050 Merchandise Inventory ……………………………………………. Store furniture and fixtures ………………………………………… P12,000 Less accumulated depreciation ………………………. 3,950 Store furniture and fixtures-branch ……………………………… P 3,900 Less accumulated depreciation ……………………… 785 Branch office ………………………………………………………... Total Assets ……………………………………………………………

P 9,100 32,950 44,500 8,050 3,315

14,050 P111,765

Liabilities Accounts Payable …………………………………………….. P29,150 Accrued Expenses …………………………………………….. 750 Total Liabilities …………………………………………………..

P29,900

Stockholders Equity Capital Stock ……………………………………………………P50,000 Retained earnings …………………………………………….. 31,865 Total stockholder’s equity …………………………………… Total liabilities and stockholders equity ……………………

81,865 P111,765

AGLE CO. Income Statement for Home Office For Month Ended January 31, 20x4 Sales ……………………………………………………………………………… P 34,600 Cost of goods sold: Merchandise inventory, January 1 …………………….. P46,000 Purchases …………………………………………………… 31,600 Merchandise available for sale ………………………… 77,600 Less shipments to branch ………………………………… 12,050 Merchandise available for own sales …………………. P65,550 Less merchandise inventory, January 31 ……………… 44,500 Cost of goods sold …………………………………………………………… 21,050

Gross Profit ………………………………………………………………………… Expenses …………………………………………………………………………… Net income from own operations ……………………………………………. Deduct branch net loss ………………………………………………………… Total Income ……………………………………………………………………

P 13,650 9,325 P 4,225 560 P 3,665

EAGLE CO. Income Statement for Home Office For Month Ended January 31, 20x4 Assets Liabiities and Stockholders Equity Liabilities Cash …………………………….. ………. P 10,200 Accounts Payable …… P30,700 Accounts receivable ……….. P38,450 Accrued Expenses …… 1,100 P 31,800 Less allow for doubtFul accounts ……….. 1,050 37,400 Merchandise Inventory ……………….. 54,900 Stockholders Equity Store furn. & fixtures ………… P15,900 Capital Stocks …………P50,000 Less accum depr 4,735 11,165 Retained earnings …… 31,865 81,865 Total assets ……………………………… P113,665 Total liab. And stockholders equity . P113,665 EAGLE CO. Combined Income Statement for Home Office and Branch For Month Ended January 31, 20x4 Sales ………………………………………………………………………………….. Cost of goods sold: Merchandise Inventory, January 1 ………………. P46,000 Purchases ……………………………………………... 34,600 Merchandise available for sale …………………... P80,600 Less merchandise inventory, Jan 31 ……………... 54,900 Cost of goods sold …………………………………............................... Gross profit …………………………………………………………………………... Expenses ……………………………………………………………………………… Net Income …………………………………………………………………………..

P 40,800

25,700 P 15,100 11,435 P 3,665

(a) Branch Books Jan.

31

Shipments from Office-in Transit ……………… Home Office …………………………….

600

Expenses …………………………………………. 475 Home Office ……………………………. 31 Expenses ………………………………………… 35 Home Office ………………………….. 1/120 x P3,000, or P25 (depreciation for one month; Asset life, 10 years); 1/90 x P900, or P10 (depreciation For one month; asset life, 7.5 years)

600

31

31

Merchandise Inventory ……………………… 9,800 Merchandise in Transit ……………………….. 600 Income Summary ……………………

475 35

10,400

31

Expenses ……………………………………….. Accrued Expenses ………………….

350

31

Sales ……………………………………………. Income Summary …………………..

6,200

31

Income Summary ……………………………. 17,160 Shipments from Home Office ……. Ship. From Home Office – in Trans . Purchases …………………………… Expenses ……………………………..

31

Home Office ………………………………….. Income Summary …………………...

350 6,200 11,450 600 3,000 2,110

560 560

(b) Home Office Books: 31

Branch …………………………………………. Shipments to Branch ……………….

600

31

Branch …………………………………………. Expenses ……………………………...

475

31

31

Branch …………………………………………. Accumulated Depreciation, Store Furniture and Fixtures Branch ……..

475 35 35

Expenses ………………………………………. 100 Accumulated Depreciation store Furniture and Fixtures branch ……. 1/120 x P12,000, or P100 (depreciation for one Month; asset life, 10 years)

31

Income Summary …………………………… Merchandise Inventory ……………

46,000

31

Merchandise Inventory …………………….. Income Summary …………………..

44,500

31

Expenses ………………………………………. Accrued Expenses ………………….

31

Sales …………………………………………… Purchases …………………………… Expenses ……………………………..

31

600

100

46,000 44,500

750

750

40,925 31,600 9,325

Branch Income ………………………………. Branch ………………………………..

560

31

Income Summary ……………………………. Branch Income ……………………...

560

31

Income Summary ……………………………. Retained Earnings …………………..

3,665

560 560 3,665

Problem IV 1.

Socrates Company Home Office and Plato Branch Reconciliation of Reciprocal Ledger Accounts June 30, 20x4 Investment in Plato Branch Ledger Account Account (Debit) Balances prior to adjustment P85,000 Add: Merchandise shipped to branch Less: Acquisition of office equipment by branch (carried in accounting records of home office)(14,500) Collection of branch trade accounts receivable Payment of cash by branch (22,000) Adjusted balances P48,500

2.

Home Office Ledger (Credit) P33,500 24,000 (9,000) _______ P48,500

(a) Accounting records of home office: Office Equipment: Plato Branch 14,500 Investment in Plato Branch To record acquisition of office equipment by branch. Cash in Transit Investment in Plato Branch To record cash in transit from branch. (b)

22,000 22,000

Accounting records of branch: Home Office 9,000 Trade Accounts Receivable To record collection by home office of branch accounts receivable. Inventories in Transit Home Office To record shipment of merchandise in transit from home office.

Problem V ((a) Balances before Adjustments ……………………………………….. Adjustments: Additions: Merchandise in transit to branch …………………. Collection of Home office receivable by Branch Understatement of branch net income for Nov.. Deductions: Merchandise return to home office in transit ……………. Corrected Balances ……………………………………………… (b) Branch Books:

14,500

9,000

24,000

BRANCH ACCOUNT P 8,400

24,000

HOME OFFICE ACCOUNT… P 9,735 615

2,500 90 P10,990

P10,350

640 P10,350

P10,350

Shipments from Home Office-in Transit ……………………. Home Office …………………………………………...

615 615

Home Office Books: Branch …………………………………………………………… Accounts Receivable ………………………………..

2,500 2,500

Branch …………………………………………………………… Retained Earnings …………………………………….

90

Merchandise Returns from Branch – in Transit ……………. Branch …………………………………………………..

90

640 640

Multiple Choice Problem 1. d Branch A Assets: Inventory, January 1 Imprest branch fund Accounts receivable, January 1 Total Assets Less: Liabilities Home Office Current Account

P 21,000 2,000 55,000 P 78,000 -0P 78,000

Branch B P 19,000 1,500 43,500 P 64,000 -0P 64,000

2. b Branch A Assets: Inventory, December 31 Imprest branch fund Accounts receivable, December 31 Total Assets Less: Liabilities Home Office Current Account

P 19,000 2,000 70,000 P 91,000 -0P 91,000

Branch B P 12,000 1,500 53,500 P 67,000 -0P 67,000

3. d – incidentally, the entry in the books of the branch would be as follows: Profit and loss summary ………………………………………………………… xxx Home Office Current……………………………………………………. Xxx 4. c Assets: Inventory Petty cash fund Accounts receivable Total Assets Less: Liabilities Home Office Current Account

January 1,20x4

5. a – refer to No. 4 for computations 6. a Sales Less: Cost of goods sold: SFHO……………………………………………………………

P 37,000 3,000 43,000 P 83,000 _____-0P 83,000

January 1, 20x5 P 41,000 3,000 49,000 P 93,000 _____-0P 93,000

P 74,000 P67,680

Less: Inventory, ending……………………………………… Gross profit…………………………………………………………… Less: Expenses – Net Loss……………………………………………………………….. 7. a

9,180

58,500 P 15,500 6,820 P 8,680

January 1, 20x6

Assets: Cash Inventory Accounts receivable Total Assets Less: Liabilities Home Office Current Account

P 4,200 9,180 12,800 P 26,180 _____-0P 26,180

8. a – nominal accounts have zero beginning balance. 9. d Branch Current

H. Office Current

Unadjusted balance, 6/30/20x4 P 225,770 P 226,485* Add (Deduct): Adjustments 1 Erroneous recording of branch equipment 3150 2. Insurance premium recorded twice ( 675) 3. Erroneous recording of freight ( 90) 4. Discount on merchandise ( 800) 5. Failure by the branch to record share in advertising 700 6. error by the home office to record remittance of 3,000 ________ Cebu Adjusted balance, 6/30/20x4 P 228,770 P 228,770 * The P226,485 is compute simply by working back with P228,770 adjusted balance as the starting point.

P2-07 10. c

Unadjusted balance Add (deduct) adjustments: In transit Remittance Returns Cash in transit Expenses - HO Expenses – branch Error Adjusted balance

Home Office Books (Branch CurrentDr. balance) P518,575 ( 17,000) ( 775) (

800)

________ P 500,000

Branch Books (Home Office Current – Cr. balance) P452,276 10,500 25,000 12,000 _____224 P 500,000

11. d Home Office Books

Branch Books

Unadjusted balance Add (deduct) adjustments: Excess freight Cash in transit Returns Expenses – branch Adjusted balance 12. 13. 14. 15.

(Branch CurrentDr. balance) P515,000

(Home Office Current – Cr. balance) P495,750 (

750)

( 11,000) ( 4,000) ________

5,000

P 500,000

P 500,000

c – refer to No. 11 for computations a – refer to No. 11 for computations No answer available – P495,750 d - No entry should be made in the books of the home office, since the freight should be chargeable to the branch and the payment of the freight was made by the branch.

16. b

Unadjusted balance Add (deduct) adjustments: Remittance Returns Error by the branch Expenses – branch Adjusted balance

Home Office Books (Branch CurrentDr. balance) P590,000

Branch Books (Home Office Current – Cr. balance) P506,700

(40,000) (15,000) ________

300 28,000

P 535,000

P 535,000

Home Office Books (Branch Current- Dr. balance) P150,000

Branch Books (Home Office Current – Cr. balance) P117,420

17. c

Unadjusted balance Add (deduct) adjustments: In transit HO A/R collected by br. Supplies returned Error in recording Br. NI Cash sent to branch to General Expense by HO Adjusted balance

37,500 10,500 ( 4,500) ( 1,080) 25,000 P 179,920

25,000 P 179,920

Home Office Books (Branch Current- Dr. balance) P40,000

Branch Books (Home Office Current – Cr. balance) P31,100

18. d – refer to No. 17 for computation. 19. a

Unadjusted balance Add (deduct) adjustments: In transit HO A/R collected by br.

500

5,800

Cash in transit Error in recording Br. NI Adjusted balance

2,000 ( 3,600) P38,900

2,000 _______ P38,900

Home Office Books (Branch Current- Dr. balance) P49,600

Branch Books (Home Office Current – Cr. balance) P44,00

20. a – refer to No. 19 for computations 21. a

Unadjusted balance Add (deduct) adjustments: Collection of branch A/R In transit Purchase of furniture Return of excess merchandise Remittance Adjusted balance

( ( 1,200) ( 1,500) ( 500) P46,400

800) 3,200

_______ P46,400

22. b – refer to No. 21 for computations 23. (C)

Sales (P350,000 + P100,000)………………………………………………………….P 450,000 Less: Cost of goods sold: Purchases (P400,000 + P50,000)……………………………. P 450,000 Less: Inventory, ending……………………………………… 90,000 360,000 Gross profit…………………………………………………………… P 90,000 Less: Expenses – Salaries and commission…………………………………….. P 70,000 Rent……………………………………………………………… 20,000 Advertising supplies (P10,000 – P6,000)…………………… 4,000 Other expenses………………………………………………. 5,000 99,000 Net Loss……………………………………………………………….. P( 9,000)

24. a In adopting the imprest system for the agency working fund, the home office writes a check to the agency for the amount of the fund. Establishment of the fund is recorded on the home office books by a debit to the Agency working fund and credit cash. The agency will request fund replenishment whenever the fund runs low and at the end of each fiscal period. Such a request is normally accomplished by an itemized and authenticated statement of disbursements and the paid vouchers. Upon sending the agency a check in replenishment of the fund, the home office debits expense or other accounts for which disbursements from the fund were reported and credits cash. 25. d Normally, transactions of the agency are recorded in the books of the home office separately identified with the appropriate agency. Theories 1 True . 2 True

6.

False

11.

False

16.

b

7.

False

12.

False

17.

c

21 . 22

a

26.

c

b

27.

b

31 . 32

b b

. 3 . 4 . 5 .

False

8.

False

13.

True

18.

d

False

9.

True

14.

True

19.

a

True

10 ,

True

15.

True

20.

c

. 23 . 24 . 25 .

b

28.

d

b

29.

d

a

30.

c

. 33 . 34 . 35 . 36 .

c c c d