Solution Chapter 13

Chapter 13 Problem I 1. Home Office Books Branch Current Shipments to Branch Unrealized Int Inv. Profit

2.

Branch Books

55,000 50,00 0 5,000

Shipm from Home Office Home Office Current

55,000 55,000

Billed price P55,000 / 110% Cost 50,000 Allowance for overvaluation of branch inventory/ _______ Unrealized Intercompany Inventory Profit/Deferred Profit P 5,000

Sales...................................................................................................................................... P140,000 Cost of goods sold: Merchandise inventory, September 1................................................ P 35,200 Purchases.............................................................................................. 24,000 Shipments from home office............................................................... 55,000 Merchandise available for sale.......................................................... P 114,200 Less: Merchandise Inventory, September 30..................................... 30,000 Cost of goods sold....................................................................................................... 84,200 Gross profit............................................................................................................................P 55,800 Operating expenses: Selling expenses……………………………………..................................P 8,000 General expenses…………………......................................................... 12,000 Total operating expenses.......................................................................................... 20,000 Unadjusted branch net income...................................................................................... P 15,800 3. Results of Branch Operations: a. Branch Net Income/Loss from its own operations: Branch Current………………........................................................................... 15,800 Branch Income Summary................................................................... 15,800 b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/ Unrealized Intercompany Inventory Profit: Unrealized Intercompany Inventory Profit.................................................... 4,600 Branch Income Summary.................................................................. 4,600

*P 17,600 __55,000 P 72,600 **22,000

Cost (Billing/1.10 ) P 16,000 __50,000 P 66,000 __20,000

P 50,600

P 46,000

Billing Price Inventory, 9/1 Shipments during December Available for Sale (before adjustment) Less: Inventory, 9/30 (after adjustment) Reduction in unrealized profit account- adjustment to branch profit for overstated of cost of goods sold (adjustment)

Unrealized Profit (Billing Price Minus Cost) P 1,600 __ 5,000 P 6,600 __2,000 ***P 4,600

* P35,200 x 50% = P17,600 ** P30,000 – P8,000 ***or, P50,600 x 10/110 = P4,125; Decrease in Unrealized Intercompany Inventory Profit: Therefore, the True/Real/Adjusted Branch Net Income or Branch Net Income in so far as HO is concerned amounted to: Unadjusted branch net income...............................................................................P15,800 Add: Allowance for Overvaluation of CGS……………………………………………. 4,600 Adjusted Branch Net Income……………………………………………………………..P20,400 Problem II Books of Home Office Correcting entries: A. Sales............................................................................................................... 42,000 Shipments to Branch................................................................ ………… 35,000 Unrealized Intercompany Inventory Profit........................................... 7,000 Cost of merchandise shipped t branch: P42,000/1.20= P35,000. Entry Made Correct/Should be Entry Branch Current…………… 42,000 Branch Current……….. 42,000 Sales…………………… 42,000 Shipments to Branch 35,000 Unrealized Int. Inv Pr. 7,000 B. Shipments to Branch...................................................................................... 625 Unrealized Intercompany Inventory Profit................................................... 125 Sales Returns........................................................................................... 750 Cost of merchandise returned by branch: P750/1.20= P625. Entry Made Correct/Should be Entry Sales Returns……………… 750 Shipments to Branch………. 625 Branch Current……… 750 Unrealized Int. Inv Profit…… 125 Branch Current………….

750 Results of Branch Operations: A. Branch Net Income/Loss from its own operations: Branch Income Summary............................................................................... 2,600 Branch Current…................................................................................ 2,600 B. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/ Unrealized Intercompany Inventory Profit: Unrealized Intercompany Inventory Profit.................................................... 4,125 Branch Income Summary.................................................................. 4,125 Billing Price Inventory, December 1 Shipments during December Less: Returns Available for Sale (before adjustment) Less: Inventory, Dec. 31 (after adjustment)

P

0 42,000 _____750 P 41,250 16,500

Cost (Billing/1.20 ) P 0 35,000 ____625 P 34,375 13,750

Unrealized Profit (Billing Price Minus Cost) P

0 7,000 ____125 P 6,875 __2,750

Reduction in unrealized profit account- adjustment to branch profit for overstated of cost of goods sold (adjustment)

P 24,750

P 20,625

*P 4,125

*or, P24,750 x 20/120 = P4,125; Decrease in Unrealized Intercompany Inventory Profit: Balance prior to adjustment, 12/31, P7,000 – P125................... P6,875 Balance required in account, 12/31,P16,500 – (P16,500/1.20).. 2,750 Decrease in Allowance................................................................. P4,125

1,525

Branch Income Summary (P4,125 – P2,600)....................................................1,525 Income Summary....................................................................................

Therefore, the Real/True/Adjusted Branch Net Income/Branch Net Income in so far as HO is concerned, amounted to P1,525, computed as follows: Branch net loss as reported/unadjusted……………………………………………………(P2,600) Add: Overvaluation of branch inventory/Realized profit from branch sales……….. 4,125 Real/True/Adjusted Branch Net Income or Branch NI in so far as HO is concerned P1,525 Problem III a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on December 31, calculated as follows:

P 16,200 __20,250 P 36,450 __18,900

Cost (Billing/1.35 ) P 12,000 _ 15,000 P 35,625 _14,000

P 17,550

P 21,625

Billing Price Inventory, December 1 Shipments during December Available for Sale (before adjustment) Less: Inventory, Dec. 31 (after adjustment) Reduction in unrealized profit account- adjustment to branch profit for overstated of cost of goods sold (adjustment)

Unrealized Profit (Billing Price Minus Cost) P 4,200 __ 5,250 P 9,450 __4,900

*P 4,550

* or, P17,550 x 35/135 = P4,550 b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/ Unrealized Intercompany Inventory Profit (refer to “a” for computation): Unrealized Intercompany Inventory Profit.................................................... 4,550 Branch Income Summary.................................................................. 4,550 c. Home Office Books Branch Books Shipments to Branch Unrealized Int Inv. Pr Branch Current

400 140

Home Office Current Shipments to Branch

540 540

540

Cost of merchandise returned: P540/1.35, or P400. Problem IV 1. The branch office inventory as of December 1 considered of: Shipments from Home Office (see below)............................................................. P 12,000**

Purchases from outsiders (balance of inventory).................................................. 3,000 Total inventory........................................................................................................... P 15,000 Goods acquired from home office and included in branch inventory at billed price are calculated as follows:

**P 12,000 __9,600 P 21,600 __8,400

Cost (Billing/1.20 ) *P 10,000 _ 8,000 P 18,000 __7,000

P 13,200

P 11,000

Billing Price Inventory, December 1 Shipments during December Available for Sale (before adjustment) Less: Inventory, Dec. 31 (after adjustment) Reduction in unrealized profit account- adjustment to branch profit for overstated of cost of goods sold (adjustment)

Unrealized Profit (Billing Price Minus Cost) P 2,000 __ 1,600 P 3,600 __1,400

***P 2,200

*P2,000/20% = P10,000; ***P13,200 x 20/120 = P2,200 2. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/ Unrealized Intercompany Inventory Profit (refer to “a” for computation): Unrealized Intercompany Inventory Profit......................................... 2,200 Branch Income Summary.......................................................... 2,200 Problems V (1) Individual Statements

SPENCER CO. Balance Sheet for Branch December 31,20x4

Assets Liabilities____________________ Cash..................................................... P 2,650 payable................................... P 4,200 Accounts receivable........................ 12,850 expenses................................... 105 Merchandise inventory..................... 14,600 office............................................... 29,239 Store supplies...................................... 300 Prepaid expenses............................... 120 Furniture and fixtures.............. P 3,600 Less: Accumulated depreciation.............. 576 3,024 ________ Total assets....................................... P 33,544 liabilities............................................ P 33,544

Accounts Accrued Home

Total

SPENCER CO. Income Statement for Branch For Month Ended December 31, 20x4 Sales........................................................................................................................................... P 20,000

Cost of goods sold: Merchandise inventory, December 1................................................ P 14,400 Purchases.............................................................................................. 4,100 Shipments from home office............................................................... 10,200 Merchandise available for sale.......................................................... P 28,700 Less: Merchandise Inventory, December 31..................................... 14,600 Cost of goods sold....................................................................................................... 14,100 Gross profit................................................................................................................................. P 5,900 Operating expenses: Advertising expense............................................................................. P 2,800 Salaries and commissions expense..................................................... 2,350 Store supplies expense......................................................................... 280 Miscellaneous selling expense............................................................ 1,050 Rent expense........................................................................................ 1,500 Depreciation expense – furniture and fixtures.................................. 36 Miscellaneous general expense......................................................... 905 Total operating expenses.......................................................................................... 8,921 Net loss...................................................................................................................................... P 3,021 SPENCER CO. Balance Sheet for Home Office December 31, 20x4 Liabilities and Stockholder’s

Assets Equity_______ Cash..................................................... P10,350 Cash in transit..................................... 1,500 Accounts receivable........................ 26,200 P 35,660 Merchandise inventory..................... 24,200 Store supplies...................................... 380 Prepaid expenses............................... 350 4,476 60,524 Furniture and fixtures.............. P 8,500 Less: Accumulated depreciation.............. 2, 585 5,915 Branch..................................... P29,239 Less: Unrealized intercompany inventory profit............ 1,950 27,289 ________ Total assets........................................ P 96,184 P 96,184

Liabilities Accounts payable................ P 35,400 Accrued expenses............... 260 Stockholders’ Equity Capital Stock......................... P 65,000 Less deficit..............................

Total liabilities and stockholder’s equity...............................

SPENCER CO. Income Statement for Home Office For Month Ended December 31, 20x4 Sales........................................................................................................................................... P 44,850 Cost of goods sold: Merchandise inventory, December 1................................................ P 31,500

Purchases.............................................................................................. 27,600 Merchandise available for sale.......................................................... P 59,100 Less: Shipments to branch................................................................... 8,500 Merchandise available for own sales................................................ P 50,600 Less: Merchandise Inventory, December 31..................................... 24,200 Cost of goods sold.......................................................................................... 26,400 Gross profit................................................................................................................................. P 18,450 Operating expenses: Advertising expense............................................................................. P 2,850 Salaries and commissions expense..................................................... 4,250 Store supplies expense......................................................................... 560 Miscellaneous selling expense............................................................ 1,850 Rent expense........................................................................................ 2,700 Depreciation expense – furniture and fixtures.................................. 85 Miscellaneous general expense......................................................... 2,510 Total operating expenses............................................................................. 14,805 Net income from own operations......................................................................................... P 3,645 Less: Branch net loss................................................................................................................ 1,271 Total income............................................................................................................................ P 2,374 2. Refer to Word Document Worksheet 3, Combined Statements SPENCER CO. Combined Balance Sheet for Home Office and Branch December 31, 20x4 Assets

Liabilities and Stockholders’ Equity

Cash ………………………………. P 14,500 Accounts Receivable ………… 39,050 Merchandise Inv ………………. 36,850 39,965 Store Supplies ………………….. 680 Prepaid Expenses …………….. Furniture & Fixtures ……… P12,100 60,524 Less accumulated Depreciation …... 3,161 8,939 Total assets ……………………… P100,489

P100,489

Liabilities Accounts Payable ……….. Accrued Expenses ……….

P39,600 365 P

Stockholders’ Equity 470 Capital Stock ……………… P65,000 Less deficit …………………. 4,476

Total

liabilities

and

SPENCER CO. Combined Income Statement for Home Office and Branch

SHEquity

For Month Ended December 31, 20x4 Sales ………………………………………………………………………………………………………… P64,850 Cost of goods sold: Merchandise Inventory, December 1 …………………………………… P43,900 Purchases ……………………………………………………………………… 31,700 Merchandise available for sale …………………………………………… P75,600 Less merchandise inventory, December 31 ……………………………. 36,850 Cost of goods sold ………………………………………………………….. 38,750 Gross profit ……………………………………………………………………………… P26,100 Operating Expenses: Advertising Expense ………………………………………………………… P 5,650 Salaries and Commissions expense ……………………………………… 6,600 Store supplies expense …………………………………………………….. 840 Miscellaneous selling expense …………………………………………… 2,900 Rent expense ………………………………………………………………… 4,200 Depreciation Expense – F&F ………………………………………………. 121 Miscellaneous general expense …………………………………………. 3,415 Total operating expense ………………………………………………………………………. 23,726 Net Income ………………………………………………………………………………………………… P 2,374 4. Adjusting and Closing Entries (a) Branch Books Dec 31 Income Summary …………………………………………….. Merchandise Inventory …………………………….. 31

Dec.

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

14,400 14,600

14,600

31

Store Supplies Expense ………………………………………. Store Supplies ………………………………………… Store supplies used: P580 – P300, or P280

280

31

Prepaid Expenses ………………………………………………… Miscellaneous General Expense …………………….

120

31

Miscellaneous General Expense ……………………………… Accrued Expenses ……………………………………..

105

31

Depreciation Expense – F&F ………………………………….. Accumulated Depreciation ………………………… Depreciation: 1% of P3,600

36

31

Miscellaneous General Expense …………………………….. Home Office Current…………………………………

220

31

Sales ……………………………………………………………… 20,000 Income Summary …………………………………….

31

Income Summary ……………………………………………… Purchases ………………………………………………

20,000

14,400

280

120 105 36

220

22,221 4,100

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 (b) Dec

3,021

3,021

Home Office Books 31

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

31,500

31

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

24,200

31

Store Supplies Expense …………………………………………. Store Supplies …………………………………………… Store supplies used: P940 – P380, or : 560

31

31,500

560 350

31

Miscellaneous General Expense …………………………….. Accrued Expenses …………………………………….

260

31

Depreciation Expense ………………………………………….. Accumulated Depreciation – F&F …………………. Depreciation: 1% of P8,500, or P85

85

31

24,200

560

Prepaid Expense ………………………………………………… Miscellaneous General Expense ……………………

31

Dec

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

10,200 2,800 2,350 280 1,050 1,500 36 905

350 260 85

Cash in Transit …………………………………………………. Branch Current…………………………………………

1,500

Sales …………………………………………………………… Shipments to branch ………………………....................... Income Summary ………………………………….

44,850 8,500

1,500

53,350

31

Income Summary ……………………………………………… 42,405 Purchases ……………………………………………… Advertising Expense …………………………………. Salaries and Commissions Expense ………………. Store Supplies Expense ……………………………… Miscellaneous Selling Expense …………………….. Rent Expense …………………………………………. Depreciation Expense – F&F ………………………. Miscellaneous General Expense ………………….

31

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

3,021

31

Unrealized Intercompany Inventory Profit ……………….

1,750

27,600 2,850 4,250 560 1,850 2,700 85 2,510 3,021

Branch Income Summary………………………… Calculation of unrealized profit adjustment: Balance of unrealized profit account, December 31 ……………………….. P3,700 Inventory merchandise received from Home office at billed price on December 31, P11,700 Inventory at cost: P11,700/ 1.20, or P9,750 Balance of unrealized profit account on December 31, P11,700 – P9,750 .... 1,950 Required decreased in unrealized profit Adjustment to branch income for Overstatement of cost of goods Sold …………………………………….. P1,750

1,750

31

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

1,271

31

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

2,374

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 44,000

H. Office Current P 9,000

( 10,000)

_______ P 34,000

10,000 12,000 3,000 P34,000

2. Refer to PDF Copy of the Worsheet 3. Combined Income Statement Sales [(P350,000 – P105,000) + P150,000)………....................................................... P395,000 Less: Cost of goods sold [(P220,000 – P84,000) + (P93,000 + P3,600 – P21,000 – P1,200)]……………………………………. 210,400 Gross profit................................................................................................................... P184,600 Operating expenses (P70,000 + P41,000 + P12,000)................................................ 123,000 Net income................................................................................................................... P 61,600 Problem VII (1)

PAXTON CO. Income Statement for Dayton Branch For Year Ended December 31, 20x5 Sales.............................................................................................................................. P315,000

Cost of goods sold: Merchandise inventory, January 1, 20x5................................... P 44,500 Shipments from home office...................................................... 252,000 Merchandise available for sale................................................. P296,500 Less: Merchandise Inventory, December 31, 20x5.................. 58,500 238,000 Gross profit................................................................................................................. P 77,000 Operating expenses................................................................................................. 101,500 Net loss....................................................................................................................... P 24,500 PAXTON CO. Income Statement for Cincinnati Home Office For Year Ended December 31, 20x5 Sales.............................................................................................................................. P1,060,000 Cost of goods sold: Merchandise inventory, January 1, 20x5................................... P115,000 Shipments from home office...................................................... 820,000 Merchandise available for sale................................................. P935,000 Less: Shipments to branch.......................................................... 210,000 Merchandise available for own sales....................................... P725,000 Less: Merchandise Inventory, December 31, 20x5.................. 142,500 582,500 Gross profit.................................................................................................................. P477,500 Expenses...................................................................................................................... 382,000 Net income from own operations............................................................................ P 95,500 Add branch net income........................................................................................... 16,650 Total income............................................................................................................... P112,150 (2) PAXTON CO. Combined Income Statement for Home Office and Branch For Year Ended December 31, 20x5 Sales.............................................................................................................................. P1,375,000 Cost of goods sold: Merchandise inventory, January 1, 20x5...................................P 150,600 Purchases...................................................................................... 820,000 Merchandise available for sale................................................. P970,600 Less: Merchandise Inventory, December 31, 20x5.................. 191,250 779,350 Gross profit.................................................................................................................... P595,650 Operating expenses.................................................................................................... 483,500 Net income................................................................................................................... P112,150 (3) Merchandise Inventory, December 31................................................................ 58,500 Sales.......................................................................................................................... 315,000

Income Summary............................................................................................ 373,500 Income Summary......................................................................................................... 398,000 Merchandise Inventory, January 1................................................................ 44,500 Shipments from Home Office......................................................................... 252,000 Operating expenses........................................................................................ 101,500 Home Office............................................................................................................... Income Summary.......................................................................................... 24,500

24,500

(4) Branch Income Summary........................................................................................ 24,500 Branch Current..................................................................................................... 24,500 Unrealized Intercompany Inventory Profit............................................................... 41,150 Branch Income Summary.................................................................................... 41,150 Calculation of unrealized profit adjustment: Branch inventory, January 1, acquired from home office at billed price...................................................................................... P 44,500 Less: Cost of inventory (P44,500/1.25)......................................................... 35,600 Unrealized Intercompany Inventory Profit Jan. 1....................................... P 8,900 Add: Increase in unrealized profit for shipments made during year, billed price of goods, P252,000, cost of goods, P210,000.................................................... 42,000 P 50,900 Deduct balance to remain in unrealized profit account: Branch inventory, December 31, acquired from home office....................................... P 58,500 Less: Cost of inventory to home office, P58,500/1.20................................................................ 48,750 Reduction in unrealized profit account- adjustment to branch income for overstatement of cost of goods sold..................................................................

9,750 41,150

Branch Income Summary........................................................................................... 16,650 Income Summary............................................................................................ 16,650 Merchandise Inventory, December 31...................................................................... 142,500 Sales............................................................................................................................... 1,060,000 Shipments to Branch.................................................................................................... 210,000 Income Summary............................................................................................. 1,412,500 Income Summary......................................................................................................... 1,317,000

Merchandise Inventory, January 1................................................................ 115,000 Purchases......................................................................................................... 820,000 Expenses........................................................................................................... 382,000 Income Summary.......................................................................................................... 112,150 Retained Earnings............................................................................................ 112,150 Problem VIII (1) RUGGLES CO. Income Statement for Branch For Year Ended December 31, 20x4 Sales................................................................................................................................ 78,500 Cost of goods sold: Merchandise inventory, January 1, 20x4......................................... P 32,000 Shipments from home office........................................... P 40,000 Purchases from outsiders................................................. 20,000 60,000 Merchandise available for sale....................................................... P 92,000 Less: Merchandise Inventory, December 31, 20x4........................ 31,500 Cost of goods sold............................................................................. Gross profit.................................................................................................................... 18,000 Operating expenses.................................................................................................... 12,500 Net income................................................................................................................... 5,500

P

60,500 P

P

RUGGLES CO. Income Statement for Home Office For Year Ended December 31, 20x4 Sales.............................................................................................................................. P 256,000 Cost of goods sold: Merchandise inventory, January 1, 20x4................................... P 80,000 Purchases...................................................................................... 210,000 Merchandise available for sale................................................. P 290,000 Less: Shipments to branch.......................................................... 30,000 Merchandise available for own sales....................................... P 260,000 Less: Merchandise Inventory, December 31, 20x4.................. 55,000 Cost of goods sold............................................................................. 205,000 Gross profit................................................................................................................... P 51,000 Operating Expenses.................................................................................................... 60,000 Net loss from own operations..................................................................................... P ( 9,000) Add: Adjusted branch net income............................................................................. 13,500 Combine net income.................................................................................................... P 4,500

(2)

RUGGLES CO. Combined Income Statement for Home Office and Branch For Year Ended December 31, 20x4 Sales.............................................................................................................................. P 334,500 Cost of goods sold: Merchandise inventory, January 1, 20x4................................... P 107,500 Purchases...................................................................................... 230,000 Merchandise available for sale.................................................. P 337,500 Less: Merchandise Inventory, December 31, 20x4................... 80,000 Cost of goods sold............................................................................. 257,500 Gross profit.................................................................................................................... P 77,000 Operating expenses.................................................................................................... 72,500 Net income................................................................................................................... P 4,500 (3) Merchandise Inventory......................................................................................... 31,500 Sales.......................................................................................................................... 78,500 Income Summary............................................................................................ 110,000 Income Summary......................................................................................................... 104,500 Merchandise Inventory................................................................................... 32,000 Shipments from Home Office......................................................................... 40,000 Purchases......................................................................................................... 20,000 Expenses........................................................................................................... 12,500 Income Summary......................................................................................................... Home Office..................................................................................................... 5,500

5,500

(4) Branch...................................................................................................................... Branch Income................................................................................................ 5,500 Unrealized Intercompany Inventory Profit............................................................... Branch Income.............................................................................................. 8,000 Calculation of unrealized profit adjustment: Branch inventory, January 1, acquired from home office at billed price.................................................................................... P 24,500 Less: Cost of inventory (P24,500/1.225).................................................... 20,000 Unrealized Intercompany Inventory Profit Jan. 1................................... P 4,500 Add: Increase in unrealized profit for shipments

5,500

8,000

made during year, billed price of goods, P40,000, cost of goods, P30,000.................................................... 10,000 P 14,500 Deduct balance to remain in unrealized profit account: Branch inventory, December 31, acquired from home office....................................... P 26,000 Less: Cost of inventory to home office, P26,000/1.1/3................................................................ 19,500 6,500 Reduction in unrealized profit account- adjustment to branch income for overstatement of cost of goods sold........................... 8,000 Branch Income............................................................................................................. 13,500 Income Summary............................................................................................ 13,500 Merchandise Inventory................................................................................................ 55,000 Sales............................................................................................................................... 256,000 Shipments to Branch.................................................................................................... 30,000 Income Summary............................................................................................. 341,000 Income Summary......................................................................................................... 350,000 Merchandise Inventory................................................................................... 80,000 Purchases......................................................................................................... 210,000 Expenses........................................................................................................... 60,000 Income Summary.......................................................................................................... Retained Earnings............................................................................................ 4,500

4,500

Problem IX 1. Branch Current Unadjusted balance, 12/31/20x4 Add (Deduct): Adjustments 1 Remittance 2. Cash in transit 3. Shipments in transit Adjusted balance, 12/31/20x4

P 60,000

H. Office Current P 51,500

I 1,700)

P 57,300

1,800 5,800 P 57,300

2. Income Statement - Branch Sales................................................................................................................................ P 140,000 Cost of goods sold: Merchandise inventory, January 1, 20x4 (P11,550 – P1,000)....... P 10,550 Shipments from home office (P105,000 + P5,000 – P10,000)........ 100,000 Freight-in (P5,500 + P250)…………………………………………….. 5,750 Merchandise available for sale.....................................................P116,300 Less: Merchandise Inventory, December 31, 20x4...................... 14,770

Cost of goods sold............................................................................. 101,530 Gross profit.................................................................................................................... 38,470 Operating expenses.................................................................................................... 24,300 Net income................................................................................................................... 14,170

P

P

Income Statement – Home Office Sales.............................................................................................................................. P 155,000 Cost of goods sold: Merchandise inventory, January 1, 20x4................................... P 23,000 Purchases...................................................................................... 190,000 Merchandise available for sale................................................. P 213,000 Less: Shipments to branch.......................................................... 100,000 Merchandise available for own sales....................................... P 113,000 Less: Merchandise Inventory, December 31, 20x4.................. 30,000 Cost of goods sold........................................................................ 83,000 Gross profit................................................................................................................... P 72,000 Operating Expenses.................................................................................................... 42,000 Net loss from own operations..................................................................................... P 30,000 Add branch net income............................................................................................ 14,170 Combined net income.............................................................................................. P 44,170 3. Combined Income Statement for Home Office and Branch For Year Ended December 31, 20x4 Sales.............................................................................................................................. P 295,000 Cost of goods sold: Merchandise inventory, January 1, 20x4................................... P 33,550 Purchases...................................................................................... 190,000 Freight-in……………………………………………………………… 5,750 Merchandise available for sale.................................................. P 229,300 Less: Merchandise Inventory, December 31, 20x4................... 44,770 Cost of goods sold........................................................................ 184,530 Gross profit.................................................................................................................... P 110,470 Operating expenses.................................................................................................... 66,300 Net income................................................................................................................... P 44,170 Problem X a. The cost of the merchandise destroyed was P30,000.

Total merchandise acquired from home ofiice, at billed price: Inventory, January 1...................................................................................... P26,400 Shipments from home office, Jan. 1-17....................................................... 20,000 P46,400 Cost of goods sold, January 1-17, at billed price: Net sales, P13,000/1.25...................................................................................... 10,400 Merchandise on hand, January 17, at billed price....................................... P36,000 Merchandise on hand, January 17, at cost, P36,000/1.20............................ P30,000 b. Branch Books: Loss from Fire (or Home Office)............................................................ 36,000 Merchandise Inventory............................................................ 36,000 Home Office Books: No entry needs to be made on the books of the home office until the end of the fiscal period, when the branch earnings (including the loss from fire) are recognized and when the balance of the account Unrealized Intercompany Inventory Profit is adjusted to conform to the branch ending inventory. If it is desired to recognize the loss from fire on the home office books immediately, the following entry may be made: Branch Loss from Fire (or Retained Earnings)...................................... 30,000 Unrealized Intercompany Inventory Profit........................................... 6,000 Branch......................................................................................... 36,000 Problem XI a. Books of Branch A: Home Office........................................................................................ 1,500 Cash.........................................................................................

1,500

b. Books of branch B: Cash...................................................................................................... 1,500 Home Office............................................................................

1,500

c. Books of Home Office: Branch B............................................................................................... 1,500 Branch A.................................................................................. Problem XII a. Books of Branch No. 1 : Home Office ……………………………………………………………. Shipments from Home Office…………………………………….. Freight In……………………………………………………………… b. Books of branch No. 5: Shipments from Home Office………………………………………… Freight In…………………………………………………………………… Home Office…………………………………………………………. Cash…………………………………………………………………… c. Books of the Home Office Branch No. 5……………………………………………………………..

1,950 1,600 350

1,600 400 1,750 250 1,750

1,500

Excess Freight on Inter branch Transfer of Merchandise……….. Branch No. 1………………………………………………………… Shipments to Branch No. 1…………………………………………….. Shipments to Branch No. 5…………………………………………

200 1,950 1,600 1,600

Multiple Choice Problems 1. c - P50,400, billed price x 40/140 = P 14,400 2. b

Ending inventory in the combined income statement: From Home Office: (P50,000-P6,600) x 100/140 From Outsiders

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 31,000 6,600 P 37,600 P 5,000

67,600 ( 2,500) P 70,100

4. a – P30,000 x (90,000 – 60,000)/90,000 5. a 6. d – (P50,000 – P40,000)/P40,000 = 25% markup on cost 7. c – (P480,000 – P360,000) x (P80,000/P480,000) = P20,000 8. c – P700,000, since the problem stated that the “home office adjusted the intracompany Profit Deferred account” and the amount of P700,000 is the amount of net income in the adjusted financial statements of the home office, and therefore it is understood to be combined net income. 9. b

Reported (unadjusted) branch net income (per branch books) ………………..P 30,000 Branch Income in so far as home office is concerned per home office books. 50,000

Overvaluation of branch cost of goods sold…………………………………………P 20,000 Cost of sales of Home Office…………………………………………………………….P500,000 Cost of sales of Branch…………………………………………………………………… 100,000 Overvaluation of branch cost of sales…………………………………………………( 20,000) Combined cost of sales…………………………………………………………………...P580,000 10. c – the amount of net income as reported by Home office is considered the combined net income. 11. a True Branch Net Income Less: branch Net Income as reported by the branch Overvaluation of CGS Less: Cost of goods sold from home office at BP Inventory, December 1 Shipment from HO COGAS Less: Inventory, December 31 CGS from home office, at cost Billing Price: P336,000 / P240,000 = 140%.

P156,000 60,000 P 96,000 P 70,000 350,000 P 420,000 84,000

336,000 P 240,000

12. b – Allowance for overvaluation after adjustment / for December 31 inventory: P84,000 x 40/140 = P24,000. 13. No answer available – P109,000. Net Income as reported by the Branch Less: Rental expense charged by the home office (P1,000 x 6 months) Adjusted NI as reported by the Branch Add: Overvaluation of CGS MI, beginning SFHO COGAS Less: MI, ending CGS, at BP X: Mark-up ratio True/Adjusted/Real Branch Net Income

P 20,000 6,000 P 14,000 Billed Price 0 550,000 550,000 75,000 475,000 25/125

95,000 P109,000

14. d

15. d

Sales (P537,500 + P300,000)……………………………………………….………. P 837,500 Less: Cost of goods sold Merchandise inventory, beg. [P50,000 + (P45,000 / 1.20)]P 87,500 Add: Purchases…………………………………………………. 500,000 Cost of Goods Available for Sale…………………………... P 587,500 Less: MI, ending [P70,000 + (P60,000 / 1.20)]………………. 120,000 467,500 Gross profit………………………………………………………………. P 370,000 Less: Expenses (P120,000 + P50,000..………………………………. 170,000 Net Income……………………………………………………………… P 200,000 Overvaluation of Cost of Goods Sold: Unrealized Profit in branch inventory/ before adjustment……………….P 7,200

Less: Allowance of ending branch inventory (P20,000 x 84% = P16,800 x 20/120…………………………………………………………. 2,800 Overvaluation of Cost of Goods Sold……………………………………. ….P 4,400 Adjusted branch net income: Sales………………………………………………………………………………………P60,000 Less: Cost of goods sold: Inventory, January 1, 2003……………………………….P 30,000 Add: Purchases…………………………………………..... 11,000 Shipments from home office…………………….. 19,200 Cost of Goods available for sale……………………… P 60,200 Less: Inventory, December 31, 2003…………………. 20,000 40,200 Gross profit…………………………………………………………………………….. P19,200 Less: Expenses………………………………………………………………………….. 12,000 Unadjusted branch net income…………………………………………………...P 7,800 Add: Overvaluation of Cost of Goods Sold……………………………………. 4,400 Adjusted branch net income……………………………………………………...P 12,000 16. d Billed Price *P 36,000 28,800

Cost

Allowance

Merchandise Inventory, 12/31/2005 P 30,000 P 6,000 Shipments 24,000 4,800 Cost of goods sold P10,800 From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000. From outsiders: P45,000 – P36,000 = 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: Shipments from home office at billed price*………………………… 12,000 Merchandise from outsiders……………………………………………………P 3,000 18. d Combined Cost of Goods Sold: Merchandise Inventory, 1/1/2003: Home Office, cost……………………………………………… P 3,500 Branch: Outsiders, ……………………………...........................P 300 From Home Office (P2,500 – P300)/110%................. 2,000 2,300 P 5,800 Add Purchases (P240,000 + P11,000)…………………………….. 251,000 COGAS………………………………………………………………… P256,800 Less: Merchandise Inventory, 12/31/2003 Home Office, cost………………………………………………. P 3,000 Branch: Outsiders………………………………………………. P 150 From Home Office (P1,800 – P150)/110%................ 1,500 1,650 4,650

Cost of Goods Sold………………………………………………… 19. d

100% Billed Price

P252,150

60% Cost

40% 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

Cost

Allowance 60,000 *100,,000 160,000 40,000 120,000

21. b (1) Sales P 40,000 Less: Cost of goods sold: Inventory, 1/1/2003 (P4,950 / 110%) P 4,500 Add: Shipments (P22,000 / 110%) 20,000 COGAS P 24,500 Less: Inventory, 12/31/2003 (P6,050 / 110%) 5,500 19,000 Gross profit P 21,000 Less: Expenses _ 13,100 Net income from own operations P 7,900 (2) Combined Cost of Goods Sold: Merchandise Inventory, 1/1/2003: of Home Office, cost……………………………………………..P 17,000 of Branch, cost: P4,950 / 110%…………………………………. 4,500 P 21,500 Add Purchases…………………………………………………………. 50,000 COGAS………………………………………………………………….. P 71,500 Less: Merchandise Inventory, 12/31/2003 of Home Office, cost……………………………………………… P 14,000 of Branch, cost: P6,050 /100%………………………………….. 5,500 19,500 Cost of Goods Sold……………………………………………………. P 52,000 22. a - P48,000 / 120% = P40,000 23. a – P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to the ending inventory, so, the allowance related to the CGS, which is P10,00 in this case is considered to be the adjustments in the books of Home Office to determine the adjusted branch net income) 120% 100% 20% Billed Price Cost Allowance Merchandise inventory, 1/1/x4 0 Shipments 108,000 Cost of goods available for sale 108,000

Less: MI, 12/31/x4 (P60,000 x 80%) Overvaluation of CGS (60,000 x 20/120)

48,000 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 60,000 100,000 P 92,000 100,000 P( 8,000) 10,000 P 2,000

25. c Merchandise inventory, 1/1/x4 Shipments Cost of goods available for sale Less: MI, 12/31/x4 (P60,000 x 80%) Overvaluation of CGS(230,000x 25/125)

125% Billed Price 40,000 250,000 290,000 60,000 230,000

100% Cost

25% Allowance

46,000*

26. b – P326,000 Sales (P600,000 + P300,000) ………………………………………………….. P 900,000 Less: Cost of goods sold Merchandise inventory, beg. [P100,000 + (P40,000/1.25)] ………………………. … P 132,000 Add: Purchases…………………………………… 350,000 Cost of goods available for sale………………… P 482,000 Less: MI, ending [P30,000 + (P60,000/1.25)] ………………………… 78,000 404,000 Gross profit……………………………………………………… P 496,000 Less: Expenses (P120,000 + P50,000)………………………. _ 170,000 Net Income …………………………………………………. P 326,000 27. b Sales (P537,500 + P300,000) ………………………………………………… Less: Cost of goods sold Merchandise inventory, beg. [P50,000 + (P60,000/1.20)]…………………………….. P 87,500 Add: Purchases ……………………………………. 500,000 Cost of goods available for sale………………… P587,500 Less: MI, ending [P70,000 + (P60,000/1.20)] …………………………. 120,000 Gross profit…………………………………………………….. P 370,000 Less: Expenses (P120,000 + P50,000)………………………. _ 170,000 Net Income …………………………………………………… P 200,000

P 837,500

467,500

28. c Sales (P120,000 + P60,000)……………………………………… P 180,000 Less: Cost of goods sold: Merchandise inventory, beg. [P40,000 + P6,000 + (P24,000 / 1.2)]……………………………… P 66,000 Add: Purchases (P70,000 + P11,000)………………… 81,000 Cost of Goods Available for Sale……………………P 147,000 Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200 89,800 Gross profit……………………………………………………… P 90,200 Less: Expenses (P28,000 + P12,000)………………………… 40,000 Net Income……………………………………………………. P 50,200 29. d Sales (P100,000 – P33,000 + P50,000)…………………………………… P 117,000 Less: Cost of goods sold: Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 – P500)] P20,000 Add: Purchases (P50,000 + P7,000)……………………………… 57,000 COGAS……………………………………………………………….. P77,000 Less: Inventory, end [P11,000 + P1,050 + (P6,000- P1,050)/110%]……………………………………… 16,550 60,450 Gross profit…………………………………………………………………… P 56,550 Less: Expenses (P20,000 + P6,000 + P5,000)……………………………… 31,000 Combined Net income……………………………………………………. P 25,550 30. c

52,000

Sales ……………………………………………………………………... P155,000 Less: Cost of Sales Inventory, 1/1/10…………………………………………….. P 23,000 Purchases …………………………………………………….. 190,000 Cost of goods available for sale ……………………….. P213,000 Less: Shipment/Sales to Branch, at cost (P110,000/110%)………………………………………… 100,000 Cost of goods available for HO Sale………………………………………………….. P113,000 Less: Inventory, 12/31/10 ………………………………..... 30,000 83,000 Gross profit ………………………………………………………………... Less: Expenses ……………………………………………………………. Net income – home office …………………………………………….

31. a

P 72,000 P 20,000

Sales …………………………………………………………………….... P140,000 Less: Cost of Sales Inventory, 1/1/x4……………………………………………… P 11,550 Purchases ……………………………………………………. 105,000 Freight-in ……………………………………………………… 5,500 Shipment in transit (P5,000+P250) ………………………. 5,250 Cost of goods available for sale …………………………. P127,300 Less: Inventory, 12/31/x4 (P10,400 + P520 + P5,250) ………………………………………. 16,170 111,130 Gross profit. ……………………………………………………………. P 28,870

Less: Expenses 28,000

…………………………………………………………

Net income per branch books/unadjusted ……………………… Add: Overvaluation of CGS* ……………………………………….. Net Income of Davao Branch, adjusted …………………………. BP MI. 1/1/20x4 Shipments Available for sale -: MI, 12/31/x4 CGS **110,000 x 10/110 ***10,400 + 5,000, in transit ****15,400 x 10/110

110,000 ***15,400

Cost 100,000

P

870 9,600 P 10,470 Allowance 1,000 **10,000 11,000 ****1,400 9,600

32. a Inventory, 1/1 at billed price…………………………………….. P165,000 Add: Shipments at billed price………………………………….. 110,000 Cost of goods available for sale at billed price ……………… P275,000 Less: CGS at BP: Sales……………………………………………………………… P169,000 Less: Sales returns and allowances ………………….. 3,750 Sales price of merchandise acquired from outsiders (P7,500 / 120%)…………………………… 9,000 Net Sales of merchandise acquired from home office……………………………………….. P156,250 x: Intercompany cost ratio ………………………………... 100/125 125,000 Inventory, 8/1/2008 at billed price……………………………… P150,000 x: Cost ratio …………………………………………………………….. 100/125 Merchandise inventory at cost destroyed by fire ………………… P120,000 33. d Freight actually paid by: Home Office……………………………………………………………………P 500 Branch P………………………………………………………………………… 700 Total………………………………………………………………………………P 1,200 Less: Freight that should be recorded…………………………………………….. 800 Excess freight……………………………………………………………………………P 400 34.

d – in arriving at the cost of merchandise inventory at the end of the period, freight charges are properly recognized as a part of the cost. But a branch should not be charged with excessive freight charges when, because of indirect routing, excessive costs are incurred. Under such circumstances, the branch acquiring the goods should be charged for no more than the normal freight from the usual shipping point. The office directing the inter-branch transfers are responsible for the excessive cost should absorb the excess as an expense because it represents management mistakes (or inefficiencies.)

35. c

60%

Inventory of the Branch: Shipments from home office at billed price.........................................P 37,700 X: Ending inventory %................................................................................

36. b

Ending inventory at billed price……………………………………...……P 22,620 Add: Freight (P1,300 x 60%)………………………………………………...... 780 P 23,400 Or, P39,000 x 60% = P23,400 Inventory in the published balance sheet, at cost Shipments at cost…………………………………..........................................P 32,500 X: Ending inventory %....................................................................................

60%

Ending inventory at billed price……………………………………………….P19,500 Add: Freight (P1,300 x 60%)………………………………………….......…….. 780 P 20,280 37. c Home Office Books Davao Branch…39,000 STB, cost……. 32,500 Unrealized profit 5,200 Cash (freight)…. 1,300 BC – Baguio……19,630 Excess freight… 520 BC-Davao……. 20,150

Davao Branch SFHO…………….37,700 Freight-in………. 1,300 HOC………….. 39,000

HOC……………….20,150 SFHO(50%)… 18,850 Freight-in (50%) 650 Cash…………...... 650

Baguio Branch

SFHO………18,850 Freight-in.. 780 HOC……... 19,630

38. c – (P300,000 x ¼ = P75,000, ending inventory x (P300,000 – P250,000)/P300,000 = P12,500 39. d 40. d 41. b – refer to No. 21 42. b – refer to No. 21 43. c – refer to No. 21 44. c 45. d

Quiz – XIII 1. P63,000 Merchandise inventory, December 31 at cost – From outsiders (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . . . ..... From home office (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . ....

P 18,000 45,000 P63,000

2. P18,000 Branch inventory, 12/31 per books . . . . . . . . . . . . . .... Less Branch inventory from HO at billed price:

P 72,000

Overvaluation of branch inventory . . . . . . . . . . . Cost of branch inventory (P9,000 ÷ 20%) . . . . . . . Branch inventory from outsiders . . . . . . . . . . . . . . . .... 3. P93,600 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... Cost of sales: Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... Shipments from HO at cost (P216,000 ÷120%) . . . Cost of goods available per sale . . . . . . . . . . . .. Less inventory, 12/31 (see no.1) . . . . . . . . . . . . . . . Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... Branch net income as far as the HO is concerned . . . 4. P14,040 Allowance for overvaluation of branch inventory . . . Less Overvaluation of shipments from HO: 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 . . . . . .. Merchandise inventory, January 1................ Less Beginning inventory from HO, at billed price (see above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beginning inventory from outsiders . . . . . . . . . . . . . . . 5. P47,340

P 9,000 45,000

54,000 P 18,000

P 351,000 54,000 180,000 234,000 63,000

171,000 180,000 86,400 P 93,600

P119,880 468,000 360,000

108,000 P 11,880 39,600 P 51,480 P 65,520 51,480 P 14,040

Sales ……………………………………………………… Cost of sales: Merchandise inventory January 1-. . . . . . . . . . . . From outsiders (see no.4) . . . . . . . . . . . . . . . . . From HO, at cost (see no.4) . . . . . . . . . . . . ... Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... Shipments from HO, at cost (equal Shipments to Branch) . . . . . . . . . . . . . . . ... CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... Less Merchandise inventory, December 31 From outsiders (P58,500– P46,800) . . . . . . .... From HO, at cost (P46,800 ÷ 130%) . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... Branch net income in so far as the HO is concerned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...

P648,000

P14,040 39,600

173,520 360,000 587,160 11,700 36,000

6. P45,000 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. P63,000 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 . . . . . . . . . . . . . . . . . . . 8. P122,400 Branch net income, per books (see no. 7) . . . . . . . . .

P 53,640

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 P 63,000

Add realized profit Allowance for overvaluation of branch inventory Less Overvaluation of branch ending inventory: Billed price. . . . . . . . . . . . . . . . . . . . . . . . . ..... Cost (P48,000 ÷ 125%). . . . . . . . . . . . . . . ..... True branch net income. . . . . . . . . . . . . . . . . . . . . ...

P 69,000 P 48,000 38,400

9,600

59,40 0 P 122,400

9. 20% Inventories, January 1, 20x5 at billed price. . . . . . . . . . . . . . . . . . . . . . Shipments from HO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... Less Allowance for overvaluation of branch inventory. . . . . . . . . . . . Cost of merchandise from home office . . . . . . . . . . . . . . . . . . . . . . . . Allowance for overvaluation of branch inventory . . . . . . . . . . . . . . . Divide by Cost of merchandise from HO (see above) . . . . . . . . . . . . Percentage of profit on cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 10. P360,000 Shipments from HO, at billed price . . . . . . . . . . . . . . . . . . . . . . . ..... Divide by the billing percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance of shipments to Branch account. . . . . . . . . . . . . . . . . . . ... 11. P129,000 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... Cost of sales: Inventories, January 1 at cost (P90,000 ÷ 120%) . . . . . ..... Shipments from HO, at cost (see no. 10) . . . . . . . . . . . . . . . .

P 90,000 432,000 522,000 87,000 P435,000 P 87,000 P 435,000 20%

P 432,000 120% P 360,000

P 720,000 P 75,000 360,000 435,000

CGAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories, December 31 at cost (P100,800 ÷ 120%) . ..... Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

84,000

351,000 369,000

. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... Adjusted branch profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 12. P4,800 Inventory , January 1 per books . . . . . . . . . . . . . . . . . . . . . . . .... Less Inventory, January 1 from HO at billed price Allowance for overvaluation of branch inventory . . . . . . .. Overvaluation of shipments from HO (P96,000 – P72,000) . . Overvaluation of beginning inventory from HO . . . . . . . ... Add Inventory for HO, at cost (P4,800 ÷ 33.33%) . . . . . . . . . . Inventory, January 1 from outsiders. . . . . . . . . . . . . . . . . . . . . . . . . 13. P66,000 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... Cost of sales: Inventory, January 1(cost) From outsiders (see no.12) . . . . . . . . . . . . . . . . ..... From HO, at cost . . . . . . . . . . . . . . . . . . . . . . . . ..... Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... Shipments from HO, at cost . . . . . . . . . . . . . . . . . . ....

240,00 0 P 129,000 P 24,000 P 28,900 24,000 4,800 14,500

19,200 P 4,800

P 240,000 P 4,800 14,500

P 19,200 36,000 72,000

127,200 CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Less Inventory, December 31 (cost) From 7,200 outsiders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From HO, at cost (P24,000 ÷ 133%). . . . . . . . . 18,000 25,200 102,000 ..... Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,000 ...... Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000 ..... True branch net P66,000 income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. 25% Shipments from home office (billed P price) . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 Divide by shipments to branch (cost) . . . . . . . . . . . . . . . . . . . . . . . . 360,000

..... Billing percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less percentage at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of mark-up on cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15. P24,000 Balance of allowance for overvaluation of branch inventory account Less Overvaluation of shipments from HO (P450,00 – P360,000) . . . .... Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . . .... Add Cost of beginning inventory from HO (P4,800 ÷ 25%) . . . . . . . . .... Branch beginning inventory from HO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16. P89,040 Balance of allowance for overvaluation of branch inventory Less Overvaluation of branch ending inventory: Billed price (P49,680 – P P20,880) . . . . . . . . . . . . . . . . . . . . . 28,800 Cost (P28,800 ÷ 23,040 125%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Realized profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 17. P36,000 Balance of Allowance for overvaluation of branch inventory . . . . . .. Less Overvaluation of shipments from HO (P115,200 – P96,000) . . . . ... Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . . . . . Add Cost of beginning inventory from HO (P24,000 ÷ 20%) . . . . . . . .... Beginning inventory from HO, at billed price. . . . . . . . . . . . . . . . . . . .... Merchandise inventory, January 1 per books . . . . . . . . . . . . . . . . . . . . . . Less beginning inventory from HO (see above) . . . . . . . . . . . . . . . . . . . . . Branch beginning inventory from outsiders . . . . . . . . . . . . . . . . . . . . . . . . 18. P26,400 Balance of allowance for overvaluation of branch inventory Less Overvaluation of branch ending inventory from HO: Billed price (P120,000 – P19,200) . . . . . . . . . . . . . . . P100,80 ..... 0 Cost (P100,800 ÷ 84,000

125% 100 25% P 94,800 90,000 4,800 19,200 P 24,000 P 94,800

5,760 P89,040 P 43,200 19,200 24,000 120,000 P 144,000 P 180,000 144,000 P 36,000 P 43,200

16,800

120%) . . . . . . . . . . . . . . . . . . . . . . . . . . . Realized branch profit to be adjusted . . . . . . . . . . . . . . . . . . . 19. P9,990 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... Cost of sales: Inventory, January 1 at cost (P27,000÷ 125%) . . . . . . . . Shipments from HO, at cost . . . . . . . . . . . . . . . . . . . .... CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... Inventory, December 31 at cost P35,100 ÷ 120%) . .... Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... True branch income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. P67,290 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... Cost of sales: Inventory, January 1. . . . . . . . . . . . . . . . . . . . . . . . . ..... Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... Less Shipment to branch . . . . . . . . . . . . . . . . . . . . . ..... Cost of goods available for own 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 21,360 126,000 147,360 29,250

118,110 70,890 60,900 P 9,990 P 636,000

P 69,000 492,000 561,000 126,000 435,000 85,500

349,500 286,500 229,200 57,300 9,990 P 67,290

21. Branch Inventory, 12/31/20x4: P30,000 x 60%...................................P 18,000 22. Branch Inventory, at cost: (P25,000 + P1,000) x 60%.........................P 15,600 23. P30,000 Merchandise inventory, January 1 P 26,400 Shipments from home office __20,000 Cost of goods available for sale P 46,400 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% __10,400 Merchandise inventory, ending at BP P 36,000 Divided by: Billed price ____120% Merchandise inventory, ending at cost lost due to fire) P 30,000 Theories 1 True . 2 False . 3 True . 4 True . 5 False .

6.

False

11.

False

16.

True

21.

D

7.

False

12.

True

17.

True

22.

A

8.

False

13.

False

18.

True

23.

d

9.

True

14.

True

19.

False

24.

d

10.

True

15.

False

20.

d

25.

a

26.

c