Solution Chapter 13
description
Transcript of Solution Chapter 13
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Chapter 13
Problem I
Sales....................................................................................................................... 42,000
Shipments to Newark Branch................................................................ 35,000
Unrealized Intercompany Inventory Profit........................................... 7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Shipments to Newark Branch............................................................................. 625
Unrealized Intercompany Inventory Profit........................................................ 125
Sales Returns........................................................................................... 750
Cost of merchandise returned by branch: P750/1.20= P625.
Newark Branch Income..................................................................................... 2,600
Newark Branch....................................................................................... 2,600
Unrealized Intercompany Inventory Profit........................................................ 4,125
Newark Branch....................................................................................... 4,125
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.................................................................................... P4,125
Newark Branch Income...................................................................................... 1,525
Income Summary.................................................................................... 1,525
Problem II
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on
December 31, calculated as follows:
Merchandise transferred by home office at billed price,
35% above cost (P16,200 plus P20,250)............................................. P36,450
Merchandise transferred by home office at cost, P36,450/1.35.... 27,000
Additions to unrealized profit account resulting from transfers
by home office..................................................................................... P9,450
b. Unrealized Intercompany Inventory Profit.................................................. 4,550
Cash....................................................................................................... 4,550
Balance of unrealized profit account at December 31
(as calculated above).......................................................................................................... P 9,450
Required balance, December 31, to reduce inventory to cost:
Ending inventory of merchandise shipped to branch by home office:
At billed price................................................................................................. P 18,900
At cost (P 18,900/1.35).................................................................................. 14,000
4,900
Required decrease in unrealized profit account as a result
of branch sales...................................................................................................................... P4,550
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c. Branch Books:
Home Office........................................................................................... 540
Shipments from Home office................................................... 540
Home Office Books:
Shipments to Branch.............................................................................. 400
Unrealized Intercompany Inventory Profit........................................... 140
Branch........................................................................................ 540
Cost of merchandise returned: P540/1.35, or P400.
Problem III
a. 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:
Balance of unrealized intercompany inventory profit, December 31.................... P 3,600
Additions to unrealized profit account during December, 20% of
shipments to branch (20% x P8,000)............................................................................. 1,600
Balance of unrealized profit account, December 1.................................................. P 2,000
Balance of unrealized profit account, December 1, P2,000 / 20% markup on
cost equals December 1 inventory at cost................................................................ P 10,000
Add 20% markup........................................................................................................... 2,000
Goods in branch inventory at billed price................................................................. P 12,000
b. Unrealized Intercompany Inventory Profit......................................... 2,200
Branch Income............................................................................ 2,200
Calculation of reduction in Unrealized Intercompany
Inventory Profit:
Balance of unrealized profit account, December 31.........................P 3,600
Required balance, December 31, to reduce inventory to cost
At billed price................................................................... P8,400
At cost (P8,400/1.20)....................................................... 7,000
1,400
Required decrease in unrealized profit account as a result
of branch sales........................................................................................ P 2,200
Problem IV
(1) Dec.31 Selling Expenses............................................................................ 260
Store Supplies............................................................................ 260
Supplies used: P400 P140, or P260.
31 Selling Expenses............................................................................ 80
Accumulated Depreciation-Store Furniture........................ 80
Depreciation:1% of P8,000, or P80.
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31 Selling Expenses............................................................................ 120
Accrued Expenses Payable................................................. 120
31 Prepaid Selling Expenses............................................................. 150
Selling Expenses..................................................................... 150
31 Income Summary......................................................................... 16,000
Merchandise Summary......................................................... 16,000
31 Merchandise Summary................................................................. 16,950
Income Summary...................................................................... 16,950
31 Notes Payable..................................................................................1,000
Home Office............................................................................... 1,000
31 Sales.................................................................................................20,500
Income Summary....................................................................... 20,500
31 Income Summary........................................................................... 21,900
Purchases.................................................................................... 5,000
Shipments from Home Office................................................... 10,500
Selling Expenses.......................................................................... 4,560
General Expenses....................................................................... 1,840
31 Home Office....................................................................................... 450
Income Summary....................................................................... 450
(2) Dec.31 Branch No. 1.................................................................................... 1,000
Cash............................................................................................ 1,000
Branch No. 1 Income..................................................................... 450
Branch No. 1............................................................................... 450
31 Unrealized Intercompany Inventory Profit....................................... 2,200
Branch No. 1 Income................................................................. 2,200
Calculations of unrealized profit adjustment on merchandise shipped by home office:
Billing to
Branch
Cost
(Billing/1.1/
3)
Unrealized
Profit
(Billing Price
Minus Cost)
Inventory, Dec.1............................................................ P 12,500 P 9,375 P 3,125
Shipments during December...................................... 10,500 7,875 2,625
Total in unrealized profit on December 31................. P 5,750
Inventory, Dec.31......................................................... 14,200 10,650 3,550
Reduction in unrealized profit account-
adjustment to branch profit for overstated of cost
of goods sold.................................................................
P 2,200
31 Branch No. 1 Income............................................................... 1,750
Income Summary............................................................. 1,750
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Problems V
(1)
SPENCER CO.
Balance Sheet for Branch
December 31,20x4
Assets Liabilities____________________
Cash..................................................... P 2,650 Accounts payable................................... P 4,200
Accounts receivable........................ 12,850 Accrued expenses................................... 105
Merchandise inventory..................... 14,600 Home 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 Total liabilities............................................ P 33,544
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
Assets Liabilities and Stockholders Equity_______ Cash..................................................... P10,350 Liabilities
Cash in transit..................................... 1,500 Accounts payable................ P 35,400
Accounts receivable........................ 26,200 Accrued expenses............... 260 P 35,660
Merchandise inventory..................... 24,200 Stockholders Equity Store supplies...................................... 380 Capital Stock......................... P 65,000
Prepaid expenses............................... 350 Less deficit.............................. 4,476 60,524
Furniture and fixtures.............. P 8,500
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Less: Accumulated
depreciation.............. 2, 585 5,915
Branch..................................... P29,239
Less: Unrealized intercompany
inventory profit............ 1,950 27,289 Total liabilities and ________
Total assets........................................ P 96,184 stockholders equity............................... P 96,184
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. WORKSHEET refer to a separate sheet SPENCER CO.
Combined Balance Sheet for Home Office and Branch
December 31, 20x4
Assets Liabilities and Stockholders Equity
Cash . P 14,500 Liabilities Accounts Receivable 39,050 Accounts Payable .. P39,600 Merchandise Inv . 36,850 Accrued Expenses . 365 P 39,965 Store Supplies .. 680 Stockholders Equity Prepaid Expenses .. 470 Capital Stock P65,000 Furniture & Fixtures P12,100 Less deficit . 4,476 60,524 Less accumulated
Depreciation ... 3,161 8,939 Total liabilities and Total assets P100,489 stockholders equity P100,489
SPENCER CO.
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Combined Income Statement for Home Office and Branch
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
(a) Branch Books
Dec 31 Income Summary .. 14,400 Merchandise Inventory .. 14,400
31 Merchandise Inventory 14,600 Income Summary . 14,600
31 Store Supplies Expense . 280 Store Supplies 280 Store supplies used: P580 P300, or P280
Dec. 31 Prepaid Expenses 120 Miscellaneous General Expense . 120
31 Miscellaneous General Expense 105 Accrued Expenses .. 105
31 Depreciation Expense F&F .. 36 Accumulated Depreciation 36 Depreciation: 1% of P3,600
31 Miscellaneous General Expense .. 220 Home Office 220
31 Sales 20,000 Income Summary . 20,000
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31 Income Summary 22,221 Purchases 4,100 Shipments from Home Office 10,200 Advertising Expense . 2,800 Salaries and Commissions Expense . 2,350 Store Supplies Expense 280 Miscellaneous Selling Expense .. 1,050 Rent Expense . 1,500 Depreciation Expense F&F . 36 Miscellaneous General Expense . 905
31 Home Office . 3,021 Income Summary .. 3,021
(b) Home Office Books
Dec 31 Income Summary . 31,500 Merchandise Inventory . 31,500
31 Merchandise Inventory ... 24,200 Income Summary 24,200
31 Store Supplies Expense . 560 Store Supplies 560 Store supplies used: P940 P380, or : 560
31 Prepaid Expense 350 Miscellaneous General Expense 350
31 Miscellaneous General Expense .. 260 Accrued Expenses . 260
31 Depreciation Expense .. 85 Accumulated Depreciation F&F . 85 Depreciation: 1% of P8,500, or P85
31 Cash in Transit . 1,500 Branch 1,500
31 Sales 44,850 Shipments to branch ....................... 8,500 Income Summary . 53,350
Dec 31 Income Summary 42,405 Purchases 27,600 Advertising Expense . 2,850 Salaries and Commissions Expense . 4,250 Store Supplies Expense 560 Miscellaneous Selling Expense .. 1,850 Rent Expense . 2,700 Depreciation Expense F&F . 85 Miscellaneous General Expense . 2,510
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31 Branch Income .. 3,021 Branch 3,021
31 Unrealized Intercompany Inventory Profit . 1,750 Branch Income 1,750 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
31 Income Summary 1,271 Branch Income . 1,271
31 Income Summary 2,374 Retained Earnings . 2,374
Problem VI
1.
Branch
Current
H. Office
Current Unadjusted balance, 12/31/20x4 P 44,000 P 9,000
Add (Deduct): Adjustments
1 Cash in transit ( 10,000)
2. Merchandise in transit 10,000
3. Branch expenses paid by home office 12,000
4. Cash in transit from home office _______ 3,000
Adjusted balance, 12/31/20x4 P 34,000 P34,000
2. 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
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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............................................................................................................... 24,500
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Income Summary.......................................................................................... 24,500
(4) Branch Income..................................................................................................... 24,500
Branch............................................................................................................ 24,500
Unrealized Intercompany Inventory Profit............................................................... 41,150
Branch Income.............................................................................................. 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 9,750
Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold.................................................................. 41,150
Branch Income............................................................................................................. 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................................................................................................................................ P 78,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4......................................... P 32,000
Shipments from home office........................................... P 40,000
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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............................................................................. 60,500
Gross profit.................................................................................................................... P 18,000
Operating expenses.................................................................................................... 12,500
Net income................................................................................................................... P 5,500
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 branch net income............................................................................................ 13,500
Total 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
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Income Summary......................................................................................................... 5,500
Home Office..................................................................................................... 5,500
(4) Branch...................................................................................................................... 5,500
Branch Income................................................................................................ 5,500
Unrealized Intercompany Inventory Profit............................................................... 8,000
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
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.......................................................................................................... 4,500
Retained Earnings............................................................................................ 4,500
Problem IX
1.
Branch
Current
H. Office
Current Unadjusted balance, 12/31/20x4 P 60,000 P 51,500
Add (Deduct): Adjustments
1 Remittance I 1,700)
2. Cash in transit 1,800
3. Shipments in transit 5,800
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Adjusted balance, 12/31/20x4 P 57,300 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.................................................................................................................... P 38,470
Operating expenses.................................................................................................... 24,300
Net income................................................................................................................... P 14,170
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
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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 recognized 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.................................................................................. 1,500
Problem XII
a. Books of Branch No. 1 :
Home Office . 1,950 Shipments from Home Office.. 1,600 Freight In 350
b. Books of branch No. 5:
Shipments from Home Office 1,600 Freight In 400 Home Office. 1,750 Cash 250
c. Books of the Home Office
Branch No. 5.. 1,750 Excess Freight on Inter branch Transfer of Merchandise.. 200 Branch No. 1 1,950
Shipments to Branch No. 1.. 1,600 Shipments to Branch No. 5 1,600
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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 P 31,000
From Outsiders 6,600
P 37,600
3. a
True Branch Net Income
Branch Net Income P 5,000
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 67,600
Unrecorded branch expenses ( 2,500)
True Branch Net Income P 70,100
4. c
True Branch Net Income P156,000
Less: branch Net Income as reported by the branch 60,000
Overvaluation of CGS P 96,000
Less: Cost of goods sold from home office at BP
Inventory, December 1 P 70,000
Shipment from HO 350,000
COGAS P 420,000
Less: Inventory, December 31 84,000 336,000
CGS from home office, at cost P 240,000
Billing Price: P336,000 / P240,000 = 140%.
5. c Allowance for overvaluation after adjustment / for December 31 inventory: (refer to No. 4 for further computation): P84,000 x 40/140 = P24,000.
6. No answer available P109,000
Net Income as reported by the Branch P 20,000
Less: Rental expense charged by the home office
(P1,000 x 6 months)
6,000
Adjusted NI as reported by the Branch P 14,000
Add: Overvaluation of CGS
Billed Price
MI, beginning 0
SFHO 550,000
COGAS 550,000
Less: MI, ending 75,000
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CGS, at BP 475,000
X: Mark-up ratio 25/125 95,000
True/Adjusted/Real Branch Net Income P109,000
7. 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
8. d
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment.P 7,200 Less: Allowance of ending branch inventory (P20,000 x 84% =
P16,800 x 20/120.. 2,800 Overvaluation of Cost of Goods Sold. .P 4,400
Adjusted branch net income:
SalesP60,000 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.. P 19,200 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
9. d
Billed Price Cost Allowance
Merchandise Inventory, 12/31/2005 *P 36,000 P 30,000 P 6,000
Shipments 28,800 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
10. d
Billed Price Cost Allowance
Merch. Inventory, 12/31/20x4 *P12,000 P10,000 P 2,000
Shipments 9,600 8,000 1,600
Cost of Goods Sold P 3,600
-
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
Merchandise inventory, December 1, 20x4P 15,000 Less: Shipments from home office at billed price* 12,000 Merchandise from outsidersP 3,000
11. 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 P252,150
12. d
100% 60% 40%
Billed Price Cost Allowance
Merchandise inventory, 1/1/x4 32,000
Shipments *60,000 36,000 *24,000
Cost of goods available for sale 56,000
Less: MI, 3/31/x4 (25,000 x 40%) 10,000
Overvaluation of CGS** 46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
**Realized Profit from Branch Sales
13. d
Billed
Price
Cost Allowance
Merchandise inventory, 8/1/x4 60,000
Shipments (400,000 x 25%) 400,000 *100,,000
Cost of goods available for sale 160,000
Less: MI, 8/31/x4 (160,000 x 25%) 160,000 40,000
Overvaluation of CGS/RPBSales 120,000
14. 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
15. a - P48,000 / 120% = P40,000
16. 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%) 48,000
Overvaluation of CGS (60,000 x 20/120) 60,000 10,000*
17. b
Sales (P148,000 + P44,000) P192,000
Less: Cost of Sales
Inventory, 1/1/20x4 P 0
Purchases 52,000
Shipments from home office 108,000
Cost of goods available for sale P 160,000
Less: Inventory, 12/31/20x4 60,000 100,000
Gross profit P 92,000
Less: Expenses (P76,000 + P24,000) 100,000
Net income, unadjusted P( 8,000)
Add: Overvaluation of CGS 10,000
Adjusted branch net income P 2,000
18. c
125% 100% 25%
Billed Price Cost Allowance
Merchandise inventory, 1/1/x4 40,000
Shipments 250,000
Cost of goods available for sale 290,000
Less: MI, 12/31/x4 (P60,000 x 80%) 60,000
Overvaluation of CGS(230,000x 25/125) 230,000 46,000*
-
19. d P326,000 Sales (P600,000 + P300,000) P 900,000
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] P132,000
Add: Purchases 350,000
Cost of goods available for sale P482,000
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
20. b Sales (P537,500 + P300,000) P 837,500
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)] 120,000 467,500
Gross profit P 370,000
Less: Expenses (P120,000 + P50,000) _ 170,000
Net Income P 200,000
21. 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 SaleP 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
22. 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
23. c 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 P 72,000
Less: Expenses 52,000
Net income home office P 20,000
24. a Sales P140,000
Less: Cost of Sales
Inventory, 1/1/10 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, 12/31/10
(P10,400 + P520 + P5,250) 16,170 111,130
Gross profit P 28,870
Less: Expenses 28,000
Net income per branch books/unadjusted P 870
Add: Overvaluation of CGS* 9,600
Net Income of Davao Branch, adjusted P 10,470
BP Cost Allowance
MI. 1/1/2010 1,000
Shipments
110,000 100,000
**10,000
Available for sale 11,000
-: MI, 12/31/10 ***15,400 ****1,400
CGS 9,600
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110
25. 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
-
26. d
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
27. d
Freight actually paid by:
Home OfficeP 500 Branch P 700 TotalP 1,200 Less: Freight that should be recorded.. 800 Excess freightP 400
28. 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.)
29. c
Inventory of the Branch:
Shipments from home office at billed price.........................................P 37,700
X: Ending inventory %................................................................................ 60%
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
30. b
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
31. c
Home Office Books Davao Branch Baguio Branch
Davao Branch39,000 SFHO.37,700
-
STB, cost. 32,500 Unrealized profit 5,200
Cash (freight). 1,300
Freight-in. 1,300 HOC.. 39,000
BC Baguio19,630 Excess freight 520 BC-Davao. 20,150
HOC.20,150 SFHO(50%) 18,850 Freight-in (50%) 650
Cash...... 650
SFHO18,850 Freight-in.. 780
HOC... 19,630
32. d
(1) Branch Inventory, 12/31/20x4: P30,000 x 60%...................................P 18,000
(2) Branch Inventory, at cost: (P25,000 + P1,000) x 60%.........................P 15,600
33. c (P300,000 x = P75,000, ending inventory x (P300,000 P250,000)/P300,000 = P12,500 34. d
35. d
36. b refer to No. 14 37. b refer to No. 14 38. c refer to No. 14 39. c
40. d
Theories
1. True 6. False 11. False 16. True
2. False 7. False 12. True 17. True
3. True 8. False 13. False 18. True
4. True 9. True 14. True 19. False
5. False 10. True 15. False
20. d
21. d
22. a
23 d