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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)

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 Stockholders

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


stockholders 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

60,500
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

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 soldP 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:
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.. 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, 20x4P 15,000


Less: Shipments from home office at billed price* 12,000
Merchandise from outsidersP 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 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
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

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 OfficeP 500
Branch P
700
TotalP 1,200
Less: Freight that should be recorded..
800
Excess freightP 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 Branch39,000
STB, cost.
32,500
Unrealized profit
5,200
Cash (freight).
1,300
BC Baguio19,630
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

SFHO18,850
Freight-in..
780
HOC...
19,630

38. c (P300,000 x = 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.

7.

False

12.

True

17.

True

22.

8.

False

13.

False

18.

True

23.

9.

True

14.

True

19.

False

24.

10.

True

15.

False

20.

25.

26.