OFFICE AND BRANCH ACCOUNTING

Quiz 4

Trial balance for Home Corporation and its Cebu Branch are as follows:
Debits Home Cebu
Cash P 171,640 P 9,000
Receivables 60,000 24,000
Inventories, January 1 72,000 15,400
Equipment, net 400,360 85,600
Cebu Branch, Current 100,000
Shipments from Home Office 60,000
Freight In 1,800
Purchases 240,000 11,000
Expenses 156,000 70,000
Totals P1,200,000 P276,800
Credit
Accounts Payable P 140,000 P 31,000
Capital Stock 400,000
Retained Earnings 85,600
Home Office, Current 85,800
Sales 500,000 160,000
Shipments to Cebu 72,000
Allowance for Overvaluation,Jan 1 2,400 _______
Totals P1,200,000 P276,800
Additional information:
a. Inventory beg of the branch includes P5,100 goods coming from local suppliers.
b. Current shipments are billed at 120% of cost and recorded at the billed price even by the home
office. Freight in is 3% of the value of the shipment.
c. Ending inventories of the home office and the branch are P64,000 and P18,978 respectively.
Shipments in transit are still excluded. Purchases included is P6,000 of the branch inventory.
d. The following are to be considered in reconciling the reciprocal accounts:
1) Goods are in transit to Cebu at the billed price of P12,000 with freight paid by home office
P360.
2) Home office charged Cebu P4,000 administrative expenses but memo which was received
late showed it to be P4,800.
3) Home office accounts receivable of P2,160 collected by branch was not yet recorded by the
home office.

Requirements:
1. Adjust the reciprocal accounts. Adjust also the allowance for mark up
2. Correct the trial balance in the problem.
3. Entries in branch book and home office to record branch profit and to adjust for realized mark
up to correct branch profit.
4. Give the mark up rate based on cost for the beginning inventory coming from home office.
5. Prepare the working paper using the following format:
 HOME CORPORATION & BRANCH
WORKING PAPER FOR COMBINED FINANCIAL STATEMENTS
For the year ended December 31, 2018

Adjust & Elim Entries

Home Cebu Debit Credit Combined
INCOME STATEMENT:

Sales _________ _________ _________

Cost of Sales
Inventory 1/1
Purchases
Shipments to Cebu
Shipments frm Home
Freight In
Inventory, 12/31 _________ _________ _________
Cost of Sales _________ _________ _________
Gross Profit _________ _________ _________
Expenses _________ _________ ________
Net Profit fr Operation
Branch Profit/Loss _________ _________ ________
Net Profit _________ _________ ________

STATEMENT OF FINANCIAL POSTION:

ASSETS
Cash
Receivables
Inventories
Equipment, net
Branch, Current
Allow for Mark-up ________ ________ ________
Total Assets ________ ________ ________

LIABILITIES & EQUITY

Liabilities
Share Capital
Retained Earnings
Home, Current ________ ________ ________
Total Liab & Equities ________ ________ ________
SOLUTION QUIZ 4
1.Adjusting entries
Home Office Cebu Branch
Branch, Current 2,160 Shipments from Home 12,000
Accounts Recble 2,160 Freight In 360
Home Office, Current 12,360
Shipments to Cebu 12,000
Allow for Mark Up 12,000
Expenses 4,800
Branch, Current 800 Home Office, Current 4,800
Expenses 800

To reconcile: 100,000 + 2,160 + 800 = P102,960 85,800 +12,360 + 4,800 = P102,960

2. Allowance for Mark-UP
Realized mark up ? 10,300 Beg 2,400
Shipments (72,000 / 1.2 x .2) 12,000
Total unadjusted 14,400
End (18,978 – 6,000 +12,360/1.03=
24,600/1.2= 20,500 x .2) (4,100)
3. Closing entries:
Home Office Branch
Sales 500,000 Sales 160,000
Inventory End 64,000 Inventory End 31.338
Shipments to Branch 60,000 Shipments from Home 72,000
Invty Beg 72,000 Invty Beg 15,400
Purchases 240,000 Purchases 11,000
Expenses 155,200 Expenses 74,800
Income & Expense 156,800 Freight In 2,160
Income & Expense 15,978

Branch, Current 15,978 Income & Expense S 15,978

Branch Inc & Exp S 15,978 Home, Current 15,978

Allow for Mark-up 10,300

Branch Inc & Exp S 10,300

Branch Inc & Exp S 26,278

Income & Exp S 26,278

Income & Expense S 183,078

Retained Earnings 183,078
Branch Beg Inventory (15,400-5,100= 10,300/1.03= 10,000 shipment at billed price- 2,400= 7,600
2,400/7,600= 31.58% mark up on cost
20/80 cost ratio= 25% markup rate on cost
For balance sheet purposes:
Branch and Home Office Current= 102,960 + 15,978= P118,938
Allow for MU= 14,400-10,300= 4,100
Retained Earnings= 85,600 + 183,078= P268,678
Inventory End 64,000 + 18,978 + 12,360 – 4,100 = P91,238
 HOME COMPANY & CEBU BRANCH
WORKING PAPER FOR COMBINED FINANCIAL STATEMENTS
For the year ended December 31, 2018

Adjust & Elim Entries

Home Cebu Debit Credit Combined
INCOME STATEMENT:

Sales 500,000 160,000 660,000

Cost of Sales
Inventory 1/1 72,000 15,400 A) 2,400 85,000
Purchases 240,000 11,000 251,000
Shipments to Cebu ( 60,000) B) 60,000
Shipments frm Home 72,000 B) 72,000
Freight In 2,160 2,160
Inventory, 12/31 (64,000) (31,338) C) 4,100 (91,238)
Cost of Sales 188,000 69,222 246,922
Gross Profit 312,000 90,778 413,078
Expenses 155,200 74,800 230,000
Net Operating Profit 156,800 15,978 183,078
Branch Profit 15,978
REALIZED Mark Up 10,300 ______ D) 10,300 ______
Net Profit 183,078 15,878 183,078

STATEMENT OF FINANCIAL POSTION:

ASSETS
Cash 171,640 9,000 180,640
Receivables 57,840 24,000 81,840
Inventories 64,000 15,400 D) 4,100 91,238
Equipment, net 400,360 85,600 485.960
Branch, Current 118,938 E) 118,938
Allow for Mark-up _(4,100)_ A) 2,400 C)10,300
B) 12,000 ________
Total Assets 808,678 149,938 839,678

LIABILITIES & SHE

Liabilities 140,000 31,000 171,000
Share Capital 400,000 400,000
Retained Earnings 268,678 268,678
Home, Current ________ _118,938_ E)118,938 ________
Total Liab & Equities 808,678 149,938 207,738 207,738 839,678

An understanding of the Equity Method will help you at this point to prove your figures (in red):

If the investment account of 118,938 represents right over the net assets of the branch, from the HO
total assets of 808,678 + branch liabilities of 31,000= combined assets of 839,678. Stated another way, if
the investment accounts is 118,938 add back liabilities of 31,000= branch assets of 149,938.
 HOME CORPORATION & BRANCH
WORKING PAPER FOR COMBINED FINANCIAL STATEMENTS
For the year ended December 31, 2018

Adjust & Elim Entries

Home Cebu Debit Credit Combined
INCOME STATEMENT:

Sales _________ _________ _________

Cost of Sales
Inventory 1/1
Purchases
Shipments to Cebu
Shipments frm Home
Freight In
Inventory, 12/31 _________ _________ _________
Cost of Sales _________ _________ _________
Gross Profit _________ _________ _________
Expenses _________ _________ ________
Net Profit fr Operation
Branch Profit/Loss _________ _________ ________
Net Profit _________ _________ ________

STATEMENT OF FINANCIAL POSTION:

ASSETS
Cash
Receivables
Inventories
Equipment, net
Branch, Current
Allow for Mark-up ________ ________ ________
Total Assets ________ ________ ________

LIABILITIES & EQUITY

Liabilities
Share Capital
Retained Earnings
Home, Current ________ ________ ________
Total Liab & Equities ________ ________ ________