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CHAPTER 4

ACCOUNTING FOR BRANCHES;
COMBINED FINANCIAL STATEMENTS
The title of each problem is followed by the estimated time in minutes required for completion and by a
difficulty rating. The time estimates are applicable for students using the partially filled-in working papers.
Pr. 4–1 Hartman, Inc. (20 minutes, easy)
Journal entries for home office and branch to record shipments of merchandise, payment of
freight costs, ending inventories under the periodic inventory system, and other year-end
adjustments.
Pr. 4–2 Lobo Company (20 minutes, easy)
Reconciliation of reciprocal ledger accounts for home office and branch journal entries to
bring accounting records up to date.
Pr. 4–3 Styler Corporation (30 minutes, easy)
! branch obtains merchandise from the home office at billed prices above home office cost.
"ranch inventories are damaged by fire. #ompute the loss from the fire and recogni$e the loss
in the accounting records of both the branch and the home office.
Pr. 4–4 Yugo Company (30 minutes, easy)
%etermine unadjusted balance of the &ome 'ffice account in branch accounting records,
prepare journal entries to bring home office and branch accounting records up to date, and
reconcile reciprocal ledger accounts at year-end. (eriodic inventory system is used.
Pr. 4–5 Trudie Company (40 minutes, easy)
Journal entries for home office and branch when merchandise is billed to branch at prices
above home office cost. %ifferent sets of journal entries under perpetual and periodic inventory
systems.
Pr. 4–6 Kosti-Marian Company (60 minutes, medium)
(reparation of year-end journal entries and a working paper for home office and branch with
emphasis on the reconciliation of cash records and the handling of inventories under the
periodic inventory system. &ome office bills merchandise to the branch at prices above home
office cost.
Pr. 4–7 Solis Company (30 minutes, medium)
)iven the trial balances of the home office and the branch, prepare adjusting and closing
entries and a working paper for combined financial statements. (erpetual inventory system is
used by both home office and branch.
Pr. 4–8 Calco Corporation (50 minutes, medium)
Journal entries to bring home office and branch accounting records up to date. *orking paper
to summari$e operations for year. "oth home office and branch office use the periodic
inventory system.
Pr. 4–9 Kreshe Company (60 minutes, medium)
Reconciliation of home office and branch ledger accounts when errors have been made by both
offices and certain transactions have been recorded by only one office. !djusting entries in
both sets of accounting records. "oth home office and branch use the perpetual inventory
system.
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Solutions Manual, Chapter 4 +,-
Pr. 4–10 !rnie"s (60 minutes, strong)
(reparation of year-end journal entries and a working paper for combined financial statement
of home office and branch under the perpetual inventory system. #losing entries for home
office.
ANSWERS TO REVIEW QUESTIONS
+. The transactions to be accounted for by the branch generally should include only controa!e
e.penses for which the branch manager is responsible. /or e.ample, depreciation of plant assets
usually follows policies set by the home office and is not subject to control by the branch manager.
This situation suggests that both the branch plant assets records and the related depreciation
records should be maintained by the home office.
0. The &ome 'ffice ledger account in the branch accounting records is reci"roca to the 1nvestment
in "ranch account in the home office accounting records. These two accounts show the same
thingthe net assets of the branchfrom two different points of view. The &ome 'ffice account
maintained by the branch has a credit balance and may be considered quasi-ownership equity the
1nvestment in "ranch account maintained by the home office has a debit balance and is a
noncurrent asset that reflects the net investment in the branch by the home office.
!nother pair of reciprocal ledger accounts is used to record shipments of merchandise from the
home office to the branch when the periodic inventory system is used. 1n the home office
accounting records, the account is 2hipments to "ranch 3a (urchases valuation account4 and has a
credit balance in the branch accounting records, the account is 2hipments from &ome 'ffice 3a
purchases-type account4 and has a debit balance.
Reciprocal ledger accounts should be reconciled and brought up to date at the end of each
accounting period. The reciprocal accounts are eliminated in the preparation of combined financial
statements of the home office and the branch.
5. /or a home office to bill merchandise shipments to its branches at or above home office cost is
acceptable. 1f branches are billed at amounts above home office cost, the home office eliminates the
e.cess of billed prices over cost when the account balances of the home office and the branch are
combined in the preparation of combined financial statements. To the e.tent that the merchandise
has been sold by the branches before financial statements are prepared, the 6e.cess6 will have been
reali$ed, and the combined net income will be the same as if the merchandise had been billed at
home office cost. 7erchandise not sold is valued at cost in the combined balance sheet. !lternative
methods for billing merchandise to branches are acceptable because they give the same results in
the combined financial statements when appropriate eliminations are made.
,. The separate financial statements prepared by individual branches and by the home office indicate
the operating results and financial position of each unit of Jesse #orporation. The statements are
used to evaluate the performance of branch managers and suggest the most appropriate areas for
e.pansion or closure of branches. The combined financial statements serve the needs of managers
in the analysis of operating results and financial position of the enterprise as a whole. #ombined
financial statements also are more appropriate for use by outsiders such as stockholders and
creditors.
8. To record the acquisition of equipment to be carried in the home office, 2lauson "ranch debits
&ome 'ffice and credits #ash for 9+-,:::. The home office debits ;quipment< 2lauson "ranch
and credits 1nvestment in 2lauson "ranch for 9+-,:::.
=. ! home office>s !llowance for 'vervaluation of 1nventories< "ranch ledger account is used to
reduce to cost the component of the balance of the 1nvestment in "ranch ledger account represented
by shipments of merchandise to the branch at a markup over home office cost. *hen such a
shipment is made, the allowance account is credited for the e.cess of billed price over home office
cost of the shipment. !t the end of an accounting period, the home office prepares a journal entry
debiting the allowance account and crediting Reali$ed )ross (rofit< "ranch 2ales for the amount of
the markup reali$ed by the branch through sales of merchandise to outsiders. Thus, the end-of-
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+,? Modern d!anced ccountin", #0$e
period adjusted balance of the allowance account represents unreali$ed markup in the branch>s
ending inventories acquired from the home office.
-. The factors that would cause the reciprocal ledger accounts to be out of balance may be classified
into the following groups<
3+4 1ntracompany transactions between home office and branch, such as shipments of merchandise
or cash transfers by the home office to the branch, recorded by the home office but not
recorded by the branch.
304 1ntracompany transactions between branch and home office, such as transfers of cash by the
branch to the home office, recorded by the branch but not recorded by the home office.
354 ;rrors made by the home office or the branch 3or both4 in recording intracompany
transactions.
?. /ord "ranch of Ralph #ompany should debit the &ome 'ffice ledger account and credit the
1nventories account. )ates "ranch should not absorb more freight costs than if the goods had been
shipped directly from the home office. @ormal freight costs of shipping merchandise to branches
are added to the carrying amount of inventories, but e.cess freight costs are losses from poor
planning and are recogni$ed as e.penses of the home office.
SOLUTIONS TO EXERCISES
#$. 4–1 +. c ?. a
0. % A. a
5. c +:. d
,. a ++. d
8. c +0. a 3.0: ÷ +.0: B += 0C5D4
=. c +5. %
-. a
#$. 4–2 a. Journal entries in accounting records of home office<
0::8
2ept. + 1nvestment in 2an 7arino "ranch +:,:::
#ash +:,:::
0 1nvestment in 2an 7arino "ranch -8,:::
1nventories =:,:::
!llowance for 'vervaluation of 1nventories<
2an 7arino "ranch 39=:,::: . :.084 +8,:::
5 ;quipment< 2an 7arino "ranch 5,:::
1nvestment in 2an 7arino "ranch 5,:::
%. Journal entries in accounting records of 2an 7arino "ranch<
0::8
2ept. + #ash +:,:::
&ome 'ffice +:,:::
0 1nventories E9=:,::: ÷ 3+.:: F :.0:4G -8,:::
&ome 'ffice -8,:::
5 &ome 'ffice 5,:::
#ash 5,:::
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +,A
#$. 4–3 a. Journal entries in accounting records of home office<
0::8
2ept. + 1nvestment in ;astern "ranch 8:,:::
#ash 8:,:::
, 1nvestment in ;astern "ranch +08,:::
2hipments to ;astern "ranch A8,:::
!llowance for 'vervaluation of
1nventories< ;astern "ranch 5:,:::
++ ;quipment< ;astern "ranch 5,,0::
1nvestment in ;astern "ranch 5,,0::
%. Journal entries in accounting records of ;astern "ranch<
0::8
2ept. 5 #ash 8:,:::
&ome 'ffice 8:,:::
? 2hipments from &ome 'ffice +08,:::
&ome 'ffice +08,:::
++ &ome 'ffice 5,,0::
#ash 5,,0::
#$. 4–4 Journal entries for *ilshire "ranch of *att #orporation<
0::8
Jan. 0 1nventories +::,:::
&ome 'ffice +::,:::
To record merchandise shipped by home office.
+? &ome 'ffice 8,:::
#ash 8,:::
To records acquisition of equipment to be carried in
home office accounting records.
5+ 'perating ;.penses ?,:::
&ome 'ffice ?,:::
To records operating e.penses allocated by home office.
#$. 4–5 Journal entries for home office of Hsc #ompany<
0::8
Jan. +: 1nvestment in &oover 2treet "ranch =:,:::
1nventories 39=:,::: . :.?:4 ,?,:::
!llowance for 'vervaluation of 1nventories<
&oover 2treet "ranch 39=:,::: . :.0:4 +0,:::
To record shipment of merchandise to branch at a
markup of 0:D of billed price.
08 1nvestment in &oover 2treet "ranch 08,:::
Trade !ccounts Receivable 08,:::
To record collection of trade account receivable by branch.
5+ 1nvestment in &oover 2treet "ranch +?,:::
'perating ;.penses +?,:::
To record operating e.penses allocated to branch.
©The McGraw-Hill Companies, Inc., 2006
+8: Modern d!anced ccountin", #0$e
#$. 4–6 Journal entries for Iido "ranch of Turbo #ompany<
0::8
!ug. = Trade !ccounts (ayable +:,:::
&ome 'ffice +:,:::
+, &ome 'ffice =,:::
Trade !ccounts Receivable =,:::
00 &ome 'ffice 0:,:::
#ash 0:,:::
#$. 4–7 Journal entries for home office of *ardell #ompany<
a. 1nvestment in "ranch +8,:::
#ash 8,:::
1nventories +:,:::
%. 1nvestment in "ranch +,8::
'perating ;.penses +,8::
c. 1nvestment in "ranch ,+=
@otes Receivable ,::
1nterest Revenue +=
d. @o journal entry required
e. 1nvestment in "ranch 8::
1ncome< "ranch 8::
Journal entries for ;.eter "ranch of *ardell #ompany<
a. #ash 8,:::
1nventories +:,:::
&ome 'ffice +8,:::
%. 'perating ;.penses +,8::
&ome 'ffice +,8::
c. #ash ,+=
&ome 'ffice ,+=
d. Trade !ccounts Receivable +0,8::
'perating ;.penses 0,8::
#ost of )oods 2old ?,:::
2ales +0,8::
#ash 0,8::
1nventories ?,:::
e. 1ncome 2ummary 8::
&ome 'ffice 8::
#$. 4–8 Journal entry on %ec. 5+, 0::8, for %avis "ranch of Ieland #ompany<
&ome 'ffice 0:,:::
!ccumulated %epreciation of ;quipment -8:
;quipment 0:,:::
%epreciation ;.pense -8:
To correct accounting for equipment acquired and depreciation
e.pense
Journal entry on %ec. 5+, 0::8, for home office of Ieland #ompany<
%epreciation ;.pense< %avis "ranch -8:
;quipment< %avis "ranch 0:,:::
!ccumulated %epreciation of ;quipment< %avis "ranch -8:
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +8+
1nvestment in %avis "ranch 0:,:::
To record equipment acquired by %avis "ranch and related
depreciation.
#$. 4–9 %&'(#)*+ ,*-P+./
%o0 o1 -erc2andise 1or .ine34ero 5ranc2
%or -ont2 #nded 6anuary 31, 2005
5ied
Price
,ost -ar7u"
"eginning inventories 9+0:,::: 9 A=,::: 9 0,,:::
!dd< 2hipment from home office 8::,::: ,::,::: +::,:::
!vailable for sale 9=0:,::: 9,A=,::: 9+0,,:::
Iess< ;nding inventories +::,::: ?:,::: 0:,:::
#ost of goods sold 980:,::: 9,+=,::: 9+:,,:::
#$. 4–10 +o0ance 1or *8er8auation o1 &n8entories9 32 5ranc2
:ate #$"anation :e!it ,redit 5aance
0::8
7ar. 5+ "alance 5:,::: cr
!pr. += 2hipment to branch A:,::: +0:,::: cr
5: Reali$ed gross profit on branch sales +::,::: 0:,::: cr
#$. 4–11 Journal entries for home office of Trapp #ompany, 7ay 5+, 0::8<
1nvestment in (ortland 2treet "ranch ?:,:::
1ncome< (ortland 2treet "ranch ?:,:::
!llowance for 'vervaluation of 1nventories<
(ortland 2treet "ranch 390::,::: F 9=:,:::4 +,:,:::
Reali$ed )ross (rofit< (ortland 2treet "ranch 2ales +,:,:::
1ncome< (ortland 2treet "ranch ?:,:::
Reali$ed )ross (rofit< (ortland 2treet "ranch 2ales +,:,:::
1ncome 2ummary 00:,:::
#$. 4–12 a. 9,?,::: 39?:,::: F 950,:::4. The billed price equals 950,::: ÷ :.,:, or 9?:,:::.
%. !llowance for 'vervaluation of 1nventories< Toledo "ranch ,=,:::
Reali$ed )ross (rofit< Toledo "ranch 2ales ,=,:::
To adjust allowance account in the accounting records of
home office, as follows<
"alance, 7ar. +, 0::8 950,:::
1ncrease during 7arch 39=:,::: F 95=,:::4 0,,:::
"alance before adjustment 98=,:::
Iess< "alance, 7ar. 5+, 0::8
3908,::: . :.,:4 +:,:::
Required reduction in allowance account 9,=,:::
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+80 Modern d!anced ccountin", #0$e
#$. 4–13 Journal entries for home office of )lendale #ompany<
0::8
2ept. +- 1nvestment in 7ontrose "ranch ,::,:::
1nventories 5::,:::
!llowance for 'vervaluation of 1nventories<
7ontrose "ranch +::,:::
To record shipment of merchandise to branch at a
markup of 08D on billed price, as follows<
7arkup 39,::,::: . :.08 B 9+::,:::4
#ost 39,::,::: . :.-8 B 95::,:::4
5: !llowance for 'vervaluation of 1nventories< 7ontrose
"ranch +0:,:::
Reali$ed )ross (rofit< 7ontrose "ranch 2ales +0:,:::
To recogni$e as reali$ed gross profit the markup of
merchandise applicable to goods sold by branch during
2eptember, 0::8, as follows<
E39=:,::: J 9+::,:::4 F 39+=:,::: . :.084 B 9+0:,:::G
#$. 4–14 Journal entries for home office of 2earl #ompany, Jan. 5+, 0::8<
1nvestment in Kermont !venue "ranch =:,:::
1ncome< Kermont !venue "ranch =:,:::
!llowance for 'vervaluation of 1nventories<
Kermont !venue "ranch 39?:,::: F 90-,:::4 85,:::
Reali$ed )ross (rofit< Kermont !venue "ranch 2ales 85,:::
1ncome< Kermont !venue "ranch =:,:::
Reali$ed )ross (rofit< Kermont !venue "ranch 2ales 85,:::
1ncome 2ummary ++5,:::
#$. 4–15 Journal entries in accounting records of home office of )ome$ #ompany for 0::8<
1nvestment in (ere$ "ranch 5:,:::
2hipments to (ere$ "ranch 0,,:::
!llowance for 'vervaluation of 1nventories< (ere$ "ranch =,:::
To record shipments to branch at a markup of 08D above cost.
!llowance for 'vervaluation of 1nventories< (ere$ "ranch 8,+::
Reali$ed )ross (rofit< (ere$ "ranch 2ales 8,+::
To adjust allowance account as follows<
"alance, Jan. +, 0::8 39+8,::: . :.0:4 3! 08D markup
on cost is equal to a 0:D markup on billed price.4 95,:::
1ncrease during 0::8 395:,::: . :.0:4 =,:::
"alance before adjustment 9A,:::
Iess< "alance, %ec. 5+, 0::8 39+A,8:: . :.0:4 5,A::
Required reduction in allowance account 98,+::
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +85
#$. 4–16 a. #omputation of estimated cost of merchandise destroyed by fire at branch of 2amore,
1nc., Jan. 0?, 0::8<
1nventories, Jan. +, 0::8 3billed price4 9+8,=::
!dd< 2hipments from home office, Jan. + to Jan. 0? 3billed price4 -+,8::
7erchandise available for sale, Jan. + to Jan. 0? 3billed price4 9?-,+::
"illed price of net merchandise sold< E398+,?,: F 95,00:4 ÷ +.+:G ,,,0::
;stimated inventories, Jan. 0?, 0::8 3billed price4 9,0,A::
Iess< 1nventories not damaged 39-,+8: ÷ +.+:4 =,8::
;stimated inventories destroyed 3billed price4 95=,,::
Iess< Kaluation in e.cess of cost 395=,,:: . 5C+5L4 ?,,::
;stimated cost of merchandise destroyed by fire, Jan. 0?, 0::8 90?,:::
L! 5:D markup on cost is equal to a 5C+5 markup on billed price.
%. Journal entry to record loss in accounting records of branch, Jan.
0?, 0::8<
Ioss from /ire 5=,,::
1nventories 5=,,::
To record estimated carrying amount of merchandise destroyed by fire.
#$. 4–17 a. Journal entry for the home office of !rgos #ompany<
0::8
7ay 5+ #ash in Transit +:,:::
1nvestment in Troy "ranch +:,:::
%. Journal entries for Troy "ranch of !rgos #ompany<
0::8
7ay 5+ 1nventories in Transit 0?:,:::
&ome 'ffice 0?:,:::
5+ &ome 'ffice 8:,:::
Trade !ccounts Receivable 8:,:::
CASES
,ase 4–1 !lthough the appropriate interpretation of Iewis &anson>s contract with Iongo #ompany probably
requires a legal opinion, logic suggests that neither &anson>s view nor the Iongo controller>s view is
appropriate. !bsent any provision in &anson>s contract to the contrary, the method used by the
branch accountant to measure net income of 2antee "ranch during its operating phase should be
applied to 2antee>s last operating period. The resultant net loss precludes a bonus to &anson, but
6tinkering6 with the measurement of branch net income appears unsupportable with respect to both
&anson>s suggestion and the Iongo controller>s suggestion.
,ase 4–2 "efore deciding on an answer to the case, it is appropriate to consider the following
pronouncements of the /inancial !ccounting 2tandards "oard in Statement o# $inancial
!ccounting Concepts %o. &, M;lements of /inancial 2tatementsN 'C(% &)* Statement o#
$inancial !ccounting Standards %o. +, M!ccounting for #ontingenciesN '$!S +) Statement
o# $inancial !ccounting Standards %o. ,-., M)oodwill and 'ther 1ntangible !ssets.N
+ssets are probable future economic benefits obtained or controlled by a particular entity as a
result of past transactions or events. 3C(% &, para. 084
#ontingencies that might result in gains ;contingent assets< usually are not reflected in the
accounts since to do so might be to recogni$e revenue prior to its reali$ation. 3$!S +, para. +-a4
#$"enses are outflows or other using up of assets or incurrences of liabilities 3or a combination of
both4 from delivering or producing goods, rendering services, or carrying out other activities that
constitute the entity>s ongoing major or central operations. 3C(% &, para. ?+4
=osses are decreases in equity 3net assets4 from peripheral or incidental transactions of an
entity and from all other transactions and other events and circumstances affecting the entity
e.cept those that result from e.penses or distributions to owners. 3C(% &, para. ?54
©The McGraw-Hill Companies, Inc., 2006
+8, Modern d!anced ccountin", #0$e
#osts of internally developing, maintaining, or restoring intangi!e assets 3including goodwill4
that are not specifically identifiable, that have indeterminate lives, or that are inherent in a
continuing business and related to an entity as a whole, shall be recogni$ed as an e.pense when
incurred. 3$!S ,-., para. +:4
)iven the foregoing definitions, there is no support for /ortunato #ompany>s deferral of pre-operating
costs incurred for the new branch. !part from the costs of testing the manufacturing equipment,
which may be capitali$ed as part of the cost of the equipment, all remaining start-up costs should be
recogni$ed either as e.penses or as losses. "ecause of the uncertainty as to 02en, if e8er, regulatory
agency approval for the branch>s production and sale of products will be obtained, the "ro!a!e
criterion for the recognition of an asset is not met. )iven such uncertainty, Robert ;ngle>s
characteri$ation of the pre-operating costs as contingent assets is appropriate they are not to be
recogni$ed until reali$ed. The costs incurred other than for testing equipment, research, and
development, do not qualify as e$"enses because they do not result from delivering or producing
goods. Thus, recognition of such costs as losses appears to be an appropriate course of action for
/ortunato #ompany.
,ase 4–3 Oevin #arter>s dilemma is a difficult one. The cost-benefit aspects of any course of action he selects
must be considered. &owever, the current practice for MpluggingN differences between reciprocal
ledger accounts of the home office and branches of 'ilers, 1nc., should be forbidden at once. !t the
same time, an independent audit of 'ilers> financial statements would be prohibitively e.pensive,
given the chaotic state of the accounting records. !djusting the +, branches> &ome 'ffice ledger
account balances to agree with the home office>s reciprocal account balances is the least costly
alternative if it is accompanied by strong measures to ensure future mont2y reconciliations of the
reciprocal account balances, it might suffice. &owever, #arter might elect to select one of the +,
branches for a detailed analysis of differences between the reciprocal ledger account balances such a
course of action might disclose a pattern of recurring errors common to other branches and facilitate
discovery of most, if not all, of the reconciling items.
,ase 4–4 T'< The "oard of %irectors, *indsor #ompany
/R'7< PPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPPP, #ontroller
%!T;< PPPPPPPPPPPPPPPPPPPPPPPP
2H"J;#T< 2eparate /inancial 2tatements for 2outhwark "ranch
Qou have asked my opinion as to whether se"arate financial statements for 2outhwark "ranch
may be prepared for its prospective purchaser. 7y review of professional literature leads me to
conclude that the statements may be prepared. 1n reaching my conclusion, 1 considered the
following<
!IC/! /ro#essional Standards, Kolume 0
Section 0T1..2- %efinition of financial statements
Section !3,22.2- %efinition of financial statements
Statement o# $inancial !ccounting Concepts %o. ,, M'bjectives of /inancial Reporting by
"usiness ;nterprises,N par. = 7ost frequently provided financial statements 'C(% ,)
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +88
Statement o# $inancial !ccounting Concepts %o. &, M;lements of /inancial 2tatements,N
par. 0, @ature of accounting entity 'C(% &)
Statement o# $inancial !ccounting Standards %o. +4, MRelated (arty %isclosures,N par. 0
%isclosure of material related party transactions '$!S +4)
1 have concluded that 2outhwark "ranch is an accounting entity, as described in C(% &. "ased on
the references in 0T1..2-, !3,22.2-, and C(% ,, 1 believe that a statement of assets and liabilities
a statement of revenues, e.penses, and changes in net assets and a statement of cash flows are
appropriate for 2outhwark "ranch. "ecause the branch is a segment of *indsor #ompany, 1 do not
believe a statement of financial position 3balance sheet4, an income statement, and a statement of
owner>s equity are appropriate for it. Thus, the question you raised regarding an equity section of a
balance sheet is moot. The statement of assets and liabilities would have total liabilities of 2outhwark
"ranch subtracted from its total assets, with a Mbottom lineN of net assets, which would carry the
after-closing balance of the branch>s &ome 'ffice ledger account. The unreali$ed intracompany
markup above cost in the branch>s ending inventory would be disclosed in a note to 2outhwark
"ranch>s financial statements that describes the intracompany transactions with the home office of
*indsor #ompany in accordance with $!S +4.
(lease inform me if 1 can be of further service.
,ase 4–5 a. Iola "ranch should have prepared a journal entry to recogni$e the 90,=,: liability incurred
under the installment contract, with related debits to &ome 'ffice for the cash price of the
equipment 390,,::4 and to %iscount on 1nstallment #ontract (ayable for the interest portion of
the contract. 7onthly payments of 9++: should have been applied to reduce the installment
contract liability, and an appropriate amount of interest e.pense applied to reduce the discount
by the interest method. The sale of the office equipment required recognition of a 9A:: loss
390,,:: F 9+,8:: B 9A::4 an accompanying entry should have recorded the payoff of the
balance of the installment contract, 90,:A: E90,=,: F 39++: . 84 B 90,:A:G the forgiveness of
9+8: of the unamorti$ed discount on the contract, with the remaining discount recogni$ed as
interest e.pense and the recognition of a liability to the branch manager for his 9,,: 390,:A: F
9+8: F 9+,8:: B 9,,:4 payment of the balance of the installment contract in e.cess of the
9+,8:: sales proceeds of the office equipment.
%. The home office of Iangley, 1nc., should have prepared journal entries as follows<
3+4 Recogni$e Iola "ranch>s acquisition of the office equipment with a debit to 'ffice
;quipment< Iola "ranch and a credit to 1nvestment in Iola "ranch, 90,,::.
304 Recogni$e depreciation for five months on the equipment with debits to %epreciation
;.pense< Iola "ranch and credits to !ccumulated %epreciation of 'ffice ;quipment<
Iola "ranch, 90: each 390,,:: . :.+: . +C+0 B 90:4.
354 Reverse entry 3+4 when Iola "ranch disposed of the office equipment.
c. #orrecting journal entry, %ec. 5+, 0::8, in accounting records of Iola "ranch<
1nterest ;.pense 390,: F 9+8:4 A:
Ioss on %isposal of 'ffice ;quipment A::
7iscellaneous ;.pense 39++: . 84 88:
(ayable to 7anager of Iola "ranch ,,:
To record interest e.pense from installment contract transaction,
loss on disposal of equipment, and liability to branch manager for
personal funds used to pay off installment contract.
©The McGraw-Hill Companies, Inc., 2006
+8= Modern d!anced ccountin", #0$e
d. #orrecting journal entries, %ec. 5+, 0::8, in accounting records of home office<
'ffice ;quipment< Iola "ranch 0,,::
%epreciation ;.pense< Iola "ranch +::
'ffice ;quipment< Iola "ranch 0,,::
!ccumulated %epreciation of 'ffice ;quipment< Iola "ranch +::
To record acquisition of equipment by branch, depreciation for five
months, and subsequent disposal 3loss on disposal will be included
in net income or loss reported by Iola "ranch to home office4.
!ccumulated %epreciation of 'ffice ;quipment< Iola "ranch +::
1nvestment in Iola "ranch +::
To write off accumulated depreciation of equipment disposed of by branch.
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +8-
0: 7inutes, ;asy
Hartman, In! Pr! 4"#
Hartman, In!
R$n% Bran&
'%(rna) Entr*$+
Shipments from Home Office ($300,000 x 1.20) 3 6 0 0 0 0
Freight In 1 5 0 0 0
Home Office 3 5 0 0 0
!o recor" merch#n"ise recei$e" from home office
#n" freight costs of $15,000.
%#sh & 5 0 0 0 0
S#'es & 5 0 0 0 0
!o recor" s#'es for 2005.
Oper#tion (xpenses ) 6 0 0 0
%#sh ) 6 0 0 0
!o recor" p#*ment of expenses.
In$entories, +ec. 31, 2005 ,$2,000 - ($15,000 x 1.5)/ 5 0 0 0
S#'es & 5 0 0 0 0
Shipments from Home Office 3 6 0 0 0 0
Freight In 1 5 0 0 0
Oper#ting (xpenses ) 6 0 0 0
Income S0mm#r* 5 & 0 0 0
!o recor" en"ing in$entories #n" to c'ose re$en0e #n"
expense 'e"ger #cco0nts. (n"ing in$entories inc'0"e
one1fifth of $15,000 freight costs, 2ec#0se
merch#n"ise on h#n" e30#'s one1fifth of the *e#r4s
shipments ($2,000 ÷ $360,000 5 1.5).
Income S0mm#r* 5 & 0 0 0
Home Office 5 & 0 0 0
!o c'ose Income S0mm#r* 'e"ger #cco0nt.
Hartman, In!
H%m$ O,,*$
'%(rna) Entr*$+
In$estment in 6eno 7r#nch 3 5 0 0 0
Shipments to 7r#nch 3 0 0 0 0 0
8''o9#nce for O$er$#'0#tion of In$entories
6eno 7r#nch ($300,000 x 0.20) 6 0 0 0 0
%#sh 1 5 0 0 0
!o recor" shipment to 2r#nch of merch#n"ise 9ith
cost of $300,000 #n" p#*ment of $15,000 freight costs.
In$estment in 6eno 7r#nch 5 & 0 0 0
Income : 6eno 7r#nch 5 & 0 0 0
!o recor" net income reporte" 2* 2r#nch.
8''o9#nce for O$er$#'0#tion of In$entories: 6eno 7r#nch & ; 0 0 0
6e#'i<e" =ross >rofit: 6eno 7r#nch S#'es & ; 0 0 0
!o re"0ce #''o9#nce to #mo0nt 2* 9hich en"ing
in$entories #re in excess of cost: $60,000 ? ($2,000 x
1.6) 5 $&;,000.
©The McGraw-Hill Companies, Inc., 2006
+8? Modern d!anced ccountin", #0$e
0: 7inutes, ;asy
L%-% C%m.an/ Pr! 4"0
a. L%-% C%m.an/
H%m$ O,,*$ an1 Wa1$ Bran&
R$%n*)*at*%n %, R$*.r%a) A%(nt+
'an(ar/ 2#, 0334
In5$+tm$nt *n H%m$ O,,*$
Wa1$ Bran& )$16$r a%(nt
)$16$r a%(nt 7*n Wa1$
7*n &%m$ %,,*$ Bran&
a%(nt*n6 a%(nt*n6
r$%r1+8 r$%r1+8
7#'#nces 2efore #"@0stments $ & ; 5 0 0 "r $ 3 5 0 0 cr
8"": Shipment of merch#n"ise to 2r#nch 6 0 0 0
>#*ment of 2r#nch tr#"e #cco0nts p#*#2'e
2* home office 2 0 0 0
Aess: 8c30isition of f0rnit0re (c#rrie" in #cco0nting
recor"s of home office) ( 1 2 0 0 )
%o''ection of 2r#nch tr#"e #cco0nts
recei$#2'e ( 1 1 0 0 )
6et0rn of merch#n"ise to home office ( 2 2 0 0 )
6emitt#nce of c#sh 2* 2r#nch ( 2 5 0 0 )
7#'#nces #fter #"@0stments $ & 2 6 0 0 "r $ & 2 6 0 0 cr
b. 7#8 L%-% C%m.an/
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, H%m$ O,,*$
20 05
B#n 31 F0rnit0re: C#"e 7r#nch 1 2 0 0
In$estment in C#"e 7r#nch 1 2 0 0
!o recor" #c30isition of f0rnit0re 2* 2r#nch.
31 %#sh in !r#nsit 2 5 0 0
In$entories in !r#nsit 2 2 0 0
In$estment in C#"e 7r#nch & 0 0
!o recor" c#sh #n" merch#n"ise in tr#nsit from 2r#nch.
b. 708 L%-% C%m.an/
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, Wa1$ Bran&
20 05
B#n 31 In$entories in !r#nsit 6 0 0 0
Home Office 6 0 0 0
!o recor" shipment of merch#n"ise in tr#nsit from
home office.
31 Home Office 1 1 0 0
!r#"e 8cco0nts 6ecei$#2'e 1 1 0 0
!o recor" co''ection of 2r#nch tr#"e #cco0nts
recei$#2'e 2* home office.
31 !r#"e 8cco0nts >#*#2'e 2 0 0 0
Home Office 2 0 0 0
!o recor" p#*ment of 2r#nch tr#"e #cco0nts p#*#2'e
2* home office.
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +8A
5: 7inutes, ;asy
St/)$r C%r.%rat*%n Pr! 4"2
St/)$r C%r.%rat*%n
Data R$)at*n6 t% M$r&an1*+$ at Bran&
'an(ar/ # t&r%(6& Mar& #3, 0334
B*))$1 S$))*n6
.r*$+, .r*$+, ##39
H%m$ %,,*$ #039 %, &%m$ %, -*))$1
%+t %,,*$ %+t .r*$+
7eginning in$entories, B#n 1 $ 1 5 0 0 0 $ 1 ; 0 0 0 $ 1 ) ; 0 0
8"": Shipments from home office & ; 0 0 0 5 6 0 0 6 3 3 6 0
=oo"s #$#i'#2'e for s#'e $ 6 3 0 0 0 $ 5 6 0 0 $ ; 3 1 6 0
Det s#'es 2* 2r#nch 3 & 0 0 0 & 0 ; 0 0 & & ; ; 0
In$entories on "#te of fire, E#r. 10 $ 2 ) 0 0 0 $ 3 & ; 0 0 $ 3 ; 2 ; 0
In$entories #fter fire, E#r. 10 1 2 5 0 0 1 5 0 0 0 1 6 5 0 0
Aoss from fire, E#r. 10 $ 1 6 5 0 0 $ 1 ) ; 0 0 $ 2 1 ; 0
a. St/)$r C%r.%rat*%n
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, Bran&
Mar& #3, 0334
Aoss from Fire 1 ) ; 0 0
In$entories 1 ) ; 0 0
!o recor" 'oss of merch#n"ise in fire, #t prices 2i''e" to 2r#nch 2* home
office.
Home Office 1 ) ; 0 0
Aoss from Fire 1 ) ; 0 0
!o c'ose Aoss from Fire 'e"ger #cco0nt.
b. St/)$r C%r.%rat*%n
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, H%m$ O,,*$
Mar& #3, 0334
Aoss from Fire: 7r#nch 1 6 5 0 0
8''o9#nce for O$er$#'0#tion of 7r#nch In$entories 3 3 0 0
In$estment in 7r#nch 1 ) ; 0 0
!o recor" 'oss of merch#n"ise #t 2r#nch #n" to #"@0st #''o9#nce
#cco0nt 2* excess of 2i''e" prices of merch#n"ise "estro*e" o$er cost
to home office.
©The McGraw-Hill Companies, Inc., 2006
+=: Modern d!anced ccountin", #0$e
5: 7inutes, ;asy
:(6% C%m.an/ Pr! 4"4
a. :(6% C%m.an/
C%m.(tat*%n %, Una1;(+t$1 Ba)an$ %, H%m$ O,,*$ A%(nt
D$$m-$r 2#, 0334
7#'#nce of in$estment in 6*2'e 7r#nch 'e"ger #cco0nt
of home office, 2efore #"@0stment < 4 4 4 3 3
8"": %o''ection 2* 2r#nch of home office tr#"e
#cco0nts recei$#2'e 5 6 0
S02tot#' $ 5 6 0 6 0
Aess: Eerch#n"ise in tr#nsit to 2r#nch $ 5 ; 0 0
(rror in recor"ing 2r#nch net income
($;&0 ? $&;0) 3 6 0
S0pp'ies ret0rne" 2* 2r#nch to home office 2 2 0 6 3 ; 0
7#'#nce of Home Office 'e"ger #cco0nt of 6*2'e 7r#nch
2efore #"@0stments $ & ) 6 ; 0
b. :(6% C%m.an/
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, H%m$ O,,*$
D$$m-$r 2#, 0334
(1) Do @o0rn#' entr* re30ire".
(2) In$estment in 6*2'e 7r#nch 5 6 0
!r#"e 8cco0nts 6ecei$#2'e 5 6 0
!o recor" co''ection 2* 2r#nch of home office tr#"e
#cco0nts recei$#2'e.
(3) In$estment in 6*2'e 7r#nch 2 0 0 0
%h#rit#2'e %ontri20tions 2 0 0 0
!o correct #cco0nts for improper @o0rn#' entr* to
recor" remitt#nce of c#sh to 2r#nch.
(&) Income: 6*2'e 7r#nch 3 6 0
In$estment in 6*2'e 7r#nch 3 6 0
!o correct #cco0nts for error in recor"ing 2r#nch
net income ($;&0 ? $&;0 5 $360).
(5) In$entor* of S0pp'ies 2 2 0
In$estment in 6*2'e 7r#nch 2 2 0
!o recor" receipt of s0pp'ies from 2r#nch.
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +=+
:(6% C%m.an/ 7%n)(1$18 Pr! 4"4
c. :(6% C%m.an/
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, R/-)$ Bran&
D$$m-$r 2#, 0334
(1) Shipments from Home Office in !r#nsit 5 ; 0 0
Home Office 5 ; 0 0
!o recor" merch#n"ise in tr#nsit from home office.
(2) Do @o0rn#' entr* re30ire".
(3) %#sh in !r#nsit 2 0 0 0
Home Office 2 0 0 0
!o recor" remitt#nce of c#sh from home office.
(&) Do @o0rn#' entr* re30ire".
(5) Do @o0rn#' entr* re30ire".
d. :(6% C%m.an/
R$%n*)*at*%n %, R$*.r%a) L$16$r A%(nt+
D$$m-$r 2#, 0334
In5$+tm$nt *n
R/-)$ Bran& H%m$ O,,*$
7In &%m$ %,,*$ 7*n R/-)$ Bran&
a%(nt*n6 a%(nt*n6
r$%r1+8 r$%r1+8
7#'#nces 2efore #"@0stments (see a) < 4 4 4 3 3 1r < 4 = > ? 3 r
8"": Shipment of merch#n"ise in tr#nsit to 2r#nch 5 ; 0 0
%o''ection 2* 2r#nch of home office tr#"e #cco0nts recei$#2'e 5 6 0
%orrection of @o0rn#' entr* to recor" remitt#nce of c#sh to 2r#nch 2 0 0 0 2 0 0 0
Aess: %orrection of home office #cco0nts for error in recor"ing net income
reporte" 2* 2r#nch ( 3 6 0 )
Shipment of s0pp'ies 2* 2r#nch to home office ( 2 2 0 )
7#'#nces #fter #"@0stments $ 5 & ; 0 "r $ 5 & ; 0 cr
©The McGraw-Hill Companies, Inc., 2006
+=0 Modern d!anced ccountin", #0$e
,: 7inutes, ;asy
Tr(1*$ C%m.an/ Pr! 4"4
a. Tr(1*$ C%m.an/
'%(rna) Entr*$+ ,%r F*r+t :$ar %, O.$rat*%n+
7P$r.$t(a) In5$nt%r/ S/+t$m8
7#8 In a%(nt*n6 r$%r1+ %, Sa5%/ Bran&@
In$entories ($110,000 x 1.&0) 1 5 & 0 0 0
Home Office 1 5 & 0 0 0
!o recor" merch#n"ise recei$e" from home office.
%#sh ; 0 0 0 0
%ost of =oo"s So'" 0 0 0 0
S#'es ; 0 0 0 0
In$entories 0 0 0 0
!o recor" s#'es #n" cost of goo"s so'", "etermine" on
2#sis of prices 2i''e" to 2r#nch 2* home office.
Oper#ting (xpenses 1 6 5 0 0
%#sh 1 6 5 0 0
!o recor" oper#ting expenses.
%ost of =oo"s So'" ,($15&,000 ? $0,000) ? $;2,&60/ 1 5 & 0
In$entories 1 5 & 0
!o #"@0st en"ing in$entories #t 2i''e" price to conform
to ph*sic#' co0nt.
S#'es ; 0 0 0 0
Income S0mm#r* ; 0 & 0
%ost of =oo"s So'" ($0,000 - $1,5&0) 1 5 & 0
Oper#ting (xpenses 1 6 5 0 0
!o c'ose re$en0e #n" expense 'e"ger #cco0nts.
Home Office ; 0 & 0
Income S0mm#r* ; 0 & 0
!o c'ose net 'oss for *e#r.
708 In a%(nt*n6 r$%r1+ %, &%m$ %,,*$@
In$estment in S#$o* 7r#nch 1 5 & 0 0 0
In$entories 1 1 0 0 0 0
8''o9#nce for O$er$#'0#tion of In$entories:
S#$o* 7r#nch ($110,000 x 0.&0) & & 0 0 0
!o re#" merch#n"ise shippe" to S#$o* 7r#nch, 2i''e"
#t &0F #2o$e cost.
Income: S#$o* 7r#nch ; 0 & 0
In$estment in S#$o* 7r#nch ; 0 & 0
!o recor" net 'oss for *e#r reporte" 2* S#$o* 7r#nch.
(%ontin0e" on p#ge 16&)
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +=5
Tr(1*$ C%m.an/ 7%nt*n($18 Pr! 4"4
Tr(1*$ C%m.an/
'%(rna) Entr*$+ ,%r F*r+t :$ar %, O.$rat*%n+ 7%n)(1$18
7P$r.$t(a) In5$nt%r/ S/+t$m8
8''o9#nce for O$er$#'0#tion of In$entories:
S#$o* 7r#nch 2 0 & & 0
6e#'i<e" =ross >rofit: S#$o* 7r#nch S#'es 2 0 & & 0
!o re"0ce #''o9#nce to #mo0nt 2* 9hich en"ing
in$entories excee" cost, comp0te" #s fo''o9s:
7#'#nce of #''o9#nce 2efore #"@0stment $&&,000
6e30ire" 2#'#nce #fter #"@0stment:
$;2,&60 x 2. (# m#rG0p of 2.5 on cost is
e30i$#'ent to # m#rG0p of 2. on 2i''e" price) 23,560
6e30ire" re"0ction of #''o9#nce $20,&&0
6e#'i<e" =ross >rofit: S#$o* 7r#nch S#'es 2 0 & & 0
Income S0mm#r* 1 2 & 0 0
Income: S#$o* 7r#nch ; 0 & 0
!o c'ose 2r#nch net 'oss #n" re#'i<e" gross profit
#cco0nt. (Income t#x effects #re "isreg#r"e".)
b. Tr(1*$ C%m.an/
'%(rna) Entr*$+ ,%r F*r+t :$ar %, O.$rat*%n+
7P$r*%1* In5$nt%r/ S/+t$m8
7#8 In a%(nt*n6 r$%r1+ %, Sa5%/ Bran&@
Shipments from Home Office ($110,000 x 1.&0) 1 5 & 0 0 0
Home Office 1 5 & 0 0 0
!o recor" merch#n"ise recei$e" from home office.
%#sh ; 0 0 0 0
S#'es ; 0 0 0 0
!o recor" s#'es.
Oper#ting (xpenses 1 6 5 0 0
%#sh 1 6 5 0 0
!o recor" oper#ting expenses.
S#'es ; 0 0 0 0
In$entories (en" of first *e#r) ; 2 & 6 0
Income S0mm#r* ; 0 & 0
Shipments from Home Office 1 5 & 0 0 0
Oper#ting (xpenses 1 6 5 0 0
!o recor" en"ing in$entories #n" to c'ose re$en0e
#n" expense #cco0nts.
Home Office ; 0 & 0
Income S0mm#r* ; 0 & 0
!o c'ose net 'oss for *e#r.
(%ontin0e" on p#ge 165)
Tr(1*$ C%m.an/ 7%n)(1$18 Pr! 4"4
©The McGraw-Hill Companies, Inc., 2006
+=, Modern d!anced ccountin", #0$e
Tr(1*$ C%m.an/
'%(rna) Entr*$+ ,%r F*r+t :$ar %, O.$rat*%n+ 7%n)(1$18
7P$r*%1* In5$nt%r/ S/+t$m8
708 In a%(nt*n6 r$%r1+ %, &%m$ %,,*$@
In$estment in S#$o* 7r#nch 1 5 & 0 0 0
Shipments to 7r#nch 1 1 0 0 0 0
8''o9#nce for O$er$#'0#tion of In$entories:
S#$o* 7r#nch ($110,000 x 0.&0) & & 0 0 0
!o recor" merch#n"ise shippe" to S#$o* 7r#nch,
2i''e" #t &0F #2o$e cost.
Income: S#$o* 7r#nch ; 0 & 0
In$estment in S#$o* 7r#nch ; 0 & 0
!o recor" net 'oss for *e#r reporte" 2* S#$o* 7r#nch.
8''o9#nce for O$er$#'0#tion of In$entories: S#$o*
7r#nch 2 0 & & 0
6e#'i<e" =ross >rofit: S#$o* 7r#nch S#'es 2 0 & & 0
!o re"0ce #''o9#nce to #mo0nt 2* 9hich en"ing
in$entories excee" cost (see p#rt a).
6e#'i<e" =ross >rofit: S#$o* 7r#nch S#'es 2 0 & & 0
Income S0mm#r* 1 2 & 0 0
Income: S#$o* 7r#nch ; 0 & 0
!o c'ose 2r#nch net 'oss #n" re#'i<e" gross profit
#cco0nt. (Income t#x effects #re "isreg#r"e".)
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +=8
=: 7inutes, 7edium
A%+t*BMar*an C%m.an/ Pr! 4">
a. A%+t*"Mar*an C%m.an/
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, H%m$ O,,*$
20 05
+ec. 31 %#sh 1 0 0
In$estment in 7r#nch 1 0 0
!o recor" c#sh "eposits 2* 2r#nch not entere" in
#cco0nting recor"s of home office:
+ec. 30, 2005 $1,100
+ec. 31, 2005 600
!ot#' c#sh "eposits not recor"e" $1,00
31 Shipments to 7r#nch 1 0 0 0 0
8''o9#nce for O$er$#'0#tion of 7r#nch
In$entories 1 0 0 0 0
!o recor" intr#comp#n* m#rG0p on merch#n"ise
shipments to 2r#nch: $110,000 ? ($110,000 ÷ 1.1)
5 $10,000
b. A%+t*BMar*an C%m.an/
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, Bran&
20 05
+ec. 31 %#sh in !r#nsit 1 ; 0 0
Home Office 1 ; 0 0
!o recor" reim20rsement checG m#i'e" 2* home
officeH the checG is in tr#nsit.
31 Shipments from Home Office in !r#nsit 5 5 0 0
Home Office 5 5 0 0
!o recor" shipment of merch#n"ise in tr#nsit.
31 Freight1in from Home Office 2 5
%0rrent Ai#2i'ities 2 5
!o recor" freight on shipment in tr#nsit ($5,500 x 0.05
5 $25).
©The McGraw-Hill Companies, Inc., 2006
+== Modern d!anced ccountin", #0$e
A%+t*BMar*an C%m.an/ 7%n)(1$18 Pr! 4">
c. A%+t*BMar*an C%m.an/
W%rC*n6 Pa.$r ,%r C%m-*n$1 F*nan*a) Stat$m$nt+ %, H%m$ O,,*$ an1 Bran&
F%r :$ar En1$1 D$$m-$r 2#, 0334
7P$r*%1* In5$nt%r/ S/+t$m@ B*))*n6+ a-%5$ C%+t8
A1;(+t$1 tr*a) -a)an$+
H%m$ %,,*$ Bran& E)*m*nat*%n+ C%m-*n$1
1r 7r8 1r 7r8 1r 7r8 1r 7r8
In%m$ +tat$m$nt
Sa)$+ ( 1 6 ) 0 0 0 ) ( 1 & & 0 0 ) ( 3 1 3 0 0 )
In5$nt%r*$+, 'an! #, 0334 2 3 0 0 0 1 1 5 5 0 (2) ( 1 0 0 0 ) 3 3 5 5 0
P(r&a+$+ 1 ) 0 0 0 0 1 ) 0 0 0 0
S&*.m$nt+ t% -ran& ( 1 0 0 0 0 0 ) (#) 1 0 0 0 0 0
S&*.m$nt+ ,r%m &%m$ %,,*$ 1 1 0 0 0 0 (#)( 1 1 0 0 0 0 )
Fr$*6&tB*n ,r%m &%m$ %,,*$ 5 5 0 0 5 5 0 0
In5$nt%r*$+, D$! 2#, 0334 ( 3 0 0 0 0 ) ( 1 6 1 0 )I (c) 1 & 0 0 ( & & 0 )
O.$rat*n6 $D.$n+$+ & 2 0 0 0 2 & 3 0 0 6 6 3 0 0
N$t *n%m$ 7t% +tat$m$nt %,
r$ta*n$1 $arn*n6+ -$)%E8 & & 0 0 0 ) 5 2 0 (") ) 6 0
0
S
6 3 1 2 0
T%ta)+ 1 0 1 1 0 1 1 0 1
Stat$m$nt %, r$ta*n$1 $arn*n6+
R$ta*n$1 $arn*n6+, 'an! #, 0334 ( 3 & 0 0 0 ) ( 3 & 0 0 0 )
N$t 7*n%m$8 7,r%m *n%m$
+tat$m$nt a-%5$8 ( & & 0 0 0 ) ( ) 5 2 0 ) (") ( ) 6 0 0 ) ( 6 3 1 2 0 )
D*5*1$n1+ 1$)ar$1 1 5 0 0 0 1 5 0 0 0
R$ta*n$1 $arn*n6+, D$! 2#, 0334
7t% -a)an$ +&$$t -$)%E8 ; 2 1 2 0
T%ta)+ 1 0 1
Ba)an$ +&$$t
Ca+& 2 3 0 0 1 1 ) 5 3 5 6 5
In5$nt%r*$+, D$! 2#, 0334 3 0 0 0 0 1 6 1 0 (c) ( 1 & 0 0 ) & & 0
In5$+tm$nt *n -ran& 5 ; 3 0 0 (e) ( 5 ; 3 0 0 )
A))%Ean$ ,%r %5$r5a)(at*%n
%, -ran& *n5$nt%r*$+ ( 1 1 0 0 0 ) (#) 1 0 0 0 0
(2) 1 0 0 0
Ot&$r a++$t+ 7n$t8 1 ) 0 0 0 & ; & 5 0 2 & 5 & 5 0
C(rr$nt )*a-*)*t*$+ ( 3 5 0 0 0 ) ( ; 5 ) ( & 3 5 )
C%mm%n +t%C, <0!43 .ar ( 2 0 0 0 0 0 ) ( 2 0 0 0 0 0 )
R$ta*n$1 $arn*n6+ 7,r%m
+tat$m$nt %, r$ta*n$1
$arn*n6+ a-%5$8 ( ; 2 1 2 0 )
H%m$ %,,*$ ( 5 ; 3 0 0 ) (e) 5 ; 3 0 0
T%ta)+ 1 0 1 1 0 1 1 0 1 1 0 1
I ($),)00 - $5,500) x 1.05 5 $16,10.
(#) !o e'imin#te reciproc#' 'e"ger #cco0nts for merch#n"ise shipments.
(2) !o re"0ce 2eginning in$entories of 2r#nch to cost: $11,000 ? ($11,000 ÷ 1.1) 5 $1,000.
(c) !o re"0ce en"ing in$entories of 2r#nch of cost: $15,&00 ? ($15,&00 ÷ 1.1) 5 $1,&00.
(") !o incre#se net income of home office 2* portion of merch#n"ise m#rG0p th#t 9#s re#'i<e":
$11,000 ? $1,&00 5 $),600.
(e) !o e'imin#te reciproc#' 'e"ger #cco0nt 2#'#nces.
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +=-
5: 7inutes, 7edium
S%)*+ C%m.an/ Pr! 4"F
a. S%)*+ C%m.an/
W%rC*n6 Pa.$r ,%r C%m-*n$1 F*nan*a) Stat$m$nt+ %, H%m$ O,,*$ an1 Bran&
F%r :$ar En1$1 D$$m-$r 2#, 0334
7P$r*%1* In5$nt%r/ S/+t$m@ B*))*n6+ at C%+t8
A1;(+t$1 tr*a) -a)an$+
H%m$ %,,*$ Bran& E)*m*nat*%n+ C%m-*n$1
1r 7r8 1r 7r8 1r 7r8 1r 7r8
In%m$ +tat$m$nt
Sa)$+ ( 3 ) & 0 0 0 ) ( 1 0 1 1 0 0 ) ( & ) 5 1 0 0 )
C%+t %, 6%%1+ +%)1 2 0 0 5 0 0 ; 5 ; 0 0 2 ; 6 3 0 0
O.$rat*n6 $D.$n+$+ 6 ) 5 0 0 2 1 ) 0 0 ) 1 & 0 0
N$t *n%m$ 7)%++8 7t%
+tat$m$nt %, r$ta*n$1
$arn*n6+ -$)%E8 1 2 & 0 0 0 ( 6 6 0 0 ) 1 1 & 0 0
T%ta)+ 1 0 1 1 0 1 1 0 1
Stat$m$nt %, r$ta*n$1 $arn*n6+
R$ta*n$1 $arn*n6+, D$! 2#, 34 ( 2 5 0 0 0 ) ( 2 5 0 0 0 )
N$t 7*n%m$8 )%++ 7,r%m
*n%m$ +tat$m$nt a-%5$8 ( 1 2 & 0 0 0 ) 6 6 0 0 ( 1 1 & 0 0 )
D*5*1$n1+ 1$)ar$1 3 0 0 0 0 3 0 0 0 0
R$ta*n$1 $arn*n6+, D$! 2#, 34
7t% -a)an$ +&$$t -$)%E8 1 1 2 & 0 0
T%ta)+ 1 0 1
Ba)an$ +&$$t
Ca+& & 6 0 0 0 1 & 6 0 0 6 0 6 0 0
N%t$+ r$$*5a-)$ 0 0 0 0 0 0
Tra1$ a%(nt+ r$$*5a-)$
7n$t8 ; 0 & 0 0 3 3 0 0 1 1 0 0
In5$nt%r*$+ ) 5 ; 0 0 2 & 2 0 0 1 2 0 0 0 0
In5$+tm$nt *n -ran& ; 2 0 0 (#) ( ; 2 0 0 )
F(rn*t(r$ an1 $G(*.m$nt
7n$t8 & ; 1 0 0 & ; 1 0 0
Tra1$ a%(nt+ .a/a-)$ ( & 1 0 0 0 ) ( & 1 0 0 0 )
C%mm%n +t%C, <0 .ar ( 2 0 0 0 0 0 ) ( 2 0 0 0 0 0 )
R$ta*n$1 $arn*n6+ 7,r%m
+tat$m$nt %, r$ta*n$1
$arn*n6+ a-%5$8 ( 1 1 2 & 0 0 )
H%m$ O,,*$ ( ; 2 0 0 ) (#) ; 2 0 0
T%ta)+ 1 0 1 1 0 1 1 0 1 1 0 1
(#) !o e'imin#te reciproc#' 'e"ger #cco0nt 2#'#nces.
©The McGraw-Hill Companies, Inc., 2006
+=? Modern d!anced ccountin", #0$e
S%)*+ C%m.an/ 7%n)(1$18 Pr! 4"F
b. S%)*+ C%m.an/
C)%+*n6 Entr*$+ ,%r Bran&
20 05
+ec. 31 S#'es 1 0 1 1 0 0
Income S0mm#r* 6 6 0 0
%ost of =oo"s So'" ; 5 ; 0 0
Oper#ting (xpenses 2 1 ) 0 0
!o c'ose re$en0e #n" expense 'e"ger #cco0nts.
31 Home Office 6 6 0 0
Income S0mm#r* 6 6 0 0
!o tr#nsfer net 'oss to Home Office 'e"ger #cco0nt.
c. S%)*+ C%m.an/
A1;(+t*n6 an1 C)%+*n6 Entr*$+ ,%r H%m$ O,,*$
20 05
+ec. 31 Aoss: 7r#nch 6 6 0 0
In$estment in 7r#nch 6 6 0 0
!o recor" net 'oss reporte" 2* 2r#nch.
31 S#'es 3 ) & 0 0 0
%ost of =oo"s So'" 2 0 0 5 0 0
Oper#ting (xpenses 6 ) 5 0 0
Aoss: 7r#nch 6 6 0 0
Income S0mm#r* 1 1 & 0 0
!o c'ose re$en0e #n" expense 'e"ger #cco0nts.
31 Income S0mm#r* 1 1 & 0 0
6et#ine" (#rnings 1 1 & 0 0
!o c'ose com2ine" net income to 6et#ine" (#rnings
'e"ger #cco0nt.
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +=A
8: 7inutes, 7edium
Ca)% C%r.%rat*%n Pr! 4"?
a. Ca)% C%r.%rat*%n
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, H%m$ O,,*$
20 05
+ec. 31 (30ipment: 7r#nch 5 0 0
In$estment in 7r#nch 5 0 0
!o recor" #c30isition of e30ipment 2* 2r#nch.
31 %#sh in !r#nsit 5 0 0 0
In$estment in 7r#nch 5 0 0 0
!o recor" c#sh in tr#nsit from 2r#nch.
31 S#'es & ; 0 0 0
Shipments to 7r#nch & 0 0 0 0
In$estment in 7r#nch ; 0 0 0
!o e'imin#te shipments to 2r#nch from s#'es ($&5,000
- $3,000 5 $&;,000) #n" to recor" shipments #t cost
($&;,000 ÷ 1.2 5 $&0,000).
31 In$entories, +ec. 31, 2005 6 0 0 0 0
Income S0mm#r* 6 0 0 0 0
!o recor" en"ing in$entories.
b. Ca)% C%r.%rat*%n
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, Bran&
20 05
+ec. 31 Home Office 2 0 0 0
!r#"e 8cco0nts 6ecei$#2'e 2 0 0 0
!o recor" co''ection of tr#"e #cco0nts recei$#2'e 2*
home office.
31 Oper#ting (xpenses & 5 0 0
Home Office & 5 0 0
!o correct #mo0nt of expenses #''oc#te" to 2r#nch 2*
home office ($5,000 ? $500 5 $&,500).
31 Shipments from Home Office in !r#nsit 3 0 0 0
Home Office 3 0 0 0
!o recor" shipment in tr#nsit from home office.
31 Home Office ; 0 0 0
Shipments from Home Office ; 0 0 0
!o e'imin#te intr#comp#n* m#rG0p on merch#n"ise
recei$e" from home office ($&;,000 x 1.6 5 $;,000).
31 In$entories, +ec. 31, 2005 1 ) 5 0 0
Income S0mm#r* 1 ) 5 0 0
!o recor" en"ing in$entories ,($1;,000 - $3,000) x 5.6
5 $1,500H $2,000 - $1,500 5 $1),500/.
©The McGraw-Hill Companies, Inc., 2006
+-: Modern d!anced ccountin", #0$e
Ca)% C%r.%rat*%n 7%n)(1$18 Pr! 4"?
c. Ca)% C%r.%rat*%n
W%rC*n6 Pa.$r t% S(mmar*H$ O.$rat*%n+
F%r :$ar En1$1 D$$m-$r 2#, 0334
R$5$n($ an1 ED.$n+$+ H%m$ O,,*$ Bran& C%m-*n$1
S#'es $ & 0 2 0 0 0 (1) $ 1 0 0 0 0 0 $ 5 0 2 0 0 0
%ost of goo"s so'":
In$entories, B#n. 1, 2005 (#t cost) $ 0 0 0 0 $ 1 5 0 0 0 $ ; 5 0 0 0
>0rch#ses 2 ) 0 0 0 0 2 & 0 0 0 3 1 & 0 0 0
Shipments to 2r#nch (#t cost) ( & 0 0 0 0 ) & 0 0 0 0
%ost of goo"s #$#i'#2'e for s#'e $ 3 2 0 0 0 0 $ ) 0 0 0 $ 3 ) ) 0 0 0
Aess: In$entories, +ec 31, 2005 6 0 0 0 0 1 ) 5 0 0 (2) ) 5 0 0
%ost of goo"s so'" $ 2 6 0 0 0 0 $ 5 ) 5 0 0 $ 3 1 ) 5 0 0
=ross m#rgin on s#'es $ 1 & 2 0 0 0 $ & 0 5 0 0 $ 1 ; 2 5 0 0
Oper#ting expenses 5 5 0 0 0 2 0 5 0 0 (3) 5 5 0 0
Det income $ ; 0 0 0 $ 2 0 0 0 0 $ 1 0 0 0 0
(1) $&50,000 ? $&;,000 5 $&02,000.
(2) ($1;,000 - $3,000) x 5.6 5 $1,500H
(3)
$2,000 - $1,500 5 $1),500.
(3) $16,000 - $&,500 5 $20,500.
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +-+
=: 7inutes, 7edium
Ar$+&$C C%m.an/ Pr! 4"=
a. Ar$+&$C C%m.an/
R$%n*)*at*%n %, In5$+tm$nt *n L$$ Bran& L$16$r A%(nt an1 H%m$ O,,*$ A%(nt
F%r Q(art$r En1$1 A.r*) 23, 0334
In5$+tm$nt *n L$$
Bran& )$16$r a%(nt H%m$ O,,*$ )$16$r a%(nt
7&%m$ %,,*$ a%(nt*n6 7-ran& a%(nt*n6
r$%r1+8 r$%r1+8
D$-*t Cr$1*t D$-*t Cr$1*t
Ba)an$+ -$,%r$ a1;(+tm$nt+ < # 2 2 = F 3 < # 4 2 3 4 3
8"":
!r#nsposition error in recor"ing
shipment from home office
($,;&0 recor"e" #s $,&;0) 3 6 0
%o''ection 2* 2r#nch of home
office tr#"e #cco0nts
recei$#2'e 3 5 0 3 5 0
Shipment "e'i$ere" to 2r#nch
on Fe2. 1& not recor"e" (20t
sho0'" 2e) #s p#*#2'e 2*
home office 2 5 0
%orrecte" 2r#nch net income
($13,10 ? $360 ? $1,200 ?
$250 5 $11,)00) 1 1 ) 0 0
Oper#ting expenses ch#rge?
#2'e to 2r#nch, $1,200, #n"
'oss on "ispos#' of 2r#nch
e30ipment, $250 1 & 5 0
Aess:
6e"0ction in pre'imin#r* net
income recor"e" in Home
Office 'e"ger #cco0nt:
Oper#ting expenses not
recor"e" $ 1 2 0 0
Jn"erst#tement of shipments
from home office ($,;&0 ?
$,&;0) 3 6 0
Aoss on "ispos#' of 2r#nch
e30ipment 2 5 0
6ep#ir 2i'' p#i" 2* 2r#nch for
home office $ 3 5
(xcess merch#n"ise ret0rne"
2* 2r#nch to home office not
recor"e" 2* home office 5 2 0 5
S02tot#'s $ 1 & ; ) 0 $ 5 5 ; 0 $ 1 ; 1 0 $ 1 & 5 2 0 0
7#'#nces #fter #"@0stments 1 & 3 3 ) 0 1 & 3 3 ) 0
!ot#'s $ 1 & ; ) 0 $ 1 & ; ) 0 $ 1 & 5 2 0 0 $ 1 & 5 2 0 0
©The McGraw-Hill Companies, Inc., 2006
+-0 Modern d!anced ccountin", #0$e
Ar$+&$C C%m.an/ 7%nt*n($18 Pr! 4"=
b. Ar$+&$C C%m.an/
C%rr$t*n6 Entr*$+ *n A%(nt*n6 R$%r1+ %, L$$ Bran&
20 05
8pr 30 %ost of =oo"s So'" 3 6 0
Home Office 3 6 0
!o correct error in recor"ing #mo0nt of merch#n"ise
recei$e" from home office on Fe2. ;, 2005
,($&).00 ? $&6.5) x 160 5 $360/.
30 !r#"e 8cco0nts 6ecei$#2'e 3 5 0
Home Office 3 5 0
!o recor" co''ection of tr#"e #cco0nts recei$#2'e of
home office pre$io0s'* recor"e" in error #s co''ection
of 2r#nch tr#"e #cco0nts recei$#2'e.
30 Oper#ting (xpenses 1 2 0 0
Aoss on +ispos#' of (30ipment 2 5 0
Home Office 1 & 5 0
!o recor" oper#ting expenses #''oc#te" to 2r#nch 2*
home office #n" 'oss reporte" on "ispos#' of 2r#nch
e30ipment.
30 Home Office 1 ; 1 0
Income S0mm#r* 1 ; 1 0
!o correct pre'imin#r* net income recor"e" for 30#rter
en"e" 8pr. 30, 2005: $1,200 - $360 - $250 5 $1,;10.
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +-5
Ar$+&$C C%m.an/ 7%n)(1$18 Pr! 4"=
c. Ar$+&$C C%m.an/
C%rr$t*n6 Entr*$+ *n A%(nt*n6 R$%r1+ %, H%m$ O,,*$
20 05
8pr 30 In$estment in 7r#nch 3 5 0
!r#"e 8cco0nts 6ecei$#2'e 3 5 0
!o recor" co''ection 2* 2r#nch of home office tr#"e
#cco0nts recei$#2'e.
30 In$estment in 7r#nch 2 5 0
!r#"e 8cco0nts >#*#2'e 2 5 0
!o recor" 'i#2i'it* for merch#n"ise recei$e" 2* 2r#nch
on Fe2. 1&, 2005.
30 In$estment in 7r#nch 1 1 ) 0 0
Income: 7r#nch 1 1 ) 0 0
!o recor" net income of 2r#nch for 30#rter en"e"
8pr. 30, 2005: $13,10 ? $1,;10 5 $11,)00.
8
30 6ep#irs (xpense (or !r#"e 8cco0nts >#*#2'e, if
pre$io0s'* recor"e") 3 5
In$estment in 7r#nch 3 5
!o recor" rep#ir 2i'' p#i" 2* 2r#nch on 8pr. 2), 2005.
30 In$entories in !r#nsit 5 2 0 5
In$estment in 7r#nch 5 2 0 5
!o recor" excess merch#n"ise ret0rne" to home
office 2* 2r#nch on 8pr. 30, 2005.
©The McGraw-Hill Companies, Inc., 2006
+-, Modern d!anced ccountin", #0$e
=: 7inutes, 2trong
Arn*$I+ Pr! 4"#3
a. Arn*$I+
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, H%m$ O,,*$
20 05
+ec. 31 8rno'" D#nce, %#pit#' 1 2 0 0
8''o9#nce for O$er$#'0#tion of In$entories:
Ki"# 7r#nch 1 2 0 0
!o est#2'ish #''o9#nce for o$er$#'0#tion of
2eginning in$entories of 2r#nch
,$6,000 ? ($6,000 ÷ 1.25) 5 $1,200/.
31 S#'es 1 0 5 0 0 0
%ost of =oo"s So'" ; & 0 0 0
8''o9#nce for O$er$#'0#tion of In$entories:
Ki"# 7r#nch 2 1 0 0 0
!o correct @o0rn#' entries for shipments of
merch#n"ise to 2r#nch ($105,000 ÷ 1.25 5 $;&,000).
31 %#sh in !r#nsit 1 0 0 0 0
In$estment in 7r#nch 1 0 0 0 0
!o recor" c#sh in tr#nsit from 2r#nch:
+ec. 30, 2005 $ 3,000
+ec. 31, 2005 ,000
!ot#' c#sh in tr#nsit $10,000
b. Arn*$I+
'%(rna) Entr*$+ *n A%(nt*n6 R$%r1+ %, V*1a Bran&
20 05
+ec. 31 Oper#ting (xpenses 1 2 0 0 0
Home Office 1 2 0 0 0
!o recor" expense #''oc#te" to 2r#nch 2* the home
office.
31 %#sh in !r#nsit 3 0 0 0
Home Office 3 0 0 0
!o recor" c#sh in tr#nsit from home office.
31 In$entories in !r#nsit 1 0 0 0 0
Home Office 1 0 0 0 0
!o recor" shipment of merch#n"ise in tr#nsit from
home office, "etermine" #s fo''o9s:
In$entories, B#n. 1, 2005 $ 6,000
Shipments from home office 105,000
S02tot#' $111,000
Aess: %ost of goo"s so'" per
2r#nch #cco0nting
recor"s $)3,000
In$entories, +ec. 31,
2005, per 2r#nch
#cco0nting recor"s ;,000 101,000
Shipment of merch#n"ise in
tr#nsit from home office $ 10,000
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +-8
Arn*$I+ 7%nt*n($18 Pr! 4"#3
c. Arn*$I+
W%rC*n6 Pa.$r ,%r C%m-*n$1 F*nan*a) Stat$m$nt+ %, H%m$ O,,*$ an1 Bran&
F%r :$ar En1$1 D$$m-$r 2#, 0334
7P$r*%1 In5$nt%r/ S/+t$m@ B*))*n6+ a-%5$ C%+t8
A1;(+t$1 tr*a) -a)an$+
H%m$ %,,*$ V*1a Bran& E)*m*nat*%n+ C%m-*n$1
1r 7r8 1r 7r8 1r 7r8 1r 7r8
In%m$ +tat$m$nt
S#'es ( 2 ; 5 0 0 0 ) ( 1 6 0 0 0 0 ) ( & & 5 0 0 0 )
%ost of goo"s so'" 1 6 6 0 0 0 ) 3 0 0 0 (#) ( 1 ; 6 0 0 ) 2 & 0 & 0 0
Oper#ting expenses 0 0 0 0 & ; 0 0 0 1 1 ; 0 0 0
Det income (to st#tement of
proprietor4s c#pit#' 2e'o9) & ) 0 0 0 1 ) 0 0 0 (2) 1 ; 6 0 0 ; 6 6 0 0
!ot#'s 1 0 1 1 0 1 1 0 1
Stat$m$nt %, .r%.r*$t%rI+ a.*ta)
8rno'" D#nce, c#pit#' B#n. 1, 05 ( 1 ) 0 ; 0 0 ) ( 1 ) 0 ; 0 0 )
Det (income) (from
income st#tement #2o$e) ( & ) 0 0 0 ) ( 1 ) 0 0 0 ) (2) ( 1 ; 6 0 0 ) ( ; 6 6 0 0 )
8rno'" D#nce, "r#9ing 5 0 0 0 0 5 0 0 0 0
8rno'" D#nce, c#pit#' +ec. 31,
2005 (to 2#'#nce sheet 2e'o9) 2 2 & 0 0
!ot#'s 1 0 1
Ba)an$ +&$$t
%#sh & 1 0 0 0 1 6 0 0 0 5 0 0 0
!r#"e #cco0nts recei$#2'e (net) 2 0 0 0 0 2 2 0 0 0 & 2 0 0 0
In$entories & 0 0 0 0 1 ; 0 0 0 (#) ( 3 6 0 0 ) 5 & & 0 0
In$estment in Ki"# 7r#nch 3 5 0 0 0 (c) ( 3 5 0 0 0 )
8''o9#nce for o$er$#'0#tion of
in$entories: Ki"# 7r#nch ( 2 2 2 0 0 ) (#) 2 2 2 0 0
(30ipment (net) 1 5 0 0 0 0 1 5 0 0 0 0
!r#"e #cco0nts p#*#2'e ( 2 3 0 0 0 ) ( 2 3 0 0 0 )
8ccr0e" 'i#2i'ities ( 2 0 0 0 ) ( 2 0 0 0 )
Dote p#*#2'e, "0e 200; ( 5 1 0 0 0 ) ( 5 1 0 0 0 )
Home office ( 3 5 0 0 0 ) (c) 3 5 0 0 0
8rno'" D#nce, c#pit#' (from
st#tement of proprietor4s
c#pit#' #2o$e) ( 2 2 & 0 0 )
!ot#'s 1 0 1 1 0 1 1 0 1 1 0 1
(#) !o re"0ce en"ing in$entories ($1;,000 x 0.20 5 $3,600) #n" cost of goo"s so'" ($)3,000 x 0.20 5 $1;,600) of
2r#nch to cost, #n" to e'imin#te 2#'#nce of 8''o9#nce for O$er$#'0#tion of In$entories: Ki"# 7r#nch 'e"ger #cco0nt.
(2) !o incre#se net income of home office 2* portion of merch#n"ise m#rG0p th#t 9#s re#'i<e" 2* 2r#nch s#'es.
(c) !o e'imin#te reciproc#' 'e"ger #cco0nt 2#'#nces.
©The McGraw-Hill Companies, Inc., 2006
+-= Modern d!anced ccountin", #0$e
Arn*$I+ 7%n)(1$18 Pr! 4"#3
d. Arn*$I+
A1;(+t*n6 an1 C)%+*n6 Entr*$+ *n A%(nt*n6 R$%r1+ %, H%m$ O,,*$
20 05
+ec 31 In$estment in Ki"# 7r#nch 1 ) 0 0 0
Income: Ki"# 7r#nch 1 ) 0 0 0
!o recor" net income reporte" 2* 2r#nch.
31 8''o9#nce for O$er$#'0#tion of In$entories: Ki"#
7r#nch 1 ; 6 0 0
6e#'i<e" =ross >rofit: Ki"# 7r#nch S#'es 1 ; 6 0 0
!o re"0ce #''o9#nce to #mo0nt 2* 9hich en"ing
in$entories of 2r#nch excee" cost.
31 Income: Ki"# 7r#nch 1 ) 0 0 0
6e#'i<e" =ross >rofit: Ki"# 7r#nch S#'es 1 ; 6 0 0
S#'es 2 ; 5 0 0 0
%ost of =oo"s So'" 1 6 6 0 0 0
Oper#ting (xpenses 0 0 0 0
Income S0mm#r* ; 6 6 0 0
!o c'ose re$en0e #n" expense #cco0nts.
31 Income S0mm#r* ; 6 6 0 0
8rno'" D#nce, %#pit#' ; 6 6 0 0
!o c'ose Income S0mm#r* 'e"ger #cco0nt (net income
for *e#r) to proprietor4s c#pit#' #cco0nt.
31 8rno'" D#nce, %#pit#' 5 0 0 0 0
8rno'" D#nce, +r#9ing 5 0 0 0 0
!o c'ose proprietor4s "r#9ing 'e"ger #cco0nt to
proprietor4s c#pit#' #cco0nt.
©The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 4 +--