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# Carl Nyco O.

Balatbat BSA 5A
Problems - MC
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

P 31,000
6,600
P 37,600

## True Branch Net Income

Branch Net Income
Overvaluation of cost of goods sold/realized profit
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

5,000

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

4. c
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

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

336,000
P 240,000

## Billing Price: P336,000 / P240,000 = 140%.

5. c Allowance for overvaluation after adjustment / for December 31 inventory: (refer to
No. 4 for further computation): P84,000 x 40/140 = P24,000.
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
MI, beginning
SFHO
COGAS

P 20,000
6,000
P 14,000
Billed Price
0
550,000
550,000

CGS, at BP
X: Mark-up ratio
7. d

75,000
475,000
25/125

95,000
P109,000

## 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
Cost of Goods Available for Sale... P 587,500
Less: MI, ending [P70,000 + (P60,000 / 1.20)]. 120,000
467,500
Gross profit.
P 370,000
Less: Expenses (P120,000 + P50,000...
170,000
Net Income
P 200,000

8. d
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment.P 7,200
Less: Allowance of ending branch inventory (P20,000 x 84% =
P16,800 x 20/120.. 2,800
Overvaluation of Cost of Goods Sold. .P 4,400
Sales
P60,000
Less: Cost of goods sold:
Inventory, January 1, 2003.P 30,000
Shipments from home office..
19,200
Cost of Goods available for sale P 60,200
Less: Inventory, December 31, 2003.
20,000
40,200
Gross
profit..
P
19,200
Less:
Expenses..
12,000
7,800
Add: Overvaluation of Cost of Goods Sold.
4,400
12,000
9. d
Merchandise Inventory, 12/31/2005
Shipments
Cost of goods sold

Billed
Price
*P 36,000
28,800

Cost
P 30,000
24,000

Allowance
P 6,000
4,800
P10,800

## From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000.

From outsiders: P45,000 P36,000 = P9,000
10. d

Billed Price
Merch. Inventory, 12/31/20x4
*P12,000
Shipments
9,600
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
11. d
Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
Home Office, cost
P 3,500
Branch: Outsiders, ...........................P 300
From Home Office (P2,500 P300)/110%................. 2,000
2,300 P
5,800
Purchases
(P240,000
+
P11,000)..
251,000
COGAS
P256,800
Less: Merchandise Inventory, 12/31/2003
Home Office, cost.
P 3,000
Branch: Outsiders. P
150
From Home Office (P1,800 P150)/110%................
1,500
1,650
4,650
Cost of Goods Sold
P252,150
12. d

100%
Billed Price

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

13. 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

14. b
(1) Sales
P 40,000
Less: Cost of goods sold:
Inventory, 1/1/2003 (P4,950 / 110%)
P 4,500
(P22,000 / 110%)
20,000
COGAS
P 24,500
Less: Inventory, 12/31/2003 (P6,050 / 110%)
5,500
19,000

Gross profit
Less: Expenses
Net income from own operations

P
_
P

21,000
13,100
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
50,000
COGAS..
P 71,500
Less: Merchandise Inventory, 12/31/2003
of Home Office, cost P 14,000
of Branch, cost: P6,050 /100%..
5,500
19,500
Cost of Goods Sold.
P 52,000
15. a - P48,000 / 120% = P40,000
16. a P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related
to the ending inventory, so, the allowance related to the CGS, which is P10,00 in this
case is considered to be the adjustments in the books of Home Office to determine the
120%
100%
20%
Billed Price
Cost
Allowance
Merchandise inventory, 1/1/x4
0
Shipments
108,000
Cost of goods available for sale
108,000
Less: MI, 12/31/x4 (P60,000 x 80%)
48,000
Overvaluation of CGS (60,000 x
60,000
10,000*
20/120)
17. 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)

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

18. 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*

19. d P326,000
Sales (P600,000 + P300,000)
P 900,000
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)]
P132,000
350,000
Cost of goods available for sale
P482,000
Less: MI, ending
[P30,000 + (P60,000/1.25)]
78,000 404,000
Gross profit
P 496,000
Less: Expenses (P120,000 + P50,000)
_ 170,000
Net Income
P 326,000
20. b
Sales (P537,500 + P300,000)
P 837,500
Less: Cost of goods sold
Merchandise inventory, beg.
[P50,000 + (P60,000/1.20)]
P 87,500
500,000
Cost of goods available for sale
P587,500
Less: MI, ending
[P70,000 + (P60,000/1.20)]
120,000 467,500
Gross profit
P 370,000
Less: Expenses (P120,000 + P50,000)
_ 170,000
Net Income
P 200,000
21. c
Sales (P120,000 + P60,000)
P 180,000
Less: Cost of goods sold:
Merchandise inventory, beg. [P40,000 + P6,000 +
(P24,000 / 1.2)] P 66,000
81,000
Cost of Goods Available for SaleP 147,000
Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200
89,800
Gross profit
P 90,200
Less: Expenses (P28,000 + P12,000)
40,000
Net Income.
P 50,200
22. d
Sales (P100,000 P33,000 + P50,000)
P 117,000
Less: Cost of goods sold:
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 P500)] P20,000
Add: Purchases (P50,000 + P7,000) 57,000
COGAS.. P77,000
Less: Inventory, end [P11,000 + P1,050 +
(P6,000- P1,050)/110%] 16,550
60,450
Gross profit
P 56,550
Less: Expenses (P20,000 + P6,000 + P5,000)
31,000
Combined Net income.
P 25,550
23. c

Sales
Less: Cost of Sales

P155,000

Inventory, 1/1/10
P 23,000
Purchases
190,000
Cost of goods available for sale P213,000
Less: Shipment/Sales to Branch,
at cost (P110,000/110%)
100,000
Cost of goods available for HO
Sale
P113,000
Less: Inventory, 12/31/10
30,000 83,000
Gross profit
P 72,000
Less: Expenses
52,000
Net income home office
P 20,000
24. a
Sales
P140,000
Less: Cost of Sales
Inventory, 1/1/10
P 11,550
Purchases
105,000
Freight-in
5,500
Shipment in transit (P5,000+P250) 5,250
Cost of goods available for sale P127,300
Less: Inventory, 12/31/10
(P10,400 + P520 + P5,250)
16,170 111,130
Gross profit
P 28,870
Less: Expenses
28,000
P 870
9,600
Net Income of Davao Branch, adjusted
P 10,470
BP
MI. 1/1/2010
Shipments
Available for sale
-: MI, 12/31/10
CGS
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110

110,000
***15,400

Cost
100,000

Allowance
1,000
**10,000
11,000
****1,400
9,600

25. a
Inventory, 1/1 at billed price
P165,000
110,000
Cost of goods available for sale at billed price
P275,000
Less: CGS at BP:
Sales
P169,000
Less: Sales returns and allowances
3,750
Sales price of merchandise
acquired from outsiders
(P7,500 / 120%)
9,000
Net Sales of merchandise acquired from
home office
P156,250
x: Intercompany cost ratio
100/125 125,000
Inventory, 8/1/2008 at billed price
P150,000
x: Cost ratio
100/125
Merchandise inventory at cost destroyed by fire
P120,000

26. d
Merchandise inventory, January 1
Shipments from home office
Cost of goods available for sale
Less: Cost of goods sold, at BP:
Sales
Less: Sales returns
Net sales
Divided by: SP based on cost
Merchandise inventory, ending at BP
Divided by: Billed price
Merchandise inventory, ending at cost
lost due to fire)

P 26,400
__20,000
P 46,400
P 15,000
___2,000
P 13,000
____125%

__10,400
P 36,000
____120%
P 30,000

27. d
Freight actually paid by:
Home OfficeP 500
Branch P
700
TotalP 1,200
Less: Freight that should be recorded..
800
Excess freightP 400
28. d in arriving at the cost of merchandise inventory at the end of the period, freight
charges are properly recognized as a part of the cost. But a branch should not be
charged with excessive freight charges when, because of indirect routing, excessive
costs are incurred. Under such circumstances, the branch acquiring the goods should be
charged for no more than the normal freight from the usual shipping point. The office
directing the inter-branch transfers are responsible for the excessive cost should absorb
the excess as an expense because it represents management mistakes (or
inefficiencies.)
29. c

## Inventory of the Branch:

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

60%

30. b
32,500
60%

## Ending inventory at billed price.....P 22,620

780
P 23,400
Or, P39,000 x 60% = P23,400
Inventory in the published balance sheet, at cost
Shipments at cost..........................................P
X: Ending inventory %....................................................................................
Ending inventory at billed price.P19,500
780
P 20,280

31. c
Home Office Books

Davao Branch

Baguio Branch

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

32. d

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

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

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

## (1) Branch Inventory, 12/31/20x4: P30,000 x 60%...................................P 18,000

(2) Branch Inventory, at cost: (P25,000 + P1,000) x 60%.........................P 15,600

## 33. c (P300,000 x = P75,000, ending inventory x (P300,000 P250,000)/P300,000 =

P12,500
34. d
35. d
36. b refer to No. 14
37. b refer to No. 14
38. c refer to No. 14
39. c
40. d