CHAPTER 9

SUGGESTED ANSWERS

EXERCISES

Exercise 9 - 1
Books of Branch R
Home Office 15,000
Cash 15,000

Books of Branch S
Cash 15,000
Home Office 15,000

Books of the Home Office

Branch S 15,000
Branch R 15,000

Exercise 9 - 2
Books of Branch No. 1
Home Office 1,950
Shipments from Home Office 1,600
Freight-In 350

Books of Branch No. 5

Shipments from Home Office 1,600
Freight-In 400
Cash 350
Home Office 1,650

Books of the Home Office

Branch No. 5 1,650
Excess Freight 300
Branch No. 1 1,950
Exercise 9 – 3
Home Office Books
1. no entry

2. Branch 360,000
Shipments to Branch 240,000
Allowance for Markup in Branch Inventory 120,000
120,000/240,000 = 50%

3. no entry

4. Branch 134,000
Advertising Expense 40,000
Depreciation Expense 70,000
Utility Expense 24,000
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5. no entry

Cash 360,000
Branch 360,000

6. no entry

7. Branch 58,000
Branch Income 58,000

8. Allowance for Markup in Branch Inventory 100,000

Branch Income 100,000
P300,000 x 50/150 = P100,000

9. Branch Income 158,000

Income Summary 158,000

Branch Books
1. Purchases 160,000
Accounts Payable 160,000

2. Shipments from Home Office 360,000

Home Office 360,000

3. Accounts Receivable 652,000

Sales 652,000

4. Advertising Expense 40,000

Depreciation Expense 70,000
Utility Expense 24,000
Home Office 134,000

5. Cash 470,000
Accounts Receivable 470,000

Home Office 360,000

Cash 360,000

6. Merchandise Inventory 60,000

Sales 652,000
Purchases 160,000
Shipments from Home Office 360,000
Advertising Expense 40,000
Depreciation Expense 70,000
Utility Expense 24,000
Income Summary 58,000

7. Income Summary 58,000

Home Office 58,000
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Exercise 9 - 4
a. Merchandise inventory, beg. P150,000
Less Merchandise from home office at billed price
Markup on merchandise shipped to branch P 36,000
Markup on current shipment (P96,000 – P80,000) 16,000
Markup on beginning inventory P 20,000
x 120/20 120,000
Merchandise purchased from outsiders P 30,000

b. Allowance for Intercompany Inventory Profit 22,000

Branch Income 22,000
Bal. of allowance before adjustment P36,000
Adjusted balance of allowance acct
(P84,000 x 20/120) 14,000
Realized markup P22,000

Exercise 9 – 5
Home Office Books
1. Branch 450,000
Shipments to Branch 300,000
Allowance for Markup in Branch Inventory 150,000
150,000/300,000 = 50%

2. no entry

3. Allowance for Markup in Branch Inventory 116,000

Branch Income 116,000
Realized markup on beginning inventory
P600,000 x 55% = P330,000 x 25/125* P 66,000
Realized markup on current shipments
P450,000 x 1/3 = P150,000 x 50/150 50,000
Total P116,000
*(600,000 – 480,000) / 480,000 = 25%

Branch Books
1. Shipments from Home Office 450,000
Home Office 450,000

2. Accounts Receivable 870,000

Sales 870,000
P590,000 + P280,000 = P870,000

3. no entry

Exercise 9 – 6
1. Branch 820,000
Cash 80,000
Shipments to Branch 240,000
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Land 300,000
Allowance for Markup in Branch Inventory 120,000
Allowance on Transfer of Land 80,000
120,000/240,000 = 50%

2. Branch 560,000
Shipments to Branch 400,000
Allowance for Markup in Branch Inventory 160,000
160,000/400,000 = 40%

3. Branch 130,000
Branch Income 130,000

4. Allowance for Markup in Branch Inventory 200,000

Branch Income 200,000
Realized markup on 1st inventory transfer P120,000
Realized markup on 2nd inventory transfer
(P640,000 – P360,000) x 40/140 80,000
Total P200,000

5. Allowance on Transfer of Land 80,000

Branch Income 80,000

6. Branch Income 410,000

Income Summary 410,000

Exercise 9 - 7
Required balance of allowance (markup on branch ending inventory)
P9,600 x 20/120 P 1,600
Adjustment for realized markup 36,400
Balance of allowance before adjustment P38,000
Allowance on current shipment (P160,000 x 20%) 32,000
Allowance on branch beginning inventory P 6,000
Markup rate ÷ 20%
Branch beginning inventory, at cost P30,000

Exercise 9 - 8
a. Merchandise available for sale at billed price (P16,200 + P20,250) P36,450
Merchandise available for sale at cost (P36,450/135%) 27,000
Unrealized intercompany inventory profit balance before adjustment P 9,450

b. Unrealized Intercompany Inventory Profit 4,550

Branch Income 4,550
Balance before adjustment P 9,450
Adjusted balance (P18,900 x 35/135) 4,900
Realized markup P 4,550
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Home Office Books

c. Shipments to Branch 400
Unrealized Intercompany Inventory Profit 140
Branch 540

Branch Books
Home Office 540
Shipments from Home Office 540

Exercise 9 – 9
1. P20,000 ÷ 25/125 = P100,000

2. Allowance for Markup in Branch Inventory 74,000

Branch Income 74,000
P100,000 + P350,000 – P80,000 = P370,000 x 25/125 = P74,000

Exercise 9 - 10
Separate cost of goods sold of the home office:
Inventory, beginning P 252,000
Purchases 2,800,000
Shipments to branch ( 600,000)
Cost of goods available for sale P2,452,000
Less Inventory, end 240,000 P2,212,000
Separate cost of goods sold of the branch:
Inventory, beginning
From outside purchases P 12,000
From home office (P36,000 / 120%) 30,000
Total P 42,000
Purchases 96,000
Shipments from home office (P720,000 / 120%) 600,000
Cost of goods available for sale P 738,000
Less Inventory, end:
From outside purchases P10,000
From home office (P42,000 / 120%) 35,000 45,000 693,000
Combined cost of goods sold P2,905,000

Exercise 9– 11
1. Total Resold On Hand
Shipments from home office P450,000 P360,000 P90,000
Shipments to branch 375,000 300,000* 75,000**
Markup P 75,000 P 60,000 P15,000

* 75,000 / 375,000 = 20%

** 90,000 / 120% = P75,000

2. Cost of Goods Sold 420,000

Inventory 420,000
P60,000 + P450,000 – P90,000 = P420,000
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3. Billed Price Cost Markup

Inventory, beginning P 60,000 P 50,000 P 10,000
Shipments 450,000 375,000 75,000
Total P510,000 P425,000 P 85,000
Inventory, end 90,000 75,000 15,000
Cost of goods sold P420,000 P350,000 P 70,000

Exercise 9 - 12
a. Merchandise Inventory, January 1 P26,400
Add Shipments from Home Office 20,000
Cost of Goods Available for Sale P46,400
Cost of Goods Sold
Sales, net of Sales Returns (P15,000 - P2,000) P13,000
Sales rate 125% 10,400
Merchandise destroyed by fire at billed price P36,000
÷ 120%
Merchandise destroyed by fire at cost P30,000
b. Home Office Books
Branch Loss from Fire 30,000
Allowance for Markup in Branch Inventory 6,000
Branch 36,000
Branch Books
Home Office 36,000
Merchandise Inventory 36,000

Exercise 9 – 13
1. Branch Income 50,000
Cost of Goods Sold P230,000 x 15/115 30,000
Branch 20,000

2. Home Office 520,000

Branch 520,000

3. Allowance for Markup in Branch Inventory 9,000

Inventory 9,000

PROBLEMS
Problem 9 – 1
Billed Price Cost Markup
Beginning inventory:
Acquired from vendors P100,000 P100,000 -
Acquired from home office 40,000 32,000 P 8,000
Purchases from vendors 240,000 240,000 -
Shipments from Home Office P180,000 + P30,000 210,000 168,000 42,000
Total inventory available for sale P590,000 P540,000 P50,000
Less Ending inventory:
Acquired from vendors 40,000 40,000 -
Acquired from home office P60,000 + P30,000 90,000 72,000 18,000
Cost of goods sold P460,000 P428,000 P32,000
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Problem 9 – 2
Home Office Books
a. Dagupan Branch 10,000
Cash 10,000

b. Dagupan Branch 25,000

Baguio Branch 40,000
Shipments to Branch 65,000

c. Furniture and Fixtures 17,500

Cash 17,500

d. Expenses 800
Dagupan Branch 800

e. Baguio Branch 29,400

Sales Discounts 600
Accounts Receivable 30,000

f. Baguio Branch 15,000

Dagupan Branch 15,000

g. Shipments to Branch 2,500

Dagupan Branch 2,500

h. Dagupan Branch 1,800

Baguio Branch 1,800

i. Dagupan Branch 20,100

Shipments to Branch 20,000
Cash 100

j. Baguio Branch 20,110

Excess Freight 35
Dagupan Branch 20,145

Dagupan Branch Books

a. Cash 10,000
Home Office 10,000

b. Shipments from Home Office 25,000

Home Office 25,000

c. no entry

d. Home Office 800

Cash 800

e. no entry
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f. Home Office 15,000

Cash 15,000

g. Home Office 2,500

Shipments from Home Office 2,500

h. Expenses 1,800
Home Office 1,800

i. Shipments from Home Office 20,000

Freight-In 100
Home Office 20,100

j. Home Office 20,145

Shipments from Home Office 20,000
Freight-In 100
Cash 45

Baguio Branch Books

a. no entry

b. Shipments from Home Office 40,000

Home Office 40,000

c. no entry

d. no entry

e. Cash 29,400
Home Office 29,400

f. Cash 15,000
Home Office 15,000

g. no entry

h. Home Office 1,800

Cash 1,800

i. no entry

j. Shipments from Home Office 20,000

Freight-In 110
Home Office 20,110

Problem 9 – 3
Requirement 1
Home Office Books
1. Baguio Branch 20,000
Cash 20,000
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2. Baguio Branch 259,000

Shipments to Branch 185,000
Allowance for Markup in Branch Inventory 74,000

3. Cash 245,000
Baguio Branch 245,000

4. Baguio Branch 7,000

Cash 7,000

5 – 7 - no entry

Baguio Branch Books

1. Cash 18,000
Home Office 18,000

2. Shipments from Home Office 257,600

Home Office 257,600

3. Home Office 247,400

Cash 247,400

Accounts Receivable 2,400

Home Office 2,400

4. Expenses 7,000
Home Office 7,000

5. Cash 247,400
Accounts Receivable 40,600
Sales 288,000

6. Expenses 21,000
Cash 21,000

7. Merchandise Inventory, end P30,100 + P1,400 31,500

Sales 288,000
Income Summary 15,000
Merchandise Inventory, beginning P257,600 + P1,400 17,500
Shipments from Home Office 259,000
Expenses 28,000

Income Summary 15,000

Home Office 15,000

Requirement 2
Baguio Branch 15,000
Branch Income 15,000

Allowance for Markup in Branch Inventory 70,000

Branch Income 70,000
(P17,500 + P259,000 – P31,500) x 40/140
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Branch Income 85,000

Income Summary 85,000

Requirement 3

Shipments from Home Office 1,400

Home Office 1,400

Cash 2,000
Home Office 2,000

Problem 9 - 4
Requirement 1
Triple D Bookstore
Statement of Recognized Income and Expenses - Quezon City Branch
For the Year Ended December 31, 2008
Sales P192,690
Cost of Goods Sold:
Merchandise Inventory, beginning P 31,500
Shipments from Home Office 128,000
Cost of Goods Available for Sale P159,500
Less Merchandise Inventory, end 22,750 136,750
Gross Profit P 55,940
Operating Expenses:
Advertising and Promotion P 6,400
Depreciation 2,400
Uncollectible Accounts Expense 1,250
Others 36,600 46,680
Net income P 9,260

Requirement 2
Branch 9,260
Branch Income 9,260

Allowance for Markup in Branch Inventory 27,350

Branch Income 27,350
P136,750 x 25/125

Branch Income 36,610

Income Summary 36,610

Problem 9 - 5
Branch Books
a. Sales 78,000
Merchandise Inventory, end 12,000
Income Summary 10,000
Merchandise Inventory, beginning 10,000
Shipments from Home Office 80,000
Selling Expenses 4,000
Administrative Expenses 6,000
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b. Home Office 10,000

Income Summary 10,000

Home Office Books

a. Sales 310,000
Shipments to Branch 64,000
Merchandise Inventory, end 30,000
Merchandise Inventory, beginning 25,000
Purchases 300,000
Selling Expenses 20,000
Administrative Expenses 30,000
Income Summary 29,000

b. Branch Income 10,000

Branch 10,000

c. Allowance for Overvaluation in Branch Inventory 15,600

Branch Income 15,600
P18,000 - (P12,000 x 25/125) = P15,600

d. Branch Income 5,600

Income Summary 5,600

e. Income Tax 12,110

Income Tax Payable 12,110

f. Income Summary 12,110

Income Tax 12,110

g. Income Summary 22,490

Retained Earnings 22,490

Problem 9 - 6
Requirement 1
Triple F Products Inc. - Branch
Trial Balance
December 31, 2008

Debit Credit
Cash 12,800
Accounts Receivable 48,160
Merchandise Inventory 27,280
Accounts Payable 2,040
Home Office 68,900
Sales 256,000
Cost of Sales 191,620
Operating Expenses 47,080 _______
326,940 326,940
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Requirement 2
Home Office Books
a. Sales 640,600
Income Summary 41,360
Cost of Sales 452,840
Operating Expenses 146,400

b. Branch 17,300
Branch Income 17,300

c. Allowance for Overvaluation of Branch Inventory 17,420

Branch Income 17,420
P191,620 x 10/110
P21,100 ÷ (P202,400 + P29,700 – P21,100) = 10%

d. Branch Income 34,720

Income Summary 34,720

e. Income Tax 26,628

Income Tax Payable 26,628

f. Income Summary 26,628

Income Tax 26,628

g. Income Summary 76,080

Retained Earnings 76,080

Branch Books
a. Merchandise Inventory P202,400 – P189,200 13,200
Home Office 13,200

b. Sales 256,000
Income Summary 17,300
Cost of Sales 191,620
Operating Expenses 47,080

c. Income Summary 17,300

Home Office 17,300
Requirement 3

Combined net income (P41,360 + P34,720 – P26,628) P49,452

Combined Merchandise Inventory:

Home Office P156,640
Branch [ P27,280 + P13,200) ÷110% 36,800 P193,440
AA1- Chapter 9 (2008 edition)
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Problem 9 - 7

Triple G Company
Combined Statement of Recognized Income and Expenses
for Home Office and Branch
For the Year Ended December 31, 2008

Sales P325,000
Cost of goods sold:
Merchandise inventory, beginning P107,500
Purchases 215,000
Cost of goods available for sale P322,500
Less Merchandise inventory, end 81,300 241,200
Gross profit P 83,800
Operating expenses 50,000
Net income before Income Tax P 33,800
Income Tax 11,830
Net Income P 21,970

Inventory: Beginning Ending

Home Office P 80,000 P55,000
Branch P7,500 + (P24,000/120%) 27,500 P5,500 + (P26,000/125%) 26,300
Total P107,500 P81,300
** P37,500 – P30,000 = P7,500/ P30,000 = 25%
Requirement 2
Davao Branch Books
a. Sales 75,000
Merchandise Inventory, end 31,500
Income Summary 12,500
Shipments from Home Office 37,500
Purchases 15,000
Expenses 10,000
Merchandise Inventory, beginning 31,500

b. Income Summary 12,500

Home Office 12,500
Requirement 3
Home Office Books
a. Davao Branch 12,500
Branch Income 12,500

b. Allowance for Markup in Branch Inventory 6,300

Branch Income 6,300
Markup on branch beginning inventory
(P24,000 x 20/120) P 4,000
Markup on shipments 7,500
Allowance balance before adjustments P11,500
Markup on branch ending inventory
(P26,000 x 25/125) 5,200
Realized markup P 6,300
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c. Sales 250,000
Shipments to Branch 30,000
Merchandise Inventory, end 55,000
Income Summary 15,000
Purchases 200,000
Expenses 40,000
Merchandise Inventory, beginning 80,000

d. Branch Income 18,800

Income Summary 18,800

e. Income Tax 11,830

Income Tax Payable 11,830

f. Income Summary 11,830

Income Tax 11,830

g. Income Summary 21,970

Retained Earnings 21,970

Problem 9 – 8

Requirement 2
a. Plant Assets 4,000
Branch 4,000

b. Home Office 2,000

Accounts Receivable 2,000

c. Cash 5,000
Branch 5,000

d. Expenses 1,000
Home Office 1,000

e. Shipments from Home Office 3,000

Home Office 3,000

f. Retained Earnings 2,500

Inventory 2,500
P15,000 x 20/120

g. Home Office 11,000

Branch 11,000

h. Sales 48,000
Shipments from Home Office 48,000
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AA1- Chapter 9 (2008 edition)
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MULTIPLE CHOICE

1. B 3. C 5. D 7. D
2. B 4. D 6. B 8. D

9 A

10 C
11 C
12 D P13,200 + P350 = P13,550
13 C P11,000 + P350 = P11,350

14 A P12,000 x 20/120 = P2,000

15 D Inventory, beginning (P165,000 / 125%) P132,000

Shipments (P110,000 / 125%) 88,000
Merchandise available for sale from home office at cost P220,000
Cost of merchandise sold from home at cost
Sales, net of returns and allowances P165,250
Less Sales from merchandise purchased from
outsiders (P7,500 x 120%) 9,000
Sales from merchandise from home office P156,250
÷ 125%
Cost of sales at billed price P125,000
Billed price rate ÷ 125% 100,000
Inventory destroyed by fire P120,000

16 D Balance of allowance before adjustment P370,000

Required balance of allowance (P1,170,000 x 20/120) 195,000
Realized markup P175,000

17 C Sales P141,000
Cost of goods sold (P120,000 x 3/4 x 125%) 112.500
Gross profit P 28,500
Operating expenses 27,000
Net income reported by the branch P 1,500

18 A P50,400/120% P42,000

19 B P90,000 + P36,000 – P2,520 – P50,400/120% = P60,900

20 B Net income (loss) reported by branch (P 7,800)

Realized markup
(P90,000 + P36,000 – P2,520 - P50,400 = P73,080) x 20/120 12,180
True net income of the branch P 4,380

21 B Net income reported by branch P 4,800

Realized markup [(P3,960 + P17,600 – P4,840) x 10/110] 1,520
Actual branch income P 6,320
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22 B Branch ending inventory, at cost (P4,840 / 110%) P 4,400

Home office ending inventory 11,200
Ending inventory to be reported in the combined balance sheet P15,600

23 D Net income reported by the branch P 5,000

Realized markup[P280,000 - (P50,000 – P6,600)] x 40/140 67,600
True net income of the branch P 72,600

24 B Branch inventory from home office (P43,400 /140%) P31,000

Branch inventory from outside purchases 6,600
Total cost of branch inventory, end P37,600

25 D P60,000 - P7,500 P52,500

26 A P60,000 - (P7,500 x 120/20) P15,000

27 B Sales P 292,500
Cost of goods sold (P180,000 + P45,000 - P60,000) (165,000)
Operating expenses ( 72,000)
Realized markup [(P180,000 x 20/120) - P7,500 22,500
True net income of the branch P 78,000

28 A Unadjusted balance of allowance account P99,900

Markup on 2008shipments from home office
(P390,000 – P300,000) 90,000
Markup on beginning inventory P 9,900
x 130/30 P 42,900
Total merchandise inventory beg 54,600
Merchandise from outside purchases P 11,700

29 D Sales P540,000
Cost of goods sold
(P54,600 + P390,000 + P144,600 - P48,750) (540,450)
Operating expenses ( 51,000)
Realized markup [P99,900 - (P39,000 x 30/130)] 90,900
True net income of the branch P 39,450

30 C P39,000 x 30/130 = P9,000

31 D Sales (net of discount of P1,480) P115,520

Cost of goods sold (P104,000 - P12,500) ( 91,500)
Operating expenses ( 20,000)
Net income reported by branch P 4,020

32 C Net income reported by branch P 4,020

Realized markup (P91,500 x 25/125) 18,300
True net income of the branch P 22,320
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33 C Sales P 37,400
Cost of goods sold (P5,000 + P2,000 + P26,400 – P4,500) ( 28,900)
Operating expenses ( 3,000)
Realized markup [P2,800 – (P3,960 x 10/110)] 2,440
True profit of Cebu branch P 7,940

34 D Sales P110,000
Cost of goods sold
(P16,000 + P80,000 – P24,000 – P20,000) ( 52,000)
Operating expenses ( 10,000)
Net income of the home office P 48,000
Net income of the branch 7,940
Combined net income of the home office and branch P 55,940

35 C Sales P155,000
Cost of sales:
Inventory, beginning P 23,000
Purchases 190,000
Goods available for sale P213,000
Shipments to branch (P110,000/110%) 100,000
Goods available for own sale P113,000
Less Inventory, end 30,000 83,000
Gross profit P 72,000
Expenses 52,000
Net income P 20,000

36 A Sales P140,000
Cost of sales:
Inventory, beginning (P11,550 – P1,000) P 10,550
Shipments from HO, including freight-in 105,750
Goods available for sale P116,300
Less Inventory, end
[(P10,400 + P5,000)/110%] + P520 + P250 14,770 101,530
Gross profit P 38,470
Expenses 28,400
True branch net income P 10,470

37 D (P10,400 + P5,000) x 10/110 P1,400

38 B Unadjusted balance of allowance account P 57,500

Markup on 2008 shipments (P200,000 x 25%) 50,000
Markup on beginning inventory P 7,500
x 125/25
Branch beginning inventory at billed price P 37,500
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39 C Sales P400,000
Cost of goods sold (P37,500 + P250,000 - P40,000) (247,500)
Operating expenses (100,000)
Net income reported by branch P 52,500

40 C Net income reported by branch P 52,500

Realized markup (P247,500 x 25/125) 49,500
True net income of the branch P102,000

41 B Beginning inventory P 8,000

Purchases 30,000
Shipments from home office 93,750
Ending inventory ( 10,350)
Cost of goods sold reported by branch P 121,400
Realized markup [P19,750 - (P6,000 x 25/125)* ( 18,550)
Cost of goods sold at cost P 102,850

*P93,750 – P75,000 = P18,750/P75,000 = 25%

42 C The amount of the realized markup of P18,550

43 C Adjusted net income P156,000

Reported net income 60,000
Realized markup P 96,000
Cost of sales at cost
(P70,000 + P350,000 – P84,000) – P96,000 ÷ P240,000
140%

44 C P84,000 x 40/140 P24,000

45 A 72,500 ÷ (75,000 + 444,000 -84,000 – 72,500) 20%

46 D P444,000 / 120% P370,000

47 D Sales P 600,000
Cost of goods sold (P75,000 + P444,000 - P84,000) (435,000)
Operating expenses (200,000)
Realized markup [P72,500 - (P84,000 x 20/120)] 58,500
Adjusted profit of the branch P 23,500

48 C P84,000 x 20/120 = P14,000

49 A P84,000 – P14,000 = P70,000

50 B Home office inventory (P160,500 - P10,500) P 150,000

Branch inventory (P108,000/120%) 90,000
Inventories reported in the combined balance sheet P 240,000