KB Company of Madagascar has operated a sales branch in Calamba, for a number of years.

All merchandise
shipped to the Calamba branch is transferred at normal sales prices, which are 125% of home office cost. The
Calamba branch also purchases merchandise from outside suppliers. This merchandise is sold by Calamba at a
25% markup based on invoice cost. Balance sheets for KB Company’s home office and its Calamba branch at
December 31, 2019 are as follows:

KB COMPANY HOME OFFICE AND CALAMBA BRANCH

Balance Sheets at December 31, 2019

Home Office Branch

Assets
Cash P 25,000 P 11,000
Accounts Receivable – net 42,000 23,000
Inventory 20,000 16,000
Plant Assets – net 70,000
Investment in Calamba Branch 43,000
Total Assets P 200,000 P 50,000

Liabilities and Equity

Accounts Payable P 14,000 P 5,000
Other Liabilities 10,000 2,000
Allowance for Overvaluation in Branch Inventory 1,600
Home Office Current 43,000
Ordinary Share 150,000
Accumulated Profits 24,400
Total Liabilities and Equity P 200,000 P 50,000

All plant asset records for Barney’s home office and Calamba branch are maintained on the home office books.
Half of the P16,000 branch inventory at December 31, 2019 was received from local suppliers, and the remaining
P8,000 was received from the home office at established transfer prices. A summary of the transactions of
Barney’s home office and Calamba branch for 2020 follows:
a. Barney’s sales for 2020 were P281,750, of which P200,000 were home office sales and P81,750 were sales
made by the Calamba branch. All sales were on account.
b. Home office and branch purchases on account for 2020 were P205,000 and P20,000, respectively. The
home office shipped P40,000 of merchandise to Calamba branch at a transfer price of P50,000.
c. The home office collected P195,000 on account during 2020, and Calamba branch collected P79,750.
d. The Calamba branch transferred P55,000 cash to the home office during 2020.
e. Payments on account were home office, P210,000; Calamba branch, P21,000.
f. During 2020, the home office paid operating expenses of P20,000, and Calamba branch paid operating
expenses of P2,000. Of the operating expenses paid by the home office, P1,000 was allocated to Calamba
branch.
g. Total depreciation for the year was P8,000, of which P1,500 was allocated to branch operations.

Year-end inventories are P25,000 for the home office, and P10,000 for Calamba branch, with half of the branch
inventory consisting of merchandise acquired from the home office.

REQUIREMENTS:
1. Prepare the journal entries for the year 2020 on the books of the home office and the branch office.
2. Prepare the adjusting and closing entries on the home office books and the closing entry on the books of
the branch.
3. Prepare the unadjusted trial balance of the home office and the branch for the year 2020.
4. Prepare the individual financial statements of the home office and the branch.
5. Prepare the combined financial statements of KB Company for the year 2020.