Professional Documents
Culture Documents
P35,200 X 50% P17,600 Or, P50,600 X 10/110 P4,125 Decrease in Unrealized Intercompany Inventory Profit
P35,200 X 50% P17,600 Or, P50,600 X 10/110 P4,125 Decrease in Unrealized Intercompany Inventory Profit
Problem I
1.
Home Office Books Branch Books
Branch Current 55,000 Shipm from Home Office 55,000
Shipments to Branch 50,000 Home Office Current 55,000
Unrealized Int Inv. Profit 5,000
Problem III
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on December 31,
calculated as follows:
Unrealized Profit
Cost (Billing Price Minus
Billing Price (Billing/1.35) Cost)
Inventory, December 1 P 16,200 P 12,000 P 4,200
Shipments during December __20,250 _ 15,000 __ 5,250
Available for Sale (before adjustment) P 36,450 P 35,625 P 9,450
Less: Inventory, Dec. 31 (after adjustment) __18,900 _14,000 __4,900
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment) P 17,550 P 21,625 *P 4,550
* or, P17,550 x 35/135 = P4,550
Problem IV
1. The branch office inventory as of December 1 considered of:
Shipments from Home Office (see below)............................................................. P 12,000**
Purchases from outsiders (balance of inventory).................................................. 3,000
Total inventory........................................................................................................... P 15,000
Goods acquired from home office and included in branch inventory at billed price are calculated as follows:
Unrealized Profit
Cost (Billing Price Minus
Billing Price (Billing/1.20) Cost)
Inventory, December 1 **P 12,000 *P 10,000 P 2,000
Shipments during December __9,600 _ 8,000 __ 1,600
Available for Sale (before adjustment) P 21,600 P 18,000 P 3,600
Less: Inventory, Dec. 31 (after adjustment) __8,400 __7,000 __1,400
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment) P 13,200 P 11,000 ***P 2,200
*P2,000/20% = P10,000; ***P13,200 x 20/120 = P2,200
Problems V
(1) Individual Statements
SPENCER CO.
Balance Sheet for Branch
December 31,20x4
Assets Liabilities____________________
Cash..................................................... P 2,650 Accounts payable................................... P 4,200
Accounts receivable........................ 12,850 Accrued expenses................................... 105
Merchandise inventory..................... 14,600 Home office............................................... 29,239
Store supplies...................................... 300
Prepaid expenses............................... 120
Furniture and fixtures.............. P 3,600
Less: Accumulated
depreciation.............. 576 3,024 ________
Total assets....................................... P 33,544 Total liabilities............................................ P 33,544
SPENCER CO.
Income Statement for Branch
For Month Ended December 31, 20x4
Sales........................................................................................................................................... P 20,000
Cost of goods sold:
Merchandise inventory, December 1................................................ P 14,400
Purchases.............................................................................................. 4,100
Shipments from home office............................................................... 10,200
Merchandise available for sale.......................................................... P 28,700
Less: Merchandise Inventory, December 31..................................... 14,600
Cost of goods sold....................................................................................................... 14,100
Gross profit................................................................................................................................. P 5,900
Operating expenses:
Advertising expense............................................................................. P 2,800
Salaries and commissions expense..................................................... 2,350
Store supplies expense......................................................................... 280
Miscellaneous selling expense............................................................ 1,050
Rent expense........................................................................................ 1,500
Depreciation expense – furniture and fixtures.................................. 36
Miscellaneous general expense......................................................... 905
Total operating expenses.......................................................................................... 8,921
Net loss...................................................................................................................................... P 3,021
SPENCER CO.
Balance Sheet for Home Office
December 31, 20x4
Assets Liabilities and Stockholder’s Equity_______
Cash..................................................... P10,350 Liabilities
Cash in transit..................................... 1,500 Accounts payable................ P 35,400
Accounts receivable........................ 26,200 Accrued expenses............... 260 P 35,660
Merchandise inventory..................... 24,200 Stockholders’ Equity
Store supplies...................................... 380 Capital Stock......................... P 65,000
Prepaid expenses............................... 350 Less deficit.............................. 4,476 60,524
Furniture and fixtures.............. P 8,500
Less: Accumulated
depreciation.............. 2, 585 5,915
Branch..................................... P29,239
Less: Unrealized intercompany
inventory profit............ 1,950 27,289 Total liabilities and ________
Total assets........................................ P 96,184 stockholder’s equity............................... P 96,184
SPENCER CO.
Income Statement for Home Office
For Month Ended December 31, 20x4
Sales........................................................................................................................................... P 44,850
Cost of goods sold:
Merchandise inventory, December 1................................................ P 31,500
Purchases.............................................................................................. 27,600
Merchandise available for sale.......................................................... P 59,100
Less: Shipments to branch................................................................... 8,500
Merchandise available for own sales................................................ P 50,600
Less: Merchandise Inventory, December 31..................................... 24,200
Cost of goods sold.......................................................................................... 26,400
Gross profit................................................................................................................................. P 18,450
Operating expenses:
Advertising expense............................................................................. P 2,850
Salaries and commissions expense..................................................... 4,250
Store supplies expense......................................................................... 560
Miscellaneous selling expense............................................................ 1,850
Rent expense........................................................................................ 2,700
Depreciation expense – furniture and fixtures.................................. 85
Miscellaneous general expense......................................................... 2,510
Total operating expenses............................................................................. 14,805
Net income from own operations......................................................................................... P 3,645
Less: Branch net loss................................................................................................................ 1,271
Total income............................................................................................................................ P 2,374
SPENCER CO.
Combined Income Statement for Home Office and Branch
For Month Ended December 31, 20x4
Problem VI
1.
Branch H. Office
Current Current
Unadjusted balance, 12/31/20x4 P 44,000 P 9,000
Add (Deduct): Adjustments
1 Cash in transit ( 10,000)
2. Merchandise in transit 10,000
3. Branch expenses paid by home office 12,000
4. Cash in transit from home office _______ 3,000
Adjusted balance, 12/31/20x4 P 34,000 P34,000
Problem VII
(1)
PAXTON CO.
Income Statement for Dayton Branch
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P315,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P 44,500
Shipments from home office...................................................... 252,000
Merchandise available for sale................................................. P296,500
Less: Merchandise Inventory, December 31, 20x5.................. 58,500 238,000
Gross profit................................................................................................................. P 77,000
Operating expenses................................................................................................. 101,500
Net loss....................................................................................................................... P 24,500
PAXTON CO.
Income Statement for Cincinnati Home Office
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P1,060,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P115,000
Shipments from home office...................................................... 820,000
Merchandise available for sale................................................. P935,000
Less: Shipments to branch.......................................................... 210,000
Merchandise available for own sales....................................... P725,000
Less: Merchandise Inventory, December 31, 20x5.................. 142,500 582,500
Gross profit.................................................................................................................. P477,500
Expenses...................................................................................................................... 382,000
Net income from own operations............................................................................ P 95,500
Add branch net income........................................................................................... 16,650
Total income............................................................................................................... P112,150
(2)
PAXTON CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P1,375,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5...................................P 150,600
Purchases...................................................................................... 820,000
Merchandise available for sale................................................. P970,600
Less: Merchandise Inventory, December 31, 20x5.................. 191,250 779,350
Gross profit.................................................................................................................... P595,650
Operating expenses.................................................................................................... 483,500
Net income................................................................................................................... P112,150
Problem VIII
(1)
RUGGLES CO.
Income Statement for Branch
For Year Ended December 31, 20x4
Sales................................................................................................................................ P 78,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4......................................... P 32,000
Shipments from home office........................................... P 40,000
Purchases from outsiders................................................. 20,000 60,000
Merchandise available for sale....................................................... P 92,000
Less: Merchandise Inventory, December 31, 20x4........................ 31,500
Cost of goods sold............................................................................. 60,500
Gross profit.................................................................................................................... P 18,000
Operating expenses.................................................................................................... 12,500
Net income................................................................................................................... P 5,500
RUGGLES CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P 256,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 80,000
Purchases...................................................................................... 210,000
Merchandise available for sale................................................. P 290,000
Less: Shipments to branch.......................................................... 30,000
Merchandise available for own sales....................................... P 260,000
Less: Merchandise Inventory, December 31, 20x4.................. 55,000
Cost of goods sold............................................................................. 205,000
Gross profit................................................................................................................... P 51,000
Operating Expenses.................................................................................................... 60,000
Net loss from own operations..................................................................................... P ( 9,000)
Add: Adjusted branch net income............................................................................. 13,500
Combine net income.................................................................................................... P 4,500
(2)
RUGGLES CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P 334,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 107,500
Purchases...................................................................................... 230,000
Merchandise available for sale.................................................. P 337,500
Less: Merchandise Inventory, December 31, 20x4................... 80,000
Cost of goods sold............................................................................. 257,500
Gross profit.................................................................................................................... P 77,000
Operating expenses.................................................................................................... 72,500
Net income................................................................................................................... P 4,500
Problem IX
1.
Branch H. Office
Current Current
Unadjusted balance, 12/31/20x4 P 60,000 P 51,500
Add (Deduct): Adjustments
1 Remittance I 1,700)
2. Cash in transit 1,800
3. Shipments in transit 5,800
Adjusted balance, 12/31/20x4 P 57,300 P 57,300
Problem X
a. The cost of the merchandise destroyed was P30,000.
Total merchandise acquired from home ofiice, at billed price:
Inventory, January 1...................................................................................... P26,400
Shipments from home office, Jan. 1-17....................................................... 20,000
P46,400
b. Branch Books:
Loss from Fire (or Home Office)............................................................ 36,000
Merchandise Inventory............................................................ 36,000
Home Office Books:
No entry needs to be made on the books of the home office until the end of the fiscal period, when the branch earnings
(including the loss from fire) are recognized and when the balance of the account Unrealized Intercompany Inventory
Profit is adjusted to conform to the branch ending inventory. If it is desired to recognize the loss from fire on the home
office books immediately, the following entry may be made:
Branch Loss from Fire (or Retained Earnings)...................................... 30,000
Unrealized Intercompany Inventory Profit........................................... 6,000
Branch......................................................................................... 36,000
Problem XI
a. Books of Branch A:
Home Office........................................................................................ 1,500
Cash......................................................................................... 1,500
b. Books of branch B:
Cash...................................................................................................... 1,500
Home Office............................................................................ 1,500
Problem XII
a. Books of Branch No. 1 :
Home Office ……………………………………………………………. 1,950
Shipments from Home Office…………………………………….. 1,600
Freight In……………………………………………………………… 350
2. b
Ending inventory in the combined income statement:
From Home Office: (P50,000-P6,600) x 100/140 P 31,000
From Outsiders 6,600
P 37,600
3. a
True Branch Net Income
Branch Net Income P 5,000
Add (deduct):
Overvaluation of cost of goods sold/realized profit
from sales made by branch:
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 67,600
Unrecorded branch expenses ( 2,500)
True Branch Net Income P 70,100
5. a
8. c – P700,000, since the problem stated that the “home office adjusted the intracompany Profit Deferred account”
and the amount of P700,000 is the amount of net income in the adjusted financial statements of the home office,
and therefore it is understood to be combined net income.
9. b
Reported (unadjusted) branch net income (per branch books) ………………..P 30,000
Branch Income in so far as home office is concerned per home office books. 50,000
Overvaluation of branch cost of goods sold…………………………………………P 20,000
10. c – the amount of net income as reported by Home office is considered the combined net income.
11. a
True Branch Net Income P156,000
Less: branch Net Income as reported by the branch 60,000
Overvaluation of CGS P 96,000
Less: Cost of goods sold from home office at BP
Inventory, December 1 P 70,000
Shipment from HO 350,000
COGAS P 420,000
Less: Inventory, December 31 84,000 336,000
CGS from home office, at cost P 240,000
Billing Price: P336,000 / P240,000 = 140%.
12. b – Allowance for overvaluation after adjustment / for December 31 inventory: P84,000 x 40/140 = P24,000.
14. d
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
Add: Purchases…………………………………………………. 500,000
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
15. 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
16. d
Billed Price Cost Allowance
Merchandise Inventory, 12/31/2005 *P 36,000 P 30,000 P 6,000
Shipments 28,800 24,000 4,800
Cost of goods sold P10,800
From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000.
From outsiders: P45,000 – P36,000 = P9,000
17. d
Billed Price Cost Allowance
Merch. Inventory, 12/31/20x4 *P12,000 P10,000 P 2,000
Shipments 9,600 8,000 1,600
Cost of Goods Sold P 3,600
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
18. 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
Add 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
19. d
100% 60% 40%
Billed Price Cost 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
20. d
Billed Price Cost Allowance
Merchandise inventory, 8/1/x4 60,000
Shipments (400,000 x 25%) 400,000 *100,,000
Cost of goods available for sale 160,000
Less: MI, 8/31/x4 (160,000 x 25%) 160,000 40,000
Overvaluation of CGS/RPBSales 120,000
21. b
(1) Sales P 40,000
Less: Cost of goods sold:
Inventory, 1/1/2003 (P4,950 / 110%) P 4,500
Add: Shipments (P22,000 / 110%) 20,000
COGAS P 24,500
Less: Inventory, 12/31/2003 (P6,050 / 110%) 5,500 19,000
Gross profit P 21,000
Less: Expenses _ 13,100
Net income from own operations P 7,900
23. 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 adjusted branch net income)
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 20/120) 60,000 10,000*
24. b
Sales (P148,000 + P44,000) P192,000
Less: Cost of Sales
Inventory, 1/1/20x4 P 0
Purchases 52,000
Shipments from home office 108,000
Cost of goods available for sale P 160,000
Less: Inventory, 12/31/20x4 60,000 100,000
Gross profit P 92,000
Less: Expenses (P76,000 + P24,000) 100,000
Net income, unadjusted P( 8,000)
Add: Overvaluation of CGS 10,000
Adjusted branch net income P 2,000
25. c
125% 100% 25%
Billed Price Cost Allowance
Merchandise inventory, 1/1/x4 40,000
Shipments 250,000
Cost of goods available for sale 290,000
Less: MI, 12/31/x4 (P60,000 x 80%) 60,000
Overvaluation of CGS(230,000x 25/125) 230,000 46,000*
26. b – P326,000
Sales (P600,000 + P300,000) ………………………………………………….. P 900,000
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] ………………………. … P 132,000
Add: Purchases…………………………………… 350,000
Cost of goods available for sale………………… P 482,000
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
27. 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
Add: Purchases ……………………………………. 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
28. 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
Add: Purchases (P70,000 + P11,000)………………… 81,000
Cost of Goods Available for Sale……………………P 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
29. 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
30. c
Sales ……………………………………………………………………... P155,000
Less: Cost of Sales
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
31. a
Sales …………………………………………………………………….... P140,000
Less: Cost of Sales
Inventory, 1/1/x4……………………………………………… 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/x4
(P10,400 + P520 + P5,250) ………………………………………. 16,170 111,130
Gross profit. ……………………………………………………………. P 28,870
Less: Expenses ………………………………………………………… 28,000
Net income per branch books/unadjusted ……………………… P 870
Add: Overvaluation of CGS* ……………………………………….. 9,600
Net Income of Davao Branch, adjusted …………………………. P 10,470
BP Cost Allowance
MI. 1/1/20x4 1,000
Shipments 110,000 100,000 **10,000
Available for sale 11,000
-: MI, 12/31/x4 ***15,400 ****1,400
CGS 9,600
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110
32. a
Inventory, 1/1 at billed price…………………………………….. P165,000
Add: Shipments at billed price………………………………….. 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
33. d
Freight actually paid by:
Home Office……………………………………………………………………P 500
Branch P………………………………………………………………………… 700
Total………………………………………………………………………………P 1,200
Less: Freight that should be recorded…………………………………………….. 800
Excess freight……………………………………………………………………………P 400
34. 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.)
35. c
Inventory of the Branch:
Shipments from home office at billed price.........................................P 37,700
X: Ending inventory %................................................................................ 60%
Ending inventory at billed price……………………………………...……P 22,620
Add: Freight (P1,300 x 60%)………………………………………………...... 780
P 23,400
Or, P39,000 x 60% = P23,400
36. b
Inventory in the published balance sheet, at cost
Shipments at cost…………………………………..........................................P 32,500
X: Ending inventory %.................................................................................... 60%
Ending inventory at billed price……………………………………………….P19,500
Add: Freight (P1,300 x 60%)………………………………………….......…….. 780
P 20,280
37. c
Home Office Books Davao Branch Baguio Branch
Davao Branch…39,000 SFHO…………….37,700
STB, cost……. 32,500 Freight-in………. 1,300
Unrealized profit 5,200 HOC………….. 39,000
Cash (freight)…. 1,300
BC – Baguio……19,630 HOC……………….20,150 SFHO………18,850
Excess freight… 520 SFHO(50%)… 18,850 Freight-in.. 780
BC-Davao……. 20,150 Freight-in (50%) 650 HOC……... 19,630
Cash…………...... 650
Quiz – XIII
1. P63,000
Merchandise inventory, December 31 at cost –
From outsiders (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 18,000
From home office (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
P63,000
2. P18,000
Branch inventory, 12/31 per books . . . . . . . . . . . . . . . . . P 72,000
Less Branch inventory from HO at billed price:
Overvaluation of branch inventory . . . . . . . . . . . P 9,000
Cost of branch inventory (P9,000 ÷ 20%) . . . . . . . 45,000 54,000
Branch inventory from outsiders . . . . . . . . . . . . . . . . . . . P 18,000
3. P93,600
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 351,000
Cost of sales:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,000
Shipments from HO at cost (P216,000 ÷120%) . . . 180,000
Cost of goods available per sale . . . . . . . . . . . . . 234,000
Less inventory, 12/31 (see no.1) . . . . . . . . . . . . . . . 63,000 171,000
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,400
Branch net income as far as the HO is concerned . . . P 93,600
4. P14,040
Allowance for overvaluation of branch inventory . . . P119,880
Less Overvaluation of shipments from HO:
Billed price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468,000
Cost (P468,000 ÷ 130%) . . . . . . . . . . . . . . . . . . . . . 360,000 108,000
Overvaluation of beginning inventory from HO: . . . . P 11,880
Add Beginning inventory from HO, at cost (11,880 ÷
30%) . 39,600
Beginning inventory from HO, at billed price . . . . . . . P 51,480
5. P47,340
Sales ……………………………………………………… P648,000
Cost of sales:
Merchandise inventory January 1-. . . . . . . . . . . .
From outsiders (see no.4) . . . . . . . . . . . . . . . . . P14,040
From HO, at cost (see no.4) . . . . . . . . . . . . . . . 39,600 P 53,640
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,520
Shipments from HO, at cost
(equal Shipments to Branch) . . . . . . . . . . . . . . . . . . 360,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587,160
Less Merchandise inventory, December 31 -
From outsiders (P58,500– P46,800) . . . . . . . . . . 11,700
From HO, at cost (P46,800 ÷ 130%) . . . . . . . . . 36,000 47,700 539,460
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,540
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,200
Branch net income in so far as the HO is concerned. . . . . . .
.......................... P 47,340
6. P45,000
Balance of Allowance for overvaluation of branch inventory account
before adjustment . . . . . . . . . P 69,000
Less Overvaluation of shipments from HO:
Billed price (P240,000 x 125%). . . . . . . . . . . . . . . . . P 250,000
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 60,000
Overvaluation of beginning inventory. . . . . . . . . . . . . 9,000
Add Beginning inventory at cost (P11,640 ÷ 25%) . . . . 36,000
Branch beginning inventory at billed price . . . . . . . . . P 45,000
7. P63,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 480,000
Cost of sales: (see no.6) . . . . . . . . . . . . . . . . . . . . . . . . .
Beginning inventory. . . . . . . . . . . . . . . . . . . . . . . . . P 45,000
Shipments from HO (P240,000 x 125%). . . . . . . . . . 300,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,000
Less ending inventory. . . . . . . . . . . . . . . . . . . . . . . . 48,000 297,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,000
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Branch net income, per books . . . . . . . . . . . . . . . . . . . P 63,000
8. P122,400
Branch net income, per books (see no. 7) . . . . . . . . . P 63,000
Add realized profit -
Allowance for overvaluation of branch inventory P 69,000
Less Overvaluation of branch ending inventory:
Billed price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 48,000
Cost (P48,000 ÷ 125%). . . . . . . . . . . . . . . . . . . . 38,400 9,600 59,400
True branch net income. . . . . . . . . . . . . . . . . . . . . . . . P 122,400
9. 20%
Inventories, January 1, 20x5 at billed price. . . . . . . . . . . . . . . . . . . . . . P 90,000
Shipments from HO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522,000
Less Allowance for overvaluation of branch inventory. . . . . . . . . . . . 87,000
Cost of merchandise from home office . . . . . . . . . . . . . . . . . . . . . . . . P435,000
10. P360,000
Shipments from HO, at billed price . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 432,000
Divide by the billing percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120%
Balance of shipments to Branch account. . . . . . . . . . . . . . . . . . . . . . P 360,000
11. P129,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 720,000
Cost of sales:
Inventories, January 1 at cost (P90,000 ÷ 120%) . . . . . . . . . . P 75,000
Shipments from HO, at cost (see no. 10) . . . . . . . . . . . . . . . . 360,000
CGAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435,000
Inventories, December 31 at cost (P100,800 ÷ 120%) . . . . . . 84,000 351,000
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369,000
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000
Adjusted branch profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 129,000
12. P4,800
Inventory , January 1 per books . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,000
Less Inventory, January 1 from HO at billed price
Allowance for overvaluation of branch inventory . . . . . . . . P 28,900
Overvaluation of shipments from HO (P96,000 – P72,000) . . 24,000
Overvaluation of beginning inventory from HO . . . . . . . . . . 4,800
Add Inventory for HO, at cost (P4,800 ÷ 33.33%) . . . . . . . . . . 14,500 19,200
Inventory, January 1 from outsiders. . . . . . . . . . . . . . . . . . . . . . . . . P 4,800
13. P66,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 240,000
Cost of sales:
Inventory, January 1(cost)
From outsiders (see no.12) . . . . . . . . . . . . . . . . . . . . . P 4,800
From HO, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,500 P 19,200
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Shipments from HO, at cost . . . . . . . . . . . . . . . . . . . . . . 72,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,200
Less Inventory, December 31 (cost) -
From outsiders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,200
From HO, at cost (P24,000 ÷ 133%). . . . . . . . . . . . . . 18,000 25,200 102,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
True branch net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . P66,000
14. 25%
Shipments from home office (billed price) . . . . . . . . . . . . . . . . . . . . . . . . . P 450,000
Divide by shipments to branch (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000
Billing percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125%
Less percentage at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Rate of mark-up on cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%
15. P24,000
Balance of allowance for overvaluation of branch inventory account P 94,800
Less Overvaluation of shipments from HO (P450,00 – P360,000) . . . . . . . 90,000
Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . . . . . . 4,800
Add Cost of beginning inventory from HO (P4,800 ÷ 25%) . . . . . . . . . . . . 19,200
Branch beginning inventory from HO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,000
16. P89,040
Balance of allowance for overvaluation of branch inventory P 94,800
Less Overvaluation of branch ending inventory:
Billed price (P49,680 – P20,880) . . . . . . . . . . . . . . . . . . . . . P 28,800
Cost (P28,800 ÷ 125%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,040 5,760
Realized profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P89,040
17. P36,000
Balance of Allowance for overvaluation of branch inventory . . . . . . . P 43,200
Less Overvaluation of shipments from HO (P115,200 – P96,000) . . . . . . . 19,200
Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . . . . . 24,000
Add Cost of beginning inventory from HO (P24,000 ÷ 20%) . . . . . . . . . . . 120,000
Beginning inventory from HO, at billed price. . . . . . . . . . . . . . . . . . . . . . . P 144,000
Merchandise inventory, January 1 per books . . . . . . . . . . . . . . . . . . . . . . P 180,000
Less beginning inventory from HO (see above) . . . . . . . . . . . . . . . . . . . . . 144,000
Branch beginning inventory from outsiders . . . . . . . . . . . . . . . . . . . . . . . . P 36,000
18. P26,400
Balance of allowance for overvaluation of branch inventory P 43,200
Less Overvaluation of branch ending inventory from HO:
Billed price (P120,000 – P19,200) . . . . . . . . . . . . . . . . . . . . P100,800
Cost (P100,800 ÷ 120%) . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,000 16,800
Realized branch profit to be adjusted . . . . . . . . . . . . . . . . . . . P 26,400
19. P9,990
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 189,000
Cost of sales:
Inventory, January 1 at cost (P27,000÷ 125%) . . . . . . . . P 21,360
Shipments from HO, at cost . . . . . . . . . . . . . . . . . . . . . . . 126,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,360
Inventory, December 31 at cost P35,100 ÷ 120%) . . . . . 29,250 118,110
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,890
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,900
True branch income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 9,990
20. P67,290
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 636,000
Cost of sales:
Inventory, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 69,000
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561,000
Less Shipment to branch . . . . . . . . . . . . . . . . . . . . . . . . . . 126,000
Cost of goods available for own sale . . . . . . . . . . . . . . . 435,000
Less Inventory, December 31. . . . . . . . . . . . . . . . . . . . . . 85,500 349,500
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286,500
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,200
Net income of home office . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,300
Add Branch net income (see no. 19) . . . . . . . . . . . . . . . . . . . 9,990
Combined net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 67,290
Theories
1. True 6. False 11. False 16. True 21. D
2. False 7. False 12. True 17. True 22. A
3. True 8. False 13. False 18. True 23. d
4. True 9. True 14. True 19. False 24. d
5. False 10. True 15. False 20. d 25. a
26. c