ACTIVITY #2:

Solutions:

Requirement (a):
Home office books Branch books
(a) (a)
Investment in branch……200 Shipments from HO……200
Shipments to the branch……..200 Home office…………… 200

No entry Home office…………… 50

Shipments from HO…… 50

(b) (b)
Investment in branch……... 100 Cash……………… 150
Cash………………………... 100 Home office……………… 150

(c) (c)
No entry Home office……… 20
Cash (or Expense) …… 20

(d) (e)
Investment in branch …………10 No entry
Expense……………………….10

Requirement (b):
Investment in branch Home office
Jan. 1 1,000 1,000 Jan. 1
(a) 200 (a) 50 200 (a)
(b) 100 (c) 20 150 (b)
(d) 10
1,310 1,280

Difference = 30

Requirement (c):
Home office books Branch books
(a) (a)
Shipments to the branch….. 50
Investment in branch……….. 50

(b) (b)
Home office……….. 50
Cash………………………. 50

(c) (c)
Expenses…………….. 20
Investment in branch………..20
(d) (d)
Expense 10
Home office………………10

Requirement (d):
Investment in branch Home office
Unadj. 1,310 1,280 Unadj.
50 (a) (b) 50
20 (c) 10 (d)

1,240 1,240
PROBLEM 2: FOR CLASSROOM DISCUSSION
1.     Solutions:
Requirement (a):
Home office books
Jan . 1, 20x1
Investment in branch……...500K
Cash………………………….…500K
(a)
Investment in branch……...100K
Accounts payable……………100K
(b)
No entry
(c)
Investment in branch……... 60K
Accum. depreciation…..……300K
Equipment………………….. 360K
(d)
No entry
(e)
Cash…………………………..80K
Investment in branch………..80K
(f)
Investment in branch………25K
Expenses…………………….25K
(g)Closing entries:
Investment in branch…..235K
Income summary…………….235K
Requirement (b):
Jan. 1
(a)
(c)
Branch books
Jan . 1, 20x1
Cash……………………...500K
Home office..…………… 500K
(a)
Inventory…………………200K
Accounts payable 100K
Home office………………100K
(b)
Equipment………………120K
Cash……………………….120K
(c)
Equipment……………….60K
Home office………………..60K
(d)
Cash ……………………..600K
Sales………………………600K
Cost of goods sold……...180K
(200K – 20K unsold)
Inventory…………………180K
(e)
Home office……………80K
Cash……………………….80K
(f)
Expenses(150K + 25K) 175K
Depreciation expense…. 10K
Cash………………………150K
Accum. depn………………10K
Home office……………….25K
(g) Closing entries:
Sales……………………..600K
Cost of goods sold………180K
Expenses…………………175K
Depreciation expense…….10K
Income summary……….. 235K
Income summary………235K
Home office……………235K
Investment in branch Home office
500,000
100,000
60,000 80,000 (e) 80,000
(f) 25,000
(g) 235,000
840,000 840,000

Requirement (c):

Cash 750,000
Inventory 20,000
Equipment 180,000
Accum. Depreciation -10,000
Total assets 940,000

Accounts payable 100,000

Home office 840,000
Total liabilities & equity 940,000

Sales 600,000
Cost of goods sold -180,000
Gross profit 420,000
Expenses -175,000
Depreciation expense -10,000
Profit 235,000

2.     Solution:
Home office Branch Combined
Cash 500,000 200,000 700,000
Accounts receivable 1,000,000 400,000 1,400,000
Inventory 680,000 300,000 980,000
Investment in branch 400,000 - -
Land 2,000,000 2,000,000
Building-net 4,000,000 4,000,000
Total assets 8,580,000 900,000 9,080,000

Accounts payable 4,000,000 500,000 4,500,000

Ordinary share capital 2,000,000 - 2,000,000
Share premium 200,000 - 200,000
Retained earnings 2,380,000 - 2,380,000
Home office 400,000 -
Total liabilities & equity 8,580,000 900,000 9,080,000

3. Solutions:
Home office books Branch books
(a) (a)
Investment in branch……...470K Shipments from HO…..450K
(300K x 150%) + 20K Freight-in……………… 20K
Shipments to branch…….. 300K Home office…………… 470K
Allowance for mark-up…… 150K
Cash………………………… 20K

(b) (b)
No entry Purchases……………..100K
Freight-in…………………2K
Cash……………………….102K

(c) (c)
No entry Cash…………………..500K
Sales………………………500K
(d) (d)
Inventory – end.,,,,,,, 235K
(470K x ½)
Income summary……..235K

Requirement (b):
Sales 500,000
Cost of goods sold:
Shipments from HO 450,000
Freight-in 22,000
Purchases 100,000
Ending inventory -235,000 -337,000
Individual gross profit 163,000

Requirement (c):
Sales 500,000
Cost of goods sold:
Shipments from HO 300,000
Freight-in 22,000
Purchases 100,000
Ending inventory -160,000 -262,000
Individual gross profit 238,000

Requirement (d):
150,000 allow. for markup x
50% sold = 75,000
Home office
500,000 Jan. 1
100,000 (a)
60,000 (c)
25,000 (f)
235,000 (g)