Home office bills its branch for merchandise shipments at 30% above cost.

The following are some of the account balances on the books of home office and its branch as of
December 31, 2022:

HOME OFFICE BOOKS BRANCH BOOKS

Inventory, January 1 P 35,000 P 101,500
Shipments from Home Office 263,900
Purchases 1,575,000 350,000
Shipments to Branch 253,750
Branch Inventory Allowance 91,875
Sales 2,100,000 1,260,000
Operating Expenses 507,500 192,500

Per physical count, the ending inventory of the branch is P73,500 including goods from outside purchase
of P48,475; the ending inventory of the home office is P210,000.

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What is the amount of the unrealized profit in the separate books of the home office on January 1,
2023?

o.
a. 21,000 rs e
ou urc
b. 15,750
c. 19,250
d. 52,500
o
aC s
vi y re

What is the branch branch beginning inventory in 2022 that came from outside purchases?

a. 48,475
ed d

b. 19,250
ar stu

c. 33,250
d. 0
is

What is the cost of goods available for sale of the branch?

Th

a. 679,875
b. 781,375
sh

c. 705,250
d. 715,400

What is the total ending inventory to be shown on the combined financial statements?

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 a. 280,000
b. 277,725
c. 283,500
d. 328,475

What is the combined net income for the year?

a. 957,950
b. 942,725
c. 876,750
d. 919,275

Solution:

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er as
Shipments to branch P 257,750

co
30%

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P76,125

o.
Branch Inventory Allowance (91,875)
Unrealized Profit of H.O rs e P 15,750
ou urc
Inventory Total-Beginning P 101,500
o

Beginning Inventory from H.O

aC s

[(P15,000/30%)x130%] (68,250)
vi y re

Beginning Inventory from Outsider P 33,250

Beginning Inventory P 101,500

ed d

Shipment from HO
ar stu

(P253,750x130%) 329,875
Purchases 350,000
Cost of Goods Available for Sale P 781,375
is

Per physical count EI-Outsider P 48,475

Th

Per physical count EI -H.O

[(P73,500-48,475)/120%] 19,250
[(P263,900/120%)-P253,750] 50,750
sh

Ending Inventory of Home Office 210,000

Total Ending Inventory P 328,475

w/ Mark up w/o Mark up Overvaluation

Goods available for sale P 781,375 P 689,500 P 91,875

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 Ending Inventory (25,025) (19,250) ( 5,775)
(65,975) (50,750) (15,225)
(48,475) (48,475) -
Cost of Goods Sold-Branch P 641,900 P 571,025 P 70,875

Sales P 3,360,000
Cost of Goods Sold 1,717,275
Gross Profit 1,642,725
OPEX (700,000)
Net Income P 942,725

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co
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o.
rs e
ou urc
o
aC s
vi y re
ed d
ar stu
is
Th
sh

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