Professional Documents
Culture Documents
Accounting For Branches and Combined FS
Accounting For Branches and Combined FS
ACCT 501
Objectives of this Chapter
SMALDNO COMPANY
Working paper for combined Financial
Statements of Home office and Mason
Branch
For Year Ended December 31,1999
(Perpetual Inventory System: Billing
above Cost)
Working Paper for Example II (contd.)
Adjusted Trial Balances
Home Mason
Office Branch Eliminations Combined
Dr (Cr) Dr(Cr) Dr (Cr) Dr (Cr)
Income Statement
Sales (400,000) (80,000) (48,000)
Cost of goods sold 235,000 67,500 (a) (22,500) 28,000
Operating expenses 90,000 23,000 113,000
Net Income(loss) (to
statement of retained
75,000 (10,500) (b) 22,500 87,000
earnings below)
Totals -0- -0- -0-
Working Paper for Example II (contd.)
Sales 80,000
Income Summary 10,500
Cost of Goods Sold 67,500
Operating Expenses 23,000
To reduce allowance to
amount by which ending
inventories of branch exceed
cost.
Branch Closing Entries and Home office
Adjusting and Closing Entries (when billing at
above the cost) (contd.)
Home Office Adjusting and Closing Entries (contd.)
receivable from
home office 120,000 165,500 cr
Cash sent to home
office 113,000 52,500 cr
Operating expenses
Retained earnings,
Dec. 31, 1999 (117,000) (117,000)
Net Income (from
income statement
above) (85,000) (10,000) (d) (37,500) (132,500)
Dividends declared 60,000 27,500 60,000
Retained earnings,
Dec. 31, 2000 (to
balance sheet below) 85,000 10,000 189,500
Periodic Inventory System (contd.)
Example: (contd.)
Adjusted Trial Balances
Eliminations Combined
Balance Sheet Home Mason
Office Branch
Dr (Cr) Dr (Cr) Dr (Cr) Dr (Cr)
CGS=22,500+120,000-30,000
Branch Closing Entries and Home Office Adjusting
and Closing entries for the home office (with billing at
above the cost and using a periodic inventory system):(contd.)
(2)Sales 150,000
CGS 112,500
Operating expenses 27,500
Income Summary 10,000
2.Inventory 8,000
Home Office 8,000
Reconciliation of Reciprocal Ledger
Accounts (contd.)
For Mercer Home Office:
$ 49,500 (dr.)
- 3,000 (cr.)
+ 2,000 (dr.)
$ 48,500 (dr.)
Reconciliation of Reciprocal Ledger
Accounts (contd.)
After posting the above adjusting entries:
The balance of Home Office ledger account
at Arvin Branch equals:
$ 41,500 (cr.)
- 1,000 (dr.)
+ 8,000 (cr.)
$ 48,500 (cr.)
Transactions between Branches
When it is necessary to transfer
merchandise or assets from one branch to
another branch, Home Office Ledger
account is used by the branches.
The home office will transfer the inventory
(or assets) from investment in one branch to
another branch.
Any excess freight costs incurred for the
transfer between branches should be
expensed.
Transactions between Branches
(contd.)
Example: (textbook p146-148)
The home office shipped merchandise costing
$8,000 to Katti Branch and paid freight costs
of $500.
A week later, the home office instructed Katti
Branch to transfer this merchandise to Danddi
Branch. Katti paid $400 for the transfer.
If the merchandise had been shipped directly
from the home office to Danddi, the freight
costs would have been $600.
Transactions between Branches
(contd.)
Journal entries for these transactions are:
In Accounting Records of Home Office:
Branch:
Inventories 8,000
Freight-in (or Inventories) 600
Home Office 8,600