Chapter 13

Problem ISales....................................................................................................................... 42,000

Shipments to Newark Branch................................................................ 35,000Unrealized Intercompany Inventory Profit........................................... 7,000

Cost of merchandise shipped t branch: P42,000/1.20= P35,000.

Shipments to Newark Branch........................................................................... .. 625Unrealized Intercompany Inventory Profit........................................................ 125

Sales Returns........................................................................................... 750Cost of merchandise returned by branch: P750/1.20= P625.

Newark Branch Income..................................................................................... 2,600Newark Branch....................................................................................... 2,600

Unrealized Intercompany Inventory Profit........................................................ 4,125Newark Branch....................................................................................... 4,125

Decrease in Unrealized Intercompany Inventory Profit:Balance prior to adjustment, 12/31, P7,000 – P125............... P6,875Balance required in account, 12/31,P16,500 – (P16,500/1.20)........................................................... 2,750Decrease.................................................................................... P4,125

Newark Branch Income...................................................................................... 1,525Income Summary........................................................... ......................... 1,525

Problem IIa. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on

December 31, calculated as follows:

Merchandise transferred by home office at billed price,35% above cost (P16,200 plus P20,250)............................................. P36,450Merchandise transferred by home office at cost, P36,450/1.35.... 27,000Additions to unrealized profit account resulting from transfersby home office..................................................................................... P9,450

b. Unrealized Intercompany Inventory Profit.................................................. 4,550Cash................................................................................... .................... 4,550

Balance of unrealized profit account at December 31(as calculated above)................................................................ .......................................... P 9,450Required balance, December 31, to reduce inventory to cost:Ending inventory of merchandise shipped to branch by home office:At billed price............................................................ ..................................... P 18,900At cost (P 18,900/1.35).................................................................................. 14,000

4,900Required decrease in unrealized profit account as a resultof branch sales...................................................................................................................... P4,550

c. Branch Books:Home Office........................................................................................... 540

Shipments from Home office................................................... 540

Home Office Books:Shipments to Branch.............................................................................. 400Unrealized Intercompany Inventory Profit........................................... 140

Branch........................................................................................ 540Cost of merchandise returned: P540/1.35, or P400.

Problem IIIa. The branch office inventory as of December 1 considered of:

Shipments from Home Office (see below)............................................................. P 12,000Purchases from outsiders (balance of inventory).................................................. 3,000Total inventory........................................................................................................... P 15,000

Goods acquired from home office and included in branch inventory at billed price are calculatedas follows:Balance of unrealized intercompany inventory profit, December 31.................... P 3,600Additions to unrealized profit account during December, 20% ofshipments to branch (20% x P8,000)............................................................................. 1,600Balance of unrealized profit account, December 1.................................................. P 2,000

Balance of unrealized profit account, December 1, P2,000 / 20% markup oncost equals December 1 inventory at cost................................................................ P 10,00 0Add 20% markup........................................................................................................... 2,000Goods in branch inventory at billed price................................................................. P 12,000

b. Unrealized Intercompany Inventory Profit......................................... 2,200Branch Income............................................................................ 2,200

Calculation of reduction in Unrealized IntercompanyInventory Profit:Balance of unrealized profit account, December 31.........................P 3,600Required balance, December 31, to reduce inventory to costAt billed price................................................................... P8,400At cost (P8,400/1.20)....................................................... 7,000

1,400Required decrease in unrealized profit account as a resultof branch sales........................................................................................ P 2,200

Problem IV(1) Dec.31 Selling Expenses............................................................................ 260

Store Supplies............................................................................ 260Supplies used: P400 – P140, or P260.

31 Selling Expenses............................................................................ 80Accumulated Depreciation-Store Furniture........................ 80

Depreciation:1% of P8,000, or P80.

31 Selling Expenses............................................................................ 120Accrued Expenses Payable................................................. 120

31 Prepaid Selling Expenses............................................................ . 150Selling Expenses..................................................................... 150

31 Income Summary......................................................................... 16,000Merchandise Summary......................................................... 16,000

31 Merchandise Summary.................................. ............................... 16,950Income Summary.......................................... ............................ 16,950

31 Notes Payable..................................................................................1,000Home Office............................................................................... 1,000

31 Sales.......................................................... .......................................20,500Income Summary....................................................................... 20,500

31 Income Summary............................................... ............................ 21,900Purchases.................................................................................... 5,000Shipments from Home Office................................................... 10,500Selling Expenses....................................................... ................... 4,560General Expenses....................................................................... 1,840

31 Home Office........................................................... ............................ 450Income Summary....................................................................... 450

(2) Dec.31 Branch No. 1.......................................................... .......................... 1,000Cash................................................. ........................................... 1,000

Branch No. 1 Income............................................ ......................... 450Branch No. 1.................................................. ............................. 450

31 Unrealized Intercompany Inventory Profit....................................... 2,200Branch No. 1 Income................................................................. 2,200

Calculations of unrealized profit adjustment on merchandise shipped by home office:Billing toBranch

Cost(Billing/1.1/

3)

UnrealizedProfit

(Billing PriceMinus Cost)

Inventory, Dec.1............................................................ P 12,500 P 9,375 P 3,125Shipments during December...................................... 10,500 7,875 2,625Total in unrealized profit on December 31................. P 5,750Inventory, Dec.31......................................................... 14,200 10,650 3,550Reduction in unrealized profit account-adjustment to branch profit for overstated of costof goods sold................................................................. P 2,200

31 Branch No. 1 Income............................................................... 1,750Income Summary............................................................. 1,750

Problems V(1)

SPENCER CO.Balance Sheet for Branch

December 31,20x4Assets Liabilities____________________

Cash..................................................... P 2,650 Accounts payable................................... P 4,200Accounts receivable........................ 12,850 Accrued expenses................................... 105Merchandise inventory..................... 14,600 Home office............................................... 29,239Store supplies...................................... 300Prepaid expenses............................... 120Furniture and fixtures.............. P 3,600

Less: Accumulateddepreciation.............. 576 3,024 ________

Total assets....................................... P 33,544 Total liabilities............................................ P 33,544

SPENCER CO.Income Statement for Branch

For Month Ended December 31, 20x4Sales....................................................... .................................................................................... P 20,000Cost of goods sold:

Merchandise inventory, December 1................................................ P 14,400Purchases.............................................................................................. 4,100Shipments from home office............................................................... 10,200Merchandise available for sale.......................................................... P 28,700Less: Merchandise Inventory, December 31..................................... 14,600Cost of goods sold....................................................................................................... 14,100

Gross profit................................................................................................................................. P 5,90 0Operating expenses:

Advertising expense............................................................................. P 2,800Salaries and commissions expense..................................................... 2,350Store supplies expense......................................................................... 280Miscellaneous selling expense............................................................ 1,050Rent expense........................................................................................ 1,500Depreciation expense – furniture and fixtures.................................. 36Miscellaneous general expense......................................................... 905Total operating expenses.......................................................................................... 8,921

Net loss...................................................................................................................................... P 3,021

SPENCER CO.Balance Sheet for Home Office

December 31, 20x4Assets Liabilities and Stockholder’s Equity_______

Cash..................................................... P10,350 LiabilitiesCash in transit..................................... 1,500 Accounts payable................ P 35,400Accounts receivable........................ 26,200 Accrued expenses............... 260 P 35,660Merchandise inventory..................... 24,200 Stockholders’ EquityStore supplies...................................... 380 Capital Stock......................... P 65,000Prepaid expenses............................... 350 Less deficit.............................. 4,476 60,524Furniture and fixtures.............. P 8,500

Less: Accumulateddepreciation.............. 2, 585 5,915

Branch..................................... P29,239Less: 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, 20x4Sales........................................................................................................................ ................... P 44,850Cost of goods sold:

Merchandise inventory, December 1................................................ P 31,500Purchases.............................................................................................. 27,600Merchandise available for sale.......................................................... P 59,100Less: Shipments to branch................................................................... 8,500Merchandise available for own sales................................................ P 50,600Less: Merchandise Inventory, December 31..................................... 24,200

Cost of goods sold.......................................................................................... 26,400Gross profit.................................................. ............................................................................... P 18,450Operating expenses:

Advertising expense............................................................................. P 2,850Salaries and commissions expense..................................................... 4,250Store supplies expense......................................................................... 560Miscellaneous selling expense.......................................................... .. 1,850Rent expense........................................................................................ 2,700Depreciation expense – furniture and fixtures.................................. 85Miscellaneous general expense......................................................... 2,510

Total operating expenses............................................................................. 14,805Net income from own operations............................................ ............................................. P 3,645Less: Branch net loss........................................................................................................ ........ 1,271Total income............................................................................................................................ P 2,374

2. WORKSHEET – refer to a separate sheetSPENCER CO.

Combined Balance Sheet for Home Office and BranchDecember 31, 20x4

Assets Liabilities and Stockholders’ Equity

Cash ………………………………. P 14,500 LiabilitiesAccounts Receivable ………… 39,050 Accounts Payable ……….. P39,600Merchandise Inv ………………. 36,850 Accrued Expenses ………. 365 P 39,965Store Supplies ………………….. 680 Stockholders’ EquityPrepaid Expenses …………….. 470 Capital Stock ……………… P65,000Furniture & Fixtures ……… P12,100 Less deficit …………………. 4,476 60,524

Less accumulatedDepreciation …... 3,161 8,939 Total liabilities and

Total assets ……………………… P100,489 stockholders’ equity …………… P100,489

SPENCER CO.

Combined Income Statement for Home Office and BranchFor Month Ended December 31, 20x4

Sales ………………………………………………………………………………………………………… P64,850Cost of goods sold:

Merchandise Inventory, December 1 …………………………………… P43,900Purchases ……………………………………………………………………… 31,700Merchandise available for sale …………………………………………… P75,600Less merchandise inventory, December 31 ……………………………. 36,850Cost of goods sold ………………………………………………………….. 38,750

Gross profit ……………………………………………………………………………… P26,100Operating Expenses:

Advertising Expense ………………………………………………………… P 5,650Salaries and Commissions expense ……………………………………… 6,600Store supplies expense …………………………………………………….. 840Miscellaneous selling expense …………………………………………… 2,900Rent expense ………………………………………………………………… 4,200Depreciation Expense – F&F ………………………………………………. 121Miscellaneous general expense …………………………………………. 3,415Total operating expense ………………………………………………………………………. 23,726

Net Income ………………………………………………………………………………………………… P 2,374

(a) Branch Books

Dec 31 Income Summary …………………………………………….. 14,400Merchandise Inventory …………………………….. 14,400

31 Merchandise Inventory ……………………………………… 14,600Income Summary ……………………………………. 14,600

31 Store Supplies Expense ………………………………………. 280Store Supplies ………………………………………… 280

Store supplies used: P580 – P300, or P280

Dec. 31 Prepaid Expenses ………………………………………………… 120Miscellaneous General Expense ……………………. 120

31 Miscellaneous General Expense ……………………………… 105Accrued Expenses …………………………………….. 105

31 Depreciation Expense – F&F ………………………………….. 36Accumulated Depreciation ………………………… 36

Depreciation: 1% of P3,600

31 Miscellaneous General Expense …………………………….. 220Home Office …………………………………………… 220

31 Sales ……………………………………………………………… 20,000Income Summary ……………………………………. 20,000

31 Income Summary ……………………………………………… 22,221Purchases ……………………………………………… 4,100Shipments from Home Office ……………………… 10,200Advertising Expense …………………………………. 2,800Salaries and Commissions Expense ………………. 2,350Store Supplies Expense ……………………………… 280Miscellaneous Selling Expense …………………….. 1,050Rent Expense …………………………………………. 1,500Depreciation Expense – F&F ………………………. 36Miscellaneous General Expense …………………. 905

31 Home Office ……………………………………………………. 3,021Income Summary …………………………………….. 3,021

(b) Home Office Books

Dec 31 Income Summary ………………………………………………. 31,500Merchandise Inventory ………………………………. 31,500

31 Merchandise Inventory ………………………………………... 24,200Income Summary ……………………………………… 24,200

31 Store Supplies Expense …………………………………………. 560Store Supplies …………………………………………… 560

Store supplies used: P940 – P380, or : 560

31 Prepaid Expense ………………………………………………… 350Miscellaneous General Expense …………………… 350

31 Miscellaneous General Expense …………………………….. 260Accrued Expenses ……………………………………. 260

31 Depreciation Expense ………………………………………….. 85Accumulated Depreciation – F&F …………………. 85

Depreciation: 1% of P8,500, or P85

31 Cash in Transit …………………………………………………. 1,500Branch ………………………………………………… 1,500

31 Sales …………………………………………………………… 44,850Shipments to branch ………………………....................... 8,500

Income Summary …………………………………. 53,350

Dec 31 Income Summary ……………………………………………… 42,405Purchases ……………………………………………… 27,600Advertising Expense …………………………………. 2,850Salaries and Commissions Expense ………………. 4,250Store Supplies Expense ……………………………… 560Miscellaneous Selling Expense …………………….. 1,850Rent Expense …………………………………………. 2,700Depreciation Expense – F&F ………………………. 85Miscellaneous General Expense …………………. 2,510

31 Branch Income ……………………………………………….. 3,021Branch ………………………………………………… 3,021

31 Unrealized Intercompany Inventory Profit ………………. 1,750Branch Income ……………………………………… 1,750

Calculation of unrealized profit adjustment:Balance of unrealized profit account,

December 31 ……………………….. P3,700Inventory merchandise received from

Home office at billed price onDecember 31, P11,700

Inventory at cost: P11,700/ 1.20, or P9,750Balance of unrealized profit account on

December 31, P11,700 – P9,750 .... 1,950Required decreased in unrealized profit

Adjustment to branch income forOverstatement of cost of goodsSold …………………………………….. P1,750

31 Income Summary …………………………………………… 1,271Branch Income ……………………………………. 1,271

31 Income Summary …………………………………………… 2,374Retained Earnings …………………………………. 2,374

Problem VI1.

BranchCurrent

H. OfficeCurrent

Unadjusted balance, 12/31/20x4 P 44,000 P 9,000Add (Deduct): Adjustments

1 Cash in transit ( 10,000)2. Merchandise in transit 10,0003. Branch expenses paid by home office 12,0004. Cash in transit from home office _______ 3,000

Adjusted balance, 12/31/20x4 P 34,000 P34,000

2. Combined Income StatementSales [(P350,000 – P105,000) + P150,000)………....................................................... P395,000Less: Cost of goods sold [(P220,000 – P84,000) +

(P93,000 + P3,600 – P21,000 – P1,200)]……………………………………. 210,400Gross profit................................................................................................................... P184,600Operating expenses (P70,000 + P41,000 + P12,000)................................................ 123,000Net income................................................................................................................... P 61,600

Problem VII(1)

PAXTON CO.Income Statement for Dayton Branch

For Year Ended December 31, 20x5

Sales................................................................................................ .............................. P315,000Cost of goods sold:

Merchandise inventory, January 1, 20x5................................... P 44,500Shipments from home office...................................................... 252,000Merchandise available for sale................................................. P296,500Less: Merchandise Inventory, December 31, 20x5.................. 58,500 238,000

Gross profit................................................................................................................. P 77,000Operating expenses................................................................................................. 101,500Net loss....................................................................................................................... P 24,500

PAXTON CO.Income Statement for Cincinnati Home Office

For Year Ended December 31, 20x5Sales.............................................................................................................................. P1,060,000Cost of goods sold:

Merchandise inventory, January 1, 20x5................................... P115,000Shipments from home office...................................................... 820,000Merchandise available for sale................................................. P935,000Less: Shipments to branch.......................................................... 210,000Merchandise available for own sales....................................... P725,000Less: Merchandise Inventory, December 31, 20x5.................. 142,500 582,500

Gross profit........................................................................................................ .......... P477,500Expenses..................................................................................................................... . 382,000Net income from own operations........................................................... ................. P 95,500Add branch net income........................................................................................... 16,650Total income.................................................................................. ............................. P112,150

(2)PAXTON CO.

Combined Income Statement for Home Office and BranchFor Year Ended December 31, 20x5

Sales................................................................................................ .............................. P1,375,000Cost of goods sold:

Merchandise inventory, January 1, 20x5...................................P 150,600Purchases...................................................................................... 820,000Merchandise available for sale................................................. P970,600Less: Merchandise Inventory, December 31, 20x5.................. 191,250 779,350

Gross profit.......................................................................... .......................................... P595,650Operating expenses.................................................................................................... 483,500Net income........................................................... ........................................................ P112,150

(3) Merchandise Inventory, December 31................................................................ 58,500Sales................................................................ .......................................................... 315,000

Income Summary............................................................................................ 373,500

Income Summary.............................................. ........................................................... 398,000Merchandise Inventory, January 1................................................................ 44,500Shipments from Home Office...................................... ................................... 252,000Operating expenses........................................................................................ 101,500

Home Office...................................................... ......................................................... 24,500

Income Summary.......................................................................................... 24,500

(4) Branch Income......................................... ............................................................ 24,500Branch............................................................................................................ 24,500

Unrealized Intercompany Inventory Profit............................................................... 41,150Branch Income.............................................................................................. 41,150

Calculation of unrealized profit adjustment:Branch inventory, January 1, acquired from home office

at billed price...................................................................................... P 44,500Less: Cost of inventory (P44,500/1.25).................................................. ....... 35,600Unrealized Intercompany Inventory Profit Jan. 1....................................... P 8,900Add: Increase in unrealized profit for shipments

made during year, billed price of goods,P252,000, cost of goods, P210,000.................................................... 42,000

P 50,900

Deduct balance to remain in unrealized profit account:Branch inventory, December 31,

acquired from home office....................................... P 58,500Less: Cost of inventory to home office,

P58,500/1.20................................................................ 48,750 9,750Reduction in unrealized profit account- adjustment to

branch income for overstatement of cost ofgoods sold.................................................................. 41,150

Branch Income............................................................................................................. 1 6,650Income Summary............................................................................................ 16,650

Merchandise Inventory, December 31...................................................................... 142,500Sales............................................................................................................................... 1,060,000Shipments to Branch.................................................................................................... 21 0,000

Income Summary............................................................................................. 1,412,500

Income Summary......................................................................................................... 1,31 7,000Merchandise Inventory, January 1................................................................ 115,000Purchases......................................................................................................... 820,000Expenses........................................................................................................... 382,000

Income Summary.................................................................................................... ...... 112,150Retained Earnings............................................................................................ 112,150

Problem VIII(1)

RUGGLES CO.Income Statement for Branch

For Year Ended December 31, 20x4Sales................................................................................................ ................................ P 78,500Cost of goods sold:

Merchandise inventory, January 1, 20x4......................................... P 32,000Shipments from home office........................................... P 40,000

Purchases from outsiders................................................. 20,000 60,000Merchandise available for sale..................................................... .. P 92,000Less: Merchandise Inventory, December 31, 20x4........................ 31,500

Cost of goods sold............................................................................. 60,500Gross profit.................................................................................................................... P 18,000Operating expenses.................................................................................................... 12,500Net income................................................................................................................... P 5,500

RUGGLES CO.Income Statement for Home OfficeFor Year Ended December 31, 20x4

Sales...................................................... ........................................................................ P 256,000Cost of goods sold:

Merchandise inventory, January 1, 20x4................................... P 80,000Purchases...................................................... ................................ 210,000Merchandise available for sale................................................. P 290,000Less: Shipments to branch.......................................................... 30,000Merchandise available for own sales....................................... P 260,000Less: Merchandise Inventory, December 31, 20x4.................. 55,000

Cost of goods sold............................................................................. 205,000Gross profit................................................................................................................. .. P 51,000Operating Expenses............................................................................................... ..... 60,000Net loss from own operations..................................................................................... P 9, 000Add branch net income..................................................................................... ....... 13,500Total income................................................................................................................ P 4,500

(2)RUGGLES CO.

Combined Income Statement for Home Office and BranchFor Year Ended December 31, 20x4

Sales................................................................................................ .............................. P 334,500Cost of goods sold:

Merchandise inventory, January 1, 20x4................................... P 107,500Purchases...................................................................................... 230,000Merchandise available for sale.................................................. P 337,500Less: Merchandise Inventory, December 31, 20x4................... 80,000

Cost of goods sold............................................................................. 257,500Gross profit................................................................................................. ................... P 77,000Operating expenses.................................................................................................... 72,500Net income................................................................................ ................................... P 4,500

(3) Merchandise Inventory......................................................................................... 31,500Sales..................................................................... ..................................................... 78,500

Income Summary............................................................................................ 110,000

Income Summary..................................................... .................................................... 104,500Merchandise Inventory................................................................................... 32,000Shipments from Home Office........................................ ................................. 40,000Purchases......................................................................................................... 20,000Expenses........................................................ ................................................... 12,500

Income Summary......................................................................................................... 5, 500Home Office............................................. ........................................................ 5,500

(4) Branch................................................................................................................... ... 5,500Branch Income................................................................................................ 5,500

Unrealized Intercompany Inventory Profit............................................................... 8,000Branch Income.............................................................................................. 8,000

Calculation of unrealized profit adjustment:Branch inventory, January 1, acquired from home office

at billed price.................................................................................... P 24,500Less: Cost of inventory (P24,500/1.225).................................................... 20,000Unrealized Intercompany Inventory Profit Jan. 1................................... P 4,500Add: Increase in unrealized profit for shipments

made during year, billed price of goods,P40,000, cost of goods, P30,000.................................................... 10,000

P 14,500Deduct balance to remain in unrealized profit account:

Branch inventory, December 31,acquired from home office....................................... P 26,000

Less: Cost of inventory to home office,P26,000/1.1/3...................................................... .......... 19,500 6,500

Reduction in unrealized profit account- adjustment to branchincome for overstatement of cost of goods sold........................... 8,000

Branch Income.................................................... ......................................................... 13,500Income Summary............................................................................................ 13,500

Merchandise Inventory.................................................... ............................................ 55,000Sales........................................................................................................................ ....... 256,000Shipments to Branch......................................... ........................................................... 30,000

Income Summary............................................................................................. 341,000

Income Summary........................................... .............................................................. 350,000Merchandise Inventory................................................................................... 8 0,000Purchases......................................................................................................... 210,000Expenses........................................................................................................... 60,000

Income Summary.......................................................................................................... 4,500Retained Earnings............................................................................................ 4,500

Problem IX1.

BranchCurrent

H. OfficeCurrent

Unadjusted balance, 12/31/20x4 P 60,000 P 51,500Add (Deduct): Adjustments

1 Remittance I 1,700)2. Cash in transit 1,8003. Shipments in transit 5,800

Adjusted balance, 12/31/20x4 P 57,300 P 57,300

2. Income Statement - BranchSales................................................................................................ ................................ P 140,000Cost of goods sold:

Merchandise inventory, January 1, 20x4 (P11,550 – P1,000)....... P 10,550Shipments from home office (P105,000 + P5,000 – P10,000)........ 100,000Freight-in (P5,500 + P250)…………………………………………….. 5,750Merchandise available for sale.......................................... ........... P116,300Less: Merchandise Inventory, December 31, 20x4...................... 14,770Cost of goods sold............................................................................. 101,530

Gross profit.................................................................................................................... P 38,470Operating expenses.................................................................................................... 24,300Net income................................................................................................................... P 14,170

Income Statement – Home OfficeSales......................................................... ..................................................................... P 155,000Cost of goods sold:

Merchandise inventory, January 1, 20x4................................... P 23,000Purchases.................................................... .................................. 190,000Merchandise available for sale................................................. P 213,000Less: Shipments to branch.......................................................... 100,000Merchandise available for own sales....................................... P 113,000Less: Merchandise Inventory, December 31, 20x4.................. 30,000Cost of goods sold........................................................................ 83,000

Gross profit................................................................................................................. .. P 72,000Operating Expenses.................................................................. .................................. 42,000Net loss from own operations..................................................................................... P 30,000Add branch net income.............................................. .............................................. 14,170Combined net income.............................................................................................. P 44,170

3.Combined Income Statement for Home Office and Branch

For Year Ended December 31, 20x4Sales................................................................................................ .............................. P 295,000Cost of goods sold:

Merchandise inventory, January 1, 20x4................................... P 33,550Purchases...................................................................................... 190,000Freight-in……………………………………………………………… 5,750Merchandise available for sale.................................................. P 229,300Less: Merchandise Inventory, December 31, 20x4................... 44,770Cost of goods sold........................................................................ 184,530

Gross profit................................................................................................................. ... P 110,470Operating expenses........................................................................................ ............ 66,300Net income................................................................................................................... P 44,170

Problem Xa. The cost of the merchandise destroyed was P30,000.

Total merchandise acquired from home ofiice, at billed price:Inventory, January 1...................................................................................... P26,400Shipments from home office, Jan. 1-17....................................................... 20,000

P46,400

Cost of goods sold, January 1-17, at billed price:Net sales, P13,000/1.25...................................................................................... 10,400Merchandise on hand, January 17, at billed price....................................... P36,000Merchandise on hand, January 17, at cost, P36,000/1.20............................ P30,000

b. Branch Books:Loss from Fire (or Home Office)..................................................... ....... 36,000

Merchandise Inventory............................................................ 36,000Home Office Books:No entry needs to be made on the books of the home office until the end of the fiscal period, whenthe branch earnings (including the loss from fire) are recognized and when the balance of theaccount Unrealized Intercompany Inventory Profit is adjusted to conform to the branch endinginventory. If it is desired to recognized the loss from fire on the home office books immediately, thefollowing entry may be made:

Branch Loss from Fire (or Retained Earnings)...................................... 30,000Unrealized Intercompany Inventory Profit........................................... 6,000

Branch......................................................................................... 36,000

Problem XIa. Books of Branch A:

Home Office........................................................................................ 1,500Cash......................................................................................... 1,500

b. Books of branch B:Cash...................................................................................................... 1,500

Home Office............................................................................ 1,500

c. Books of Home Office:Branch B............................................................................................... 1,500

Branch A.................................................................................. 1,500

Problem XIIa. Books of Branch No. 1 :

Home Office ……………………………………………………………. 1,950Shipments from Home Office…………………………………….. 1,600Freight In……………………………………………………………… 350

b. Books of branch No. 5:Shipments from Home Office………………………………………… 1,600Freight In…………………………………………………………………… 400

Home Office…………………………………………………………. 1,750Cash…………………………………………………………………… 250

c. Books of the Home OfficeBranch No. 5…………………………………………………………….. 1,750Excess Freight on Inter branch Transfer of Merchandise……….. 200

Branch No. 1………………………………………………………… 1,950

Shipments to Branch No. 1…………………………………………….. 1,600Shipments to Branch No. 5………………………………………… 1,600

Multiple Choice Problems1. c - P50,400, billed price x 40/140 = P 14,400

2. bEnding inventory in the combined income statement:

From Home Office: (P50,000-P6,600) x 100/140 P 31,000From Outsiders 6,600

P 37,6003. a

True Branch Net IncomeBranch Net Income P 5,000Add (deduct):

Overvaluation of cost of goods sold/realized profitfrom sales made by branch:

Shipments from home office. P 280,000Less: Ending inventory, at billed

price (P50,000 – P6,600) 43,400Cost of goods sold from home

office at billed price P 236,600Multiplied by: Mark-up 40/140 67,600

Unrecorded branch expenses ( 2,500)True Branch Net Income P 70,100

4. a – P30,000 x (90,000 – 60,000)/90,000

5. a

6. d – (P50,000 – P40,000)/P40,000 = 25% markup on cost

7. c – (P480,000 – P360,000) x (P80,000/P480,000) = P20,000

8. c – P700,000, since the problem stated that the “home office adjusted the intracompany ProfitDeferred account” and the amount of P700,000 is the amount of net income in the adjustedfinancial statements of the home office, and therefore it is understood to be combined netincome.

9. bNote to teachers: The Intercompany Profit Deferred amounting to P6,000 should be in the columnof Home Office

Reported (unadjusted) branch net income (per branch books) ………………..P 30,000Branch Income in so far as home office is concerned per home office books. 50,000Overvaluation of branch cost of goods sold…………………………………………P 20,000

Cost of sales of Home Office…………………………………………………………….P 500,000Cost of sales of Branch…………………………………………………………………… 100,000Overvaluation of branch cost of sales…………………………………………………( 20,000)Combined cost of sales…………………………………………………………………...P580,000

10. c – the amount of net income as reported by Home office is considered the combined netincome.

11. cTrue Branch Net Income P156,000Less: branch Net Income as reported by the branch 60,000Overvaluation of CGS P 96,000Less: Cost of goods sold from home office at BP

Inventory, December 1 P 70,000Shipment from HO 350,000COGAS P 420,000Less: Inventory, December 31 84,000 336,000

CGS from home office, at cost P 240,000

Billing Price: P336,000 / P240,000 = 140%.

12. c – Allowance for overvaluation after adjustment / for December 31 inventory: P84,000 x 40/140= P24,000.

13. bNet Income as reported by the Branch P 20,000Less: Rental expense charged by the home office

(P1,000 x 6 months) 6,000Adjusted NI as reported by the Branch P 14,000Add: Overvaluation of CGS

Billed PriceMI, beginning 0SFHO 550,000COGAS 550,000Less: MI, ending 75,000CGS, at BP 475,000X: Mark-up ratio 25/125 95,000

True/Adjusted/Real Branch Net Income P109,000

14. dSales (P537,500 + P300,000)……………………………………………….………. P 837,500Less: Cost of goods sold

Merchandise inventory, beg. [P50,000 + (P45,000 / 1.20)]P 87,500Add: Purchases…………………………………………………. 500,000Cost of Goods Available for Sale…………………………... P 587,500Less: MI, ending [P70,000 + (P60,000 / 1.20)]………………. 120,000 467,500

Gross profit………………………………………………………………. P 370,000Less: Expenses (P120,000 + P50,000..………………………………. 170,000Net Income……………………………………………………………… P 200,000

15. dOvervaluation of Cost of Goods Sold:

Unrealized Profit in branch inventory/ before adjustment……………….P 7,200Less: Allowance of ending branch inventory (P20,000 x 84% =

P16,800 x 20/120…………………………………………………………. 2,800Overvaluation of Cost of Goods Sold……………………………………. ….P 4,400

Adjusted branch net income:Sales………………………………………………………………………………………P60,000Less: Cost of goods sold:

Inventory, January 1, 2003……………………………….P 30,000Add: Purchases…………………………………………..... 11,000

Shipments from home office…………………….. 19,200Cost of Goods available for sale……………………… P 60,200Less: Inventory, December 31, 2003…………………. 20,000 40,200

Gross profit…………………………………………………………………………….. P 19,200Less: Expenses………………………………………………………………………….. 12,000Unadjusted branch net income…………………………………………………….P 7,800Add: Overvaluation of Cost of Goods Sold……………………………………. 4,400Adjusted branch net income………………………………………………………..P 12,000

16. dBilled Price Cost Allowance

Merchandise Inventory, 12/31/2005 *P 36,000 P 30,000 P 6,000Shipments 28,800 24,000 4,800Cost 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. dBilled Price Cost Allowance

Merch. Inventory, 12/31/20x4 *P12,000 P10,000 P 2,000Shipments 9,600 8,000 1,600Cost of Goods Sold P 3,600

*P2,000 / 20% = P10,000 + P2,000 = P12,000.

Merchandise inventory, December 1, 20x4…………………………………P 15,000Less: Shipments from home office at billed price*………………………… 12,000Merchandise from outsiders……………………………………………………P 3,000

18. dCombined Cost of Goods Sold:

Merchandise Inventory, 1/1/2003:Home Office, cost……………………………………………… P 3,500Branch: Outsiders, ……………………………...........................P 300

From Home Office (P2,500 – P300)/110%................. 2,000 2,300 P 5,800Add Purchases (P240,000 + P11,000)…………………………….. 251,000COGAS………………………………………………………………… P256,800Less: Merchandise Inventory, 12/31/2003

Home Office, cost………………………………………………. P 3,000Branch: Outsiders………………………………………………. P 150

From Home Office (P1,800 – P150)/110%................ 1,500 1,650 4,650Cost of Goods Sold………………………………………………… P252,150

19. d100% 60% 40%

Billed Price Cost AllowanceMerchandise inventory, 1/1/x4 32,000Shipments *60,000 36,000 *24,000Cost of goods available for sale 56,000

Less: MI, 3/31/x4 (25,000 x 40%) 10,000Overvaluation 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. dBilledPrice

Cost Allowance

Merchandise inventory, 8/1/x4 60,000Shipments (400,000 x 25%) 400,000 *100,,000Cost of goods available for sale 160,000Less: MI, 8/31/x4 (160,000 x 25%) 160,000 40,000Overvaluation 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 4,500Add: Shipments (P22,000 / 110%) 20,000COGAS P 24,500Less: Inventory, 12/31/2003 (P6,050 / 110%) 5,500 19,000

Gross profit P 21,000Less: Expenses _ 13,100Net income from own operations P 7,900

(2) Combined Cost of Goods Sold:Merchandise Inventory, 1/1/2003:

of Home Office, cost……………………………………………..P 17,000of Branch, cost: P4,950 / 110%…………………………………. 4,500 P 21,500

Add Purchases…………………………………………………………. 50,000COGAS………………………………………………………………….. P 71,500Less: Merchandise Inventory, 12/31/2003

of Home Office, cost……………………………………………… P 14,000of Branch, cost: P6,050 /100%………………………………….. 5,500 19,500

Cost of Goods Sold……………………………………………………. P 52,000

22. a - P48,000 / 120% = P40,000

23. a – P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to theending inventory, so, the allowance related to the CGS, which is P10,00 in this case is consideredto be the adjustments in the books of Home Office to determine the adjusted branch netincome)

120% 100% 20%Billed Price Cost Allowance

Merchandise inventory, 1/1/x4 0Shipments 108,000Cost of goods available for sale 108,000Less: MI, 12/31/x4 (P60,000 x 80%) 48,000Overvaluation of CGS (60,000 x 20/120) 60,000 10,000*

24. b

Sales (P148,000 + P44,000) P192,000Less: Cost of Sales

Inventory, 1/1/20x4 P 0Purchases 52,000Shipments from home office 108,000Cost of goods available for sale P 160,000Less: Inventory, 12/31/20x4 60,000 100,000

Gross profit P 92,000Less: Expenses (P76,000 + P24,000) 100,000Net income, unadjusted P( 8,000)Add: Overvaluation of CGS 10,000Adjusted branch net income P 2,000

25. c125% 100% 25%Billed Price Cost Allowance

Merchandise inventory, 1/1/x4 40,000Shipments 250,000Cost of goods available for sale 290,000Less: MI, 12/31/x4 (P60,000 x 80%) 60,000Overvaluation of CGS(230,000x 25/125) 230,000 46,000*

26. d – P326,000Sales (P600,000 + P300,000) P 900,000Less: Cost of goods sold

Merchandise inventory, beg.[P100,000 + (P40,000/1.25)] P132,000

Add: Purchases 350,000Cost of goods available for sale P482,000Less: MI, ending

[P30,000 + (P60,000/1.25)] 78,000 404,000Gross profit P 496,000Less: Expenses (P120,000 + P50,000) _ 170,000Net Income P 326,000

27. bSales (P537,500 + P300,000) P 837,500Less: Cost of goods sold

Merchandise inventory, beg.[P50,000 + (P60,000/1.20)] P 87,500

Add: Purchases 500,000Cost of goods available for sale P587,500Less: MI, ending

[P70,000 + (P60,000/1.20)] 120,000 467,500Gross profit P 370,000Less: Expenses (P120,000 + P50,000) _ 170,000Net Income P 200,000

28. cSales (P120,000 + P60,000)……………………………………… P 180,000

Less: Cost of goods sold:Merchandise inventory, beg. [P40,000 + P6,000 +

(P24,000 / 1.2)]……………………………… P 66,000Add: Purchases (P70,000 + P11,000)………………… 81,000

Cost of Goods Available for Sale……………………P 147,000Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200 89,800

Gross profit……………………………………………………… P 90,200Less: Expenses (P28,000 + P12,000)………………………… 40,000Net Income……………………………………………………. P 50,200

29. dSales (P100,000 – P33,000 + P50,000)…………………………………… P 117,000Less: Cost of goods sold:

Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 – P500)] P20,000Add: Purchases (P50,000 + P7,000)……………………………… 57,000COGAS……………………………………………………………….. P77,000Less: Inventory, end [P11,000 + P1,050 +

(P6,000- P1,050)/110%]……………………………………… 16,550 60,450Gross profit…………………………………………………………………… P 56,550Less: Expenses (P20,000 + P6,000 + P5,000)……………………………… 31,000Combined Net income……………………………………………………. P 25,550

30. cSales P155,000Less: Cost of Sales

Inventory, 1/1/10 P 23,000Purchases 190,000Cost of goods available for sale P213,000Less: Shipment/Sales to Branch,

at cost (P110,000/110%) 100,000Cost of goods available for HO

Sale P113,000Less: Inventory, 12/31/10 30,000 83,000

Gross profit P 72,000Less: Expenses 52,000Net income – home office P 20,000

31. aSales P140,000Less: Cost of Sales

Inventory, 1/1/10 P 11,550Purchases 105,000Freight-in 5,500Shipment in transit (P5,000+P250) 5,250Cost of goods available for sale P127,300Less: Inventory, 12/31/10

(P10,400 + P520 + P5,250) 16,170 111,130Gross profit P 28,870Less: Expenses 28,000Net income per branch books/unadjusted P 870Add: Overvaluation of CGS* 9,600Net Income of Davao Branch, adjusted P 10,470

BP Cost AllowanceMI. 1/1/2010 1,000Shipments

110,000 100,000 **10,000

Available for sale 11,000-: MI, 12/31/10 ***15,400 ****1,400CGS 9,600

**110,000 x 10/110***10,400 + 5,000, in transit

****15,400 x 10/110

32. aInventory, 1/1 at billed price P165,000Add: Shipments at billed price 110,000Cost of goods available for sale at billed price P275,000Less: CGS at BP:

Sales P169,000Less: Sales returns and allowances 3,750

Sales price of merchandiseacquired from outsiders

(P7,500 / 120%) 9,000Net Sales of merchandise acquired from

home office P156,250x: Intercompany cost ratio 100/125 125,000

Inventory, 8/1/2008 at billed price P150,000x: Cost ratio 100/125Merchandise inventory at cost destroyed by fire P120,000

33. dFreight actually paid by:

Home Office……………………………………………………………………P 500Branch P………………………………………………………………………… 700Total………………………………………………………………………………P 1,200

Less: Freight that should be recorded…………………………………………….. 800Excess freight……………………………………………………………………………P 400

34. d – in arriving at the cost of merchandise inventory at the end of the period, freight charges areproperly recognized as a part of the cost. But a branch should not be charged with excessivefreight charges when, because of indirect routing, excessive costs are incurred. Under suchcircumstances, the branch acquiring the goods should be charged for no more than the normalfreight from the usual shipping point. The office directing the inter-branch transfers areresponsible for the excessive cost should absorb the excess as an expense because it representsmanagement mistakes (or inefficiencies.)

35. cInventory of the Branch:

Shipments from home office at billed price.........................................P 37,700X: Ending inventory %...................................................................... .......... 60%Ending inventory at billed price……………………………………...……..P 22,620Add: Freight (P1,300 x 60%)………………………………………………...... 780

P 23,400Or, P39,000 x 60% = P23,400

36. bInventory in the published balance sheet, at cost

Shipments at cost…………………………………..........................................P 32,500X: Ending inventory %...................................................................... .............. 60%Ending inventory at billed price……………………………………………….P19,500Add: Freight (P1,300 x 60%)………………………………………….......…….. 780

P 20,280

37. cHome Office Books Davao Branch Baguio Branch

Davao Branch…39,000STB, cost……. 32,500Unrealized profit 5,200Cash (freight)…. 1,300

SFHO…………….37,700Freight-in………. 1,300

HOC………….. 39,000

BC – Baguio……19,630Excess freight… 520

BC-Davao……. 20,150

HOC……………….20,150SFHO(50%)… 18,850Freight-in (50%) 650Cash…………...... 650

SFHO………18,850Freight-in.. 780

HOC……... 19,630

38. c – (P300,000 x ¼ = P75,000, ending inventory x (P300,000 – P250,000)/P300,000 = P12,50039. d40. d41. b – refer to No. 2142. b – refer to No. 2143. c – refer to No. 2144. c45. d

Quiz – XIII1. P63,000

Merchandise inventory, December 31 at cost –From outsiders (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 18,000From home office (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000

P63,000

2. P18,000Branch inventory, 12/31 per books . . . . . . . . . . . . . . . . . P 72,000Less Branch inventory from HO at billed price:

Overvaluation of branch inventory . . . . . . . . . . . P 9,000Cost of branch inventory (P9,000 ÷ 20%) . . . . . . . 45,000 54,000

Branch inventory from outsiders . . . . . . . . . . . . . . . . . . . P 18,000

3. P93,600Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 351,000Cost of sales:

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,000Shipments from HO at cost (P216,000 ÷120%) . . . 180,000Cost of goods available per sale . . . . . . . . . . . . . 234,000Less inventory, 12/31 (see no.1) . . . . . . . . . . . . . . . 63,000 171,000

Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,400Branch net income as far as the HO is concerned . . . P 93,600

4. P14,040Allowance for overvaluation of branch inventory . . . P119,880Less Overvaluation of shipments from HO:

Billed price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468,000Cost (P468,000 ÷ 130%) . . . . . . . . . . . . . . . . . . . . . 360,000 108,000

Overvaluation of beginning inventory from HO: . . . . P 11,880Add Beginning inventory from HO, at cost (11,880 ÷

30%) . 39,600Beginning inventory from HO, at billed price . . . . . . . P 51,480

Merchandise inventory, January 1 . . . . . . . . . . . . . . . . P 65,520Less Beginning inventory from HO, at billed price(see above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,480Beginning inventory from outsiders . . . . . . . . . . . . . . . P 14,040

5. P47,340Sales ……………………………………………………… P648,000Cost of sales:

Merchandise inventory January 1-. . . . . . . . . . . .From outsiders (see no.4) . . . . . . . . . . . . . . . . . P14,040From HO, at cost (see no.4) . . . . . . . . . . . . . . . 39,600 P 53,640

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,520Shipments from HO, at cost(equal Shipments to Branch) . . . . . . . . . . . . . . . . . . 360,000CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587,160Less Merchandise inventory, December 31 -

From outsiders (P58,500– P46,800) . . . . . . . . . . 11,700From HO, at cost (P46,800 ÷ 130%) . . . . . . . . . 36,000 47,700 539,460

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,540Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,200Branch net income in so far as the HO isconcerned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 47,340

6. P45,000Balance of Allowance for overvaluation of branch inventory

account before adjustment . . . . . . . . . P 69,000Less Overvaluation of shipments from HO:

Billed price (P240,000 x 125%). . . . . . . . . . . . . . . . . P 250,000Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 60,000

Overvaluation of beginning inventory. . . . . . . . . . . . . 9,000Add Beginning inventory at cost (P11,640 ÷ 25%) . . . . 36,000Branch beginning inventory at billed price . . . . . . . . . P 45,000

7. P63,000Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 480,000Cost of sales: (see no.6) . . . . . . . . . . . . . . . . . . . . . . . . .

Beginning inventory. . . . . . . . . . . . . . . . . . . . . . . . . P 45,000Shipments from HO (P240,000 x 125%). . . . . . . . . . 300,000

CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,000Less ending inventory. . . . . . . . . . . . . . . . . . . . . . . . 48,000 297,000

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,000Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000Branch net income, per books . . . . . . . . . . . . . . . . . . . P 63,000

8. P122,400Branch net income, per books (see no. 7) . . . . . . . . . P 63,000Add realized profit -

Allowance for overvaluation of branch inventory P 69,000Less Overvaluation of branch ending inventory:

Billed price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 48,000Cost (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 90,000Shipments from HO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432,000Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522,000Less Allowance for overvaluation of branch inventory. . . . . . . . . . . . 87,000Cost of merchandise from home office . . . . . . . . . . . . . . . . . . . . . . . . P435,000

Allowance for overvaluation of branch inventory . . . . . . . . . . . . . . . P 87,000Divide by Cost of merchandise from HO (see above) . . . . . . . . . . . . P 435,000Percentage of profit on cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20%

10. P360,000Shipments from HO, at billed price . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 432,000Divide by the billing percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120%Balance of shipments to Branch account. . . . . . . . . . . . . . . . . . . . . . P 360,000

11. P129,000Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 720,000Cost of sales:

Inventories, January 1 at cost (P90,000 ÷ 120%) . . . . . . . . . . P 75,000Shipments from HO, at cost (see no. 10) . . . . . . . . . . . . . . . . 360,000CGAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435,000Inventories, December 31 at cost (P100,800 ÷ 120%) . . . . . . 84,000 351,000

Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369,000Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000Adjusted branch profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 129,000

12. P4,800Inventory , January 1 per books . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,000Less Inventory, January 1 from HO at billed price

Allowance for overvaluation of branch inventory . . . . . . . . P 28,900Overvaluation of shipments from HO (P96,000 – P72,000) . . 24,000Overvaluation of beginning inventory from HO . . . . . . . . . . 4,800Add Inventory for HO, at cost (P4,800 ÷ 33.33%) . . . . . . . . . . 14,500 19,200

Inventory, January 1 from outsiders. . . . . . . . . . . . . . . . . . . . . . . . . P 4,800

13. P66,000Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 240,000Cost of sales:

Inventory, January 1(cost)From outsiders (see no.12) . . . . . . . . . . . . . . . . . . . . . P 4,800From HO, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,500 P 19,200

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000Shipments from HO, at cost . . . . . . . . . . . . . . . . . . . . . . 72,000CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,200Less Inventory, December 31 (cost) -

From outsiders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,200From HO, at cost (P24,000 ÷ 133%). . . . . . . . . . . . . . 18,000 25,200 102,000

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,000Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000True branch net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . P66,000

14. 25%Shipments from home office (billed price) . . . . . . . . . . . . . . . . . . . . . . . . . P 450,000Divide by shipments to branch (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000Billing percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125%Less percentage at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100Rate of mark-up on cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%

15. P24,000Balance of allowance for overvaluation of branch inventory account P 94,800Less Overvaluation of shipments from HO (P450,00 – P360,000) . . . . . . . 90,000Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . . . . . . 4,800Add Cost of beginning inventory from HO (P4,800 ÷ 25%) . . . . . . . . . . . . 19,200Branch beginning inventory from HO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,000

16. P89,040Balance of allowance for overvaluation of branch inventory P 94,800Less Overvaluation of branch ending inventory:

Billed price (P49,680 – P20,880) . . . . . . . . . . . . . . . . . . . . . P 28,800Cost (P28,800 ÷ 125%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,040 5,760

Realized profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P89,040

17. P36,000Balance of Allowance for overvaluation of branch inventory . . . . . . . P 43,200Less Overvaluation of shipments from HO (P115,200 – P96,000) . . . . . . . 19,200Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . . . . . 24,000Add Cost of beginning inventory from HO (P24,000 ÷ 20%) . . . . . . . . . . . 120,000Beginning inventory from HO, at billed price. . . . . . . . . . . . . . . . . . . . . . . P 144,000Merchandise inventory, January 1 per books . . . . . . . . . . . . . . . . . . . . . . P 180,000Less beginning inventory from HO (see above) . . . . . . . . . . . . . . . . . . . . . 144,000Branch beginning inventory from outsiders . . . . . . . . . . . . . . . . . . . . . . . . P 36,000

18. P26,400Balance of allowance for overvaluation of branch inventory P 43,200Less Overvaluation of branch ending inventory from HO:

Billed price (P120,000 – P19,200) . . . . . . . . . . . . . . . . . . . . P100,800Cost (P100,800 ÷ 120%) . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,000 16,800

Realized branch profit to be adjusted . . . . . . . . . . . . . . . . . . . P 26,400

19. P9,990Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 189,000Cost of sales:

Inventory, January 1 at cost (P27,000÷ 125%) . . . . . . . . P 21,360Shipments from HO, at cost . . . . . . . . . . . . . . . . . . . . . . . 126,000

CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,360Inventory, December 31 at cost P35,100 ÷ 120%) . . . . . 29,250 118,110

Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,890Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,900True branch income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 9,990

20. P67,290Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 636,000Cost of sales:

Inventory, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 69,000Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492,000CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561,000Less Shipment to branch . . . . . . . . . . . . . . . . . . . . . . . . . . 126,000Cost of goods available for own sale . . . . . . . . . . . . . . . 435,000Less Inventory, December 31. . . . . . . . . . . . . . . . . . . . . . 85,500 349,500

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286,500Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,200Net income of home office . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,300Add Branch net income (see no. 19) . . . . . . . . . . . . . . . . . . . 9,990Combined net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 67,290

21. Branch Inventory, 12/31/20x4: P30,000 x 60%...................................P 18,00022. Branch Inventory, at cost: (P25,000 + P1,000) x 60%.........................P 15,60023. P30,000

Merchandise inventory, January 1 P 26,400Shipments from home office __20,000Cost of goods available for sale P 46,400Less: Cost of goods sold, at BP:

Sales P 15,000Less: Sales returns ___2,000Net sales P 13,000Divided by: SP based on cost ____125% __10,400

Merchandise inventory, ending at BP P 36,000Divided by: Billed price ____120%Merchandise inventory, ending at cost

lost due to fire) P 30,000

Theories

1. True 6. False 11. False 16. True 21. D2. False 7. False 12. True 17. True 22. A

3. True 8. False 13. False 18. True 23. d4. True 9. True 14. True 19. False 24. d5. False 10. True 15. False 20. d 25. a

26. c