solution chapter 13

Chapter 13

Problem I

Sales....................................................................................................................... 42,000

Shipments to Newark Branch................................................................ 35,000

Unrealized Intercompany Inventory Profit........................................... 7,000

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

Shipments to Newark Branch............................................................................. 625

Unrealized Intercompany Inventory Profit........................................................ 125

Sales Returns........................................................................................... 750

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

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

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

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

Newark Branch....................................................................................... 4,125

Decrease in Unrealized Intercompany Inventory Profit:

Balance prior to adjustment, 12/31, P7,000 P125............... P6,875 Balance required in account, 12/31,

P16,500 (P16,500/1.20)........................................................... 2,750 Decrease.................................................................................... P4,125

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

Income Summary.................................................................................... 1,525

Problem II

a. 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)............................................. P36,450

Merchandise transferred by home office at cost, P36,450/1.35.... 27,000

Additions to unrealized profit account resulting from transfers

by home office..................................................................................... P9,450

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

Cash....................................................................................................... 4,550

Balance of unrealized profit account at December 31

(as calculated above).......................................................................................................... P 9,450

Required balance, December 31, to reduce inventory to cost:

Ending inventory of merchandise shipped to branch by home office:

At billed price................................................................................................. P 18,900

At cost (P 18,900/1.35).................................................................................. 14,000

4,900

Required decrease in unrealized profit account as a result

of branch sales...................................................................................................................... P4,550

c. Branch Books:

Home Office........................................................................................... 540

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

Home Office Books:

Shipments to Branch.............................................................................. 400

Unrealized Intercompany Inventory Profit........................................... 140

Branch........................................................................................ 540

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

Problem III

a. 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:

Balance of unrealized intercompany inventory profit, December 31.................... P 3,600

Additions to unrealized profit account during December, 20% of

shipments to branch (20% x P8,000)............................................................................. 1,600

Balance of unrealized profit account, December 1.................................................. P 2,000

Balance of unrealized profit account, December 1, P2,000 / 20% markup on

cost equals December 1 inventory at cost................................................................ P 10,000

Add 20% markup........................................................................................................... 2,000

Goods in branch inventory at billed price................................................................. P 12,000

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

Branch Income............................................................................ 2,200

Calculation of reduction in Unrealized Intercompany

Inventory Profit:

Balance of unrealized profit account, December 31.........................P 3,600

Required balance, December 31, to reduce inventory to cost

At billed price................................................................... P8,400

At cost (P8,400/1.20)....................................................... 7,000

1,400

Required decrease in unrealized profit account as a result

of branch sales........................................................................................ P 2,200

Problem IV

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

Store Supplies............................................................................ 260

Supplies used: P400 P140, or P260.

31 Selling Expenses............................................................................ 80

Accumulated Depreciation-Store Furniture........................ 80

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

31 Selling Expenses............................................................................ 120

Accrued Expenses Payable................................................. 120

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

Selling Expenses..................................................................... 150

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

Merchandise Summary......................................................... 16,000

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

Income Summary...................................................................... 16,950

31 Notes Payable..................................................................................1,000

Home Office............................................................................... 1,000

31 Sales.................................................................................................20,500

Income Summary....................................................................... 20,500

31 Income Summary........................................................................... 21,900

Purchases.................................................................................... 5,000

Shipments from Home Office................................................... 10,500

Selling Expenses.......................................................................... 4,560

General Expenses....................................................................... 1,840

31 Home Office....................................................................................... 450

Income Summary....................................................................... 450

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

Cash............................................................................................ 1,000

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

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

31 Unrealized Intercompany Inventory Profit....................................... 2,200

Branch No. 1 Income................................................................. 2,200

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

Billing to

Branch

Cost

(Billing/1.1/

3)

Unrealized

Profit

(Billing Price

Minus Cost)

Inventory, Dec.1............................................................ P 12,500 P 9,375 P 3,125

Shipments during December...................................... 10,500 7,875 2,625

Total in unrealized profit on December 31................. P 5,750

Inventory, Dec.31......................................................... 14,200 10,650 3,550

Reduction in unrealized profit account-

adjustment to branch profit for overstated of cost

of goods sold.................................................................

P 2,200

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

Income Summary............................................................. 1,750

Problems V

(1)

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 Stockholders 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 stockholders equity............................... P 96,184

SPENCER CO.

Income Statement for Home Office


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

2. WORKSHEET refer to a separate sheet SPENCER CO.

Combined Balance Sheet for Home Office and Branch

December 31, 20x4

Assets Liabilities and Stockholders Equity

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

Depreciation ... 3,161 8,939 Total liabilities and Total assets P100,489 stockholders equity P100,489

SPENCER CO.

Combined Income Statement for Home Office and Branch


Sales P64,850 Cost of goods sold:

Merchandise Inventory, December 1 P43,900 Purchases 31,700 Merchandise available for sale P75,600 Less merchandise inventory, December 31 . 36,850 Cost of goods sold .. 38,750 Gross profit P26,100 Operating Expenses:

Advertising Expense P 5,650 Salaries and Commissions expense 6,600 Store supplies expense .. 840 Miscellaneous selling expense 2,900 Rent expense 4,200 Depreciation Expense F&F . 121 Miscellaneous general expense . 3,415 Total operating expense . 23,726 Net Income P 2,374

(a) Branch Books

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

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

31 Store Supplies Expense . 280 Store Supplies 280 Store supplies used: P580 P300, or P280

Dec. 31 Prepaid Expenses 120 Miscellaneous General Expense . 120

31 Miscellaneous General Expense 105 Accrued Expenses .. 105

31 Depreciation Expense F&F .. 36 Accumulated Depreciation 36 Depreciation: 1% of P3,600

31 Miscellaneous General Expense .. 220 Home Office 220

31 Sales 20,000 Income Summary . 20,000

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

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

(b) Home Office Books

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

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

31 Store Supplies Expense . 560 Store Supplies 560 Store supplies used: P940 P380, or : 560

31 Prepaid Expense 350 Miscellaneous General Expense 350

31 Miscellaneous General Expense .. 260 Accrued Expenses . 260

31 Depreciation Expense .. 85 Accumulated Depreciation F&F . 85 Depreciation: 1% of P8,500, or P85

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

31 Sales 44,850 Shipments to branch ....................... 8,500 Income Summary . 53,350

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

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

31 Unrealized Intercompany Inventory Profit . 1,750 Branch Income 1,750 Calculation of unrealized profit adjustment:

Balance of unrealized profit account,

December 31 .. P3,700 Inventory merchandise received from

Home office at billed price on

December 31, P11,700

Inventory at cost: P11,700/ 1.20, or P9,750

Balance of unrealized profit account on

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

Adjustment to branch income for

Overstatement of cost of goods

Sold .. P1,750

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

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

Problem VI

1.

Branch

Current

H. Office

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

2. Combined Income Statement

Sales [(P350,000 P105,000) + P150,000)....................................................... P395,000 Less: Cost of goods sold [(P220,000 P84,000) + (P93,000 + P3,600 P21,000 P1,200)]. 210,400 Gross profit................................................................................................................... P184,600

Operating expenses (P70,000 + P41,000 + P12,000)................................................ 123,000

Net income................................................................................................................... P 61,600

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


Sales.............................................................................................................................. P1,060,000

Cost of goods sold:

Merchandise inventory, January 1, 20x5................................... P115,000

Shipments from home office...................................................... 820,000


Less: Shipments to branch.......................................................... 210,000

Merchandise available for own sales....................................... P725,000


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.



Sales.............................................................................................................................. P1,375,000

Cost of goods sold:

Merchandise inventory, January 1, 20x5...................................P 150,600

Purchases...................................................................................... 820,000



Gross profit.................................................................................................................... P595,650

Operating expenses.................................................................................................... 483,500

Net income................................................................................................................... P112,150

(3) Merchandise Inventory, December 31................................................................ 58,500

Sales.......................................................................................................................... 315,000

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

Income Summary......................................................................................................... 398,000

Merchandise Inventory, January 1................................................................ 44,500

Shipments from Home Office......................................................................... 252,000

Operating expenses........................................................................................ 101,500

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

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

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

Branch............................................................................................................ 24,500

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

Branch Income.............................................................................................. 41,150

Calculation of unrealized profit adjustment:

Branch inventory, January 1, acquired from home office

at billed price...................................................................................... P 44,500

Less: Cost of inventory (P44,500/1.25)......................................................... 35,600

Unrealized Intercompany Inventory Profit Jan. 1....................................... P 8,900

Add: 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 58,500

Less: Cost of inventory to home office,

P58,500/1.20................................................................ 48,750 9,750

Reduction in unrealized profit account- adjustment to

branch income for overstatement of cost of

goods sold.................................................................. 41,150

Branch Income............................................................................................................. 16,650

Income Summary............................................................................................ 16,650

Merchandise Inventory, December 31...................................................................... 142,500

Sales............................................................................................................................... 1,060,000

Shipments to Branch.................................................................................................... 210,000

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

Income Summary......................................................................................................... 1,317,000

Merchandise Inventory, January 1................................................................ 115,000

Purchases......................................................................................................... 820,000

Expenses........................................................................................................... 382,000

Income Summary.......................................................................................................... 112,150

Retained Earnings............................................................................................ 112,150

Problem VIII

(1)

RUGGLES CO.

Income Statement for Branch


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


Net income................................................................................................................... P 5,500

RUGGLES CO.

Income Statement for Home Office


Sales.............................................................................................................................. P 256,000

Cost of goods sold:


Purchases...................................................................................... 210,000

Merchandise available for sale................................................. P 290,000


Merchandise available for own sales....................................... P 260,000

Less: Merchandise Inventory, December 31, 20x4.................. 55,000


Gross profit................................................................................................................... P 51,000

Operating Expenses.................................................................................................... 60,000

Net loss from own operations..................................................................................... P 9,000

Add branch net income............................................................................................ 13,500

Total income................................................................................................................ P 4,500

(2)

RUGGLES CO.



Sales.............................................................................................................................. P 334,500

Cost of goods sold:


Purchases...................................................................................... 230,000

Merchandise available for sale.................................................. P 337,500

Less: Merchandise Inventory, December 31, 20x4................... 80,000


Gross profit.................................................................................................................... P 77,000


Net income................................................................................................................... P 4,500

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

Sales.......................................................................................................................... 78,500

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

Income Summary......................................................................................................... 104,500

Merchandise Inventory................................................................................... 32,000

Shipments from Home Office......................................................................... 40,000

Purchases......................................................................................................... 20,000

Expenses........................................................................................................... 12,500

Income Summary......................................................................................................... 5,500

Home Office..................................................................................................... 5,500

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

Branch Income................................................................................................ 5,500

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

Branch Income.............................................................................................. 8,000

Calculation of unrealized profit adjustment:

Branch inventory, January 1, acquired from home office

at billed price.................................................................................... P 24,500

Less: Cost of inventory (P24,500/1.225).................................................... 20,000

Unrealized Intercompany Inventory Profit Jan. 1................................... P 4,500

Add: Increase in unrealized profit for shipments

made during year, billed price of goods,

P40,000, cost of goods, P30,000.................................................... 10,000

P 14,500

Deduct 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 branch

income for overstatement of cost of goods sold........................... 8,000

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

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

Merchandise Inventory................................................................................................ 55,000

Sales............................................................................................................................... 256,000

Shipments to Branch.................................................................................................... 30,000

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

Income Summary......................................................................................................... 350,000

Merchandise Inventory................................................................................... 80,000

Purchases......................................................................................................... 210,000

Expenses........................................................................................................... 60,000

Income Summary.......................................................................................................... 4,500

Retained Earnings............................................................................................ 4,500

Problem IX

1.

Branch

Current

H. Office

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

2. Income Statement - Branch

Sales................................................................................................................................ P 140,000

Cost of goods sold:

Merchandise inventory, January 1, 20x4 (P11,550 P1,000)....... P 10,550 Shipments from home office (P105,000 + P5,000 P10,000)........ 100,000 Freight-in (P5,500 + P250).. 5,750 Merchandise available for sale..................................................... P116,300

Less: Merchandise Inventory, December 31, 20x4...................... 14,770


Gross profit.................................................................................................................... P 38,470


Net income................................................................................................................... P 14,170

Income Statement Home Office Sales.............................................................................................................................. P 155,000

Cost of goods sold:


Purchases...................................................................................... 190,000

Merchandise available for sale................................................. P 213,000


Merchandise available for own sales....................................... P 113,000

Less: Merchandise Inventory, December 31, 20x4.................. 30,000

Cost of goods sold........................................................................ 83,000

Gross profit................................................................................................................... P 72,000

Operating Expenses.................................................................................................... 42,000

Net loss from own operations..................................................................................... P 30,000

Add branch net income............................................................................................ 14,170

Combined net income.............................................................................................. P 44,170

3.



Sales.............................................................................................................................. P 295,000

Cost of goods sold:


Purchases...................................................................................... 190,000

Freight-in 5,750 Merchandise available for sale.................................................. P 229,300

Less: Merchandise Inventory, December 31, 20x4................... 44,770

Cost of goods sold........................................................................ 184,530

Gross profit.................................................................................................................... P 110,470


Net income................................................................................................................... P 44,170

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

Cost of goods sold, January 1-17, at billed price:

Net sales, P13,000/1.25...................................................................................... 10,400

Merchandise on hand, January 17, at billed price....................................... P36,000

Merchandise 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............................................................ 36,000

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 recognized 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

c. Books of Home Office:

Branch B............................................................................................... 1,500

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

Problem XII

a. Books of Branch No. 1 :

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

b. Books of branch No. 5:

Shipments from Home Office 1,600 Freight In 400 Home Office. 1,750 Cash 250

c. Books of the Home Office

Branch No. 5.. 1,750 Excess Freight on Inter branch Transfer of Merchandise.. 200 Branch No. 1 1,950

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

Multiple Choice Problems

1. c - P50,400, billed price x 40/140 = P 14,400

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

4. c

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%.

5. c Allowance for overvaluation after adjustment / for December 31 inventory: (refer to No. 4 for further computation): P84,000 x 40/140 = P24,000.

6. No answer available P109,000

Net Income as reported by the Branch P 20,000

Less: Rental expense charged by the home office

(P1,000 x 6 months)

6,000

Adjusted NI as reported by the Branch P 14,000

Add: Overvaluation of CGS

Billed Price

MI, beginning 0

SFHO 550,000

COGAS 550,000

Less: MI, ending 75,000

CGS, at BP 475,000

X: Mark-up ratio 25/125 95,000

True/Adjusted/Real Branch Net Income P109,000

7. 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

8. 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

Adjusted branch net income:

SalesP60,000 Less: Cost of goods sold:

Inventory, January 1, 2003.P 30,000 Add: Purchases..... 11,000 Shipments from home office.. 19,200 Cost of Goods available for sale P 60,200 Less: Inventory, December 31, 2003. 20,000 40,200 Gross profit.. P 19,200 Less: Expenses.. 12,000 Unadjusted branch net income.P 7,800 Add: Overvaluation of Cost of Goods Sold. 4,400 Adjusted branch net income..P 12,000

9. 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

10. d


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.

Merchandise inventory, December 1, 20x4P 15,000 Less: Shipments from home office at billed price* 12,000 Merchandise from outsidersP 3,000

11. 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

12. d

100% 60% 40%


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

13. d

Billed

Price

Cost Allowance


Shipments (400,000 x 25%) 400,000 *100,,000


Less: MI, 8/31/x4 (160,000 x 25%) 160,000 40,000

Overvaluation of CGS/RPBSales 120,000

14. 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

(2) Combined Cost of Goods Sold:

Merchandise Inventory, 1/1/2003:

of Home Office, cost..P 17,000 of Branch, cost: P4,950 / 110%. 4,500 P 21,500 Add Purchases. 50,000 COGAS.. P 71,500 Less: Merchandise Inventory, 12/31/2003

of Home Office, cost P 14,000 of Branch, cost: P6,050 /100%.. 5,500 19,500 Cost of Goods Sold. P 52,000

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

16. 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%


Merchandise inventory, 1/1/x4 0

Shipments 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*

17. 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


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

18. c

125% 100% 25%



Shipments 250,000


Less: MI, 12/31/x4 (P60,000 x 80%) 60,000

Overvaluation of CGS(230,000x 25/125) 230,000 46,000*

19. d P326,000 Sales (P600,000 + P300,000) P 900,000

Less: Cost of goods sold

Merchandise inventory, beg.

[P100,000 + (P40,000/1.25)] P132,000

Add: Purchases 350,000

Cost of goods available for sale P482,000

Less: MI, ending

[P30,000 + (P60,000/1.25)] 78,000 404,000


Less: Expenses (P120,000 + P50,000) _ 170,000

Net Income P 326,000

20. 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


Less: MI, ending

[P70,000 + (P60,000/1.20)] 120,000 467,500


Less: Expenses (P120,000 + P50,000) _ 170,000

Net Income P 200,000

21. 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 SaleP 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

22. 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

23. c Sales P155,000

Less: Cost of Sales

Inventory, 1/1/10 P 23,000

Purchases 190,000


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


Less: Expenses 52,000

Net income home office P 20,000

24. a Sales P140,000

Less: Cost of Sales

Inventory, 1/1/10 P 11,550

Purchases 105,000

Freight-in 5,500

Shipment in transit (P5,000+P250) 5,250


Less: Inventory, 12/31/10

(P10,400 + P520 + P5,250) 16,170 111,130


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. 1/1/2010 1,000

Shipments

110,000 100,000

**10,000

Available for sale 11,000

-: MI, 12/31/10 ***15,400 ****1,400

CGS 9,600

**110,000 x 10/110

***10,400 + 5,000, in transit

****15,400 x 10/110

25. 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

26. d

Merchandise inventory, January 1 P 26,400

Shipments from home office __20,000

Cost of goods available for sale P 46,400

Less: Cost of goods sold, at BP:

Sales P 15,000

Less: Sales returns ___2,000

Net sales P 13,000

Divided by: SP based on cost ____125% __10,400

Merchandise inventory, ending at BP P 36,000

Divided by: Billed price ____120%

Merchandise inventory, ending at cost

lost due to fire)

P 30,000

27. d

Freight actually paid by:

Home OfficeP 500 Branch P 700 TotalP 1,200 Less: Freight that should be recorded.. 800 Excess freightP 400

28. 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.)

29. 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

30. 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

31. c

Home Office Books Davao Branch Baguio Branch

Davao Branch39,000 SFHO.37,700

STB, cost. 32,500 Unrealized profit 5,200

Cash (freight). 1,300

Freight-in. 1,300 HOC.. 39,000

BC Baguio19,630 Excess freight 520 BC-Davao. 20,150

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

Cash...... 650

SFHO18,850 Freight-in.. 780

HOC... 19,630

32. d

(1) Branch Inventory, 12/31/20x4: P30,000 x 60%...................................P 18,000

(2) Branch Inventory, at cost: (P25,000 + P1,000) x 60%.........................P 15,600

33. c (P300,000 x = P75,000, ending inventory x (P300,000 P250,000)/P300,000 = P12,500 34. d

35. d

36. b refer to No. 14 37. b refer to No. 14 38. c refer to No. 14 39. c

40. d

Theories

1. True 6. False 11. False 16. True

2. False 7. False 12. True 17. True

3. True 8. False 13. False 18. True

4. True 9. True 14. True 19. False

5. False 10. True 15. False

20. d

21. d

22. a

23 d

solution chapter 13

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