Solution Chapter 13

(1)

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

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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.

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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 (Billing/1.1/Cost 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

(4)

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 Stockholder’s 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

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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 stockholder’s equity... P 96,184

SPENCER CO.

Income Statement for Home Office For Month Ended December 31, 20x4

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

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

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

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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

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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

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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 For Year Ended December 31, 20x5

Sales... P1,060,000 Cost of goods sold:

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

Less: Merchandise Inventory, December 31, 20x5... 142,500 582,500 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.

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

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

Merchandise inventory, January 1, 20x5...P 150,600 Purchases... 820,000 Merchandise available for sale... P970,600

Less: Merchandise Inventory, December 31, 20x5... 191,250 779,350 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

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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 For Year Ended December 31, 20x4

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

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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 Operating expenses... 12,500 Net income... P 5,500

RUGGLES CO.

Income Statement for Home Office For Year Ended December 31, 20x4

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

Cost of goods sold... 205,000 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.

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

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

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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

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

2. Income Statement - Branch

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

Cost of goods sold... 101,530 Gross profit... P 38,470 Operating expenses... 24,300 Net income... P 14,170 Income Statement – Home Office

Merchandise inventory, January 1, 20x4... P 23,000 Purchases... 190,000 Merchandise available for sale... P 213,000 Less: Shipments to branch... 100,000 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.

Merchandise inventory, January 1, 20x4... P 33,550 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 Operating expenses... 66,300 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

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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

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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

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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:

Sales………P60,000 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

Billed Price Cost Allowance

Merch. Inventory, 12/31/20x4 *P12,000 P10,000 P 2,000

Shipments 9,600 8,000 1,600

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

Merchandise inventory, December 1, 20x4………P 15,000 Less: Shipments from home office at billed price*……… 12,000 Merchandise from outsiders………P 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% Billed Price Cost Allowance

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

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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)

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

Gross profit P 92,000

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

Shipments 250,000

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

(19)

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 Gross profit P 496,000 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

Cost of goods available for sale P587,500 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 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 Sale………P 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

(20)

Purchases 190,000 Cost of goods available for sale P213,000 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 Cost of goods available for sale P127,300 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

(21)

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 Office………P 500 Branch P……… 700 Total………P 1,200 Less: Freight that should be recorded……….. 800 Excess freight………P 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

(22)

STB, cost……. 32,500 Unrealized profit 5,200 Cash (freight)…. 1,300 Freight-in………. 1,300 HOC………….. 39,000 BC – Baguio……19,630 Excess freight… 520 BC-Davao……. 20,150 HOC……….20,150 SFHO(50%)… 18,850 Freight-in (50%) 650 Cash…………... 650 SFHO………18,850 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 ¼ = 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