Chapter 12

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Chapter 12 Problem I

(a)Working Fund – Agency ……… ……….. 5,000

Cash ………. 5,000 (b)Accounts Receivable ………... 50,000 Sales-Agency ………. 50,000 (c)Cash ………... 35,000 Accounts Receivable ……….. 35,000 (d)Expenses-Agency ……….. 4,500 Cash ………. 4,500 (e)Expenses-Agency ……….. 2,250 Cash ………. 2,250

(f)Cost of Goods Sold-Agency ……… 36,000

Merchandise Shipments-Agency ………. 36,000 Problem II

(a) Branch Books:

(a) Cash ……….. 42,500

Home Office ……… 42,500

(b) Shipments from Home Office ……… 50,200

Home Office ………... 50,200

(c) Accounts Receivable ………. 60,000

Sales ……….. 60,000

(d) Purchases ……… 22,500

Accounts Payable ……… 22,500

(e) Home Office ……….. 53,400

Accounts Receivable ……….. 53,400

(f) Accounts Payable ………... 12,250

Cash ……….. 12,250

(g) Furniture & Fixtures ……… 8,000

Cash ……….. 8,000

(h) Expenses ……….. 18,000

Cash ……….. 18,000

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(a) Branch ………. 42,500 Cash ………. 42,500 (b) Branch ……… 50,200 Shipments to Branch ……….. 50,200 (c) Accounts Receivable ………... 105,000 Sales ……… 105,000 (d) Purchases ………. 122,500 Accounts Payable ………. 122,500 (e) Cash ……….. 113,600 Accounts Receivable ……… 113,600 (f) Accounts Payable ………. 124,000 Cash ……… 124,000 (g) Expenses ……… 26,600 Cash ……… 26,600 (h) Cash ……….. 53,400 Branch ………... 53,400

(i) Retained Earnings ………. 10,000

Cash ………... 10,000

BARTON CO. Balance Sheet for Branch

December 31, 20x4

Assets Liabilities

Cash ……… P 4,250 Accounts Payable ………… P

10,250

Accounts Receivable ……… 12,600 Accrued Expenses ……… 300

Merchandise Inv………... 23,500 Home Office ……….. 37,900

Prepaid Expenses ……… 750 Furnitures & Fixtures …. P 8,000

Less accum. Depr …… 650 7,350

Total Assets ……… P48,450 Total Liabilities ……….P48,450

BARTON CO.

Income Statement for Branch For Year Ended December 31, 19X6

Sales ……… P66,000

Cost of Goods Sold:

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Shipments for home office ………. 50,200 Merchandise available for sale ……… P72,700

Less merchandise inv, December 31 ……….. 23,500

Cost of Goods Sold ……….. 49,200 Gross Profit ………. P16,800

Expenses ……… 18,200

Net loss ………... P 1,400 BARTON CO.

Income Statement for Branch For Year Ended December 31, 20x4

Assets Liabilities & Stockholders Equity

Cash ……….. P 23,200 Liabilities

Accounts Receivable ……….. 19,050 Accounts payable ………… P 21,300

Merchandise Inventory……… 48,500 Accrued Expenses …………. 1,350 P22,650

Prepaid Expenses ………. 2,050 Stockholders Equity

Furniture & Fixtures …. P 20,000 Capital stock, P20 par……… P50,000 Less accum. Depr….. 5,580 14,420 Retained Earnings …………. 72,740 122,470

Branch ……… 37,900 Total liabilities and stockholders’

Total Assets ………... P145,120 equity ……… P145,120 BARTON CO.

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

Sales ………... P105,000

Cost of goods sold:

Merchandise inventory, January 1 ………. P 40,120 Purchases ………... 122,500 Merchandise available for sale ……… P162,620 Less shipments to branch ………... 50,200 Merchandise available for own sale ……….. P112,420 Less merchandise inventory, December 31 ………. 48,500

Cost of Goods Sold ………. 63,920

Gross Profit ……… P 41,080

Net income from own operations ……….. P 13,450 Deduct branch net loss ………. 1,400

Total Income ………. P 12,050

BARTON CO.

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

Sales ………. P171,000

Cost of goods sold:

Merchandise inventory, January 1 ……….. P 40,120 Purchases ……… 145,000 Merchandise available for sale ……… P185,120

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Less merchandise inventory, December 31 ……….. 72,000

Cost of goods sold ………. 113,120

Gross profit ……….. P 57,880

Expenses ……….. 45,830

Net Income ………. P 12,050

(a) Branch Books:

Expenses ………. 650

Accumulated Depreciation – F&F………. 650

Sales ……… 66,000

Merchandise Inventory ………. 23,500

Income summary ……….. 89,500

Income Summary ……… 90,900

Shipments from Home Office ……… 50,200 Purchases ……… 22,500 Expenses ……….. 18,200 Home Office ……… 1,400 Income Summary ……… 1,400

(b) Home Office Books

Expenses ………. 1,180

Accumulated Depreciation – F&F………. 1,180

Sales ……… 105,000 Merchandise Inventory ………. 48,500 Shipments to Branch ……….. 50,200 Income summary ……….. 203,700 Income Summary ……… 190,250 Merchandise Inventory ……… 40,120 Purchases ………. 122,500 Expenses ……….. 27,630 Branch Income ……… 1,400 Branch ………. 1,400 Income Summary ……….. 1,400 Branch Income ……… 1,400 Income Summary ……….. 12,050 Retained Earnings ……….. 12,050 Problem III

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Jan. 1 Cash ………. 1,500

Home Office ……… 1,500 1 Shipments from home office ………. 10,200

Home Office ……… 10,200

1 Home Office ……….. 900

Cash ……….. 900

1 Accts. Rec. – Home office ………. 2,600

Home Office ……… 2,600 1-31 Accts. Rec.-Home Office ………. 6,200

Sales ……….. 6,200 1-31 Cash ……….. 2,600 Accounts Receivable ………….. 2,600 1-31 Purchases ………. 3,000 Accounts Payable ……… 3,000 1-31 Accounts Payable ………. 1,450 Cash ……….. 1,450 1-31 Expenses ……….. 1,250 Cash ………. 1,250 Jan. 1-31 Cash ……… 1,600

Accts. Rec.-Home Office ……... 1,600 1-31 Home Office ……… 150

Accts. Rec.-Home Office ……. 150 1-31 Shipments from Home Office ………… 1,250

Home Office ………. 1,250 1-31 Home Office ……… 1,000

Cash ……… 1,000

(b) Home Office Books:

Jan. 1 Branch ……….. 1,500

Cash ……… 1,500

1 Branch ……….. 10,200

Shipments to Branch ………….. 10,200 1 Store Furniture and Fixtures Branch ….. 3,000

Store Furniture and Fixtures …... 3,000 1 Accumulated Depr. Store F&F ……….. 750

Accumulated Depr. Store Furniture

And Fixtures, Branch ………….. 750 Calculation of depreciation: 2.5years at P300, (10% of

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P3,000), or P750

1 Store Furniture and Fixtures Branch ….. 900

Branch ……… 900 1 Branch ……… 2,600 Accounts Receivable …... 2,600 1-31 Accounts Receivable ……… 34,600 Sales ………... 34,600 1-31 Cash ………. 40,000 Accounts Receivable ………… 40,000 1-31 Purchases ……….31,600 Accounts Receivable …………. 31,600 1-31 Accounts Payable ……… 36,200 Cash ………... 36,200

1-31 Accrued Expenses Payable …………. 250 Expenses ………. 8,950

Cash ……….. 9,200

1-31 Allowance for Doubtful Accounts ….. 150

Branch ……….. 150 1-31 Branch ………. 1,250 Shipments to Branch ………… 1,250 1-31 Cash ……… 1,000 Branch ………. 1,000 EAGLE CO. Balance Sheet January 31, 20x4 Assets Liabilities

Cash …………... P 1,100 Accounts Payable ………. P 2,400 Accounts Receivable ………….. 3,600 Accrued expenses ………. 400 Accts. Rec.-home office ………. 850 Home Office ……… 14,050 Merchandise Inventory ………… 9,800

Merchandise in Transit …………. 600

Total assets ……… P37,200 Total Liabilities ………. P37,200

EAGLE CO.

Income Statement for Branch For Month Ended January 31, 20x4

Sales ………. P 6,200

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Purchases ……… P 3,000 Shipments from home office ………. 11,450 Shipments from home office in transit …………... 600 Merchandise Available for Sale ……….. P15,050 Less merchandise inv. Dec 31, 19X9 ……...P9,800

Merchandise in transit ……….. 600 10,400

Cost of Goods Sold ………. 4,650 Gross Profit ……… P 1,550

Net Loss ……….. .. P 560

EAGLE CO.

Balance Sheet for Home Office January 31, 20x4

Assets

Cash ……… P 9,100

Accounts Receivable ……… P34,000

Less allowance for doubtful accounts ……….. 1,050 32,950

Merchandise Inventory ………. 44,500

Store furniture and fixtures ……… P12,000

Less accumulated depreciation ………. 3,950 8,050 Store furniture and fixtures-branch ……… P 3,900

Less accumulated depreciation ……… 785 3,315

Branch office ………... 14,050 Total Assets ……… P111,765 Liabilities Accounts Payable ……….. P29,150 Accrued Expenses ……….. 750 Total Liabilities ……….. P29,900 Stockholders Equity Capital Stock ………P50,000 Retained earnings ……….. 31,865

Total stockholder’s equity ……… 81,865

Total liabilities and stockholders equity ……… P111,765 AGLE CO.

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

Sales ……… P 34,600

Cost of goods sold:

Merchandise inventory, January 1 ……….. P46,000

Purchases ……… 31,600

Merchandise available for sale ……… 77,600

Less shipments to branch ……… 12,050 Merchandise available for own sales ………. P65,550 Less merchandise inventory, January 31 ……… 44,500 Cost of goods sold ……… 21,050

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Gross Profit ……… P 13,650

Net income from own operations ………. P 4,225

Deduct branch net loss ……… 560

Total Income ……… P 3,665 EAGLE CO. Income Statement for Home Office For Month Ended January 31, 20x4 Assets Liabiities and Stockholders Equity Liabilities Cash ……….. ………. P 10,200 Accounts Payable …… P30,700 Accounts receivable ……….. P38,450 Accrued Expenses …… 1,100 P 31,800 Less allow for doubt-Ful accounts ……….. 1,050 37,400 Merchandise Inventory ……….. 54,900 Stockholders Equity Store furn. & fixtures ………… P15,900 Capital Stocks …………P50,000 Less accum depr 4,735 11,165 Retained earnings …… 31,865 81,865 Total assets ……… P113,665 Total liab. And stockholders equity . P113,665 EAGLE CO. Combined Income Statement for Home Office and Branch For Month Ended January 31, 20x4 Sales ……….. P 40,800 Cost of goods sold: Merchandise Inventory, January 1 ………. P46,000 Purchases ………... 34,600 Merchandise available for sale ………... P80,600 Less merchandise inventory, Jan 31 ………... 54,900 Cost of goods sold ………... 25,700 Gross profit ………... P 15,100 Expenses ……… 11,435 Net Income ……….. P 3,665 (a) Branch Books Jan. 31 Shipments from Office-in Transit ……… 600

Home Office ………. 600

31 Expenses ………. 475

Home Office ………. 475

31 Expenses ……… 35

Home Office ……….. 35

1/120 x P3,000, or P25 (depreciation for one month; Asset life, 10 years); 1/90 x P900, or P10 (depreciation For one month; asset life, 7.5 years) 31 Merchandise Inventory ……… 9,800 Merchandise in Transit ……….. 600

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31 Expenses ……….. 350

Accrued Expenses ………. 350

31 Sales ………. 6,200 Income Summary ……….. 6,200 31 Income Summary ………. 17,160 Shipments from Home Office ……. 11,450 Ship. From Home Office – in Trans . 600

Purchases ……… 3,000 Expenses ……….. 2,110 31 Home Office ……….. 560

Income Summary ………... 560

(b) Home Office Books: 31 Branch ………. 600

Shipments to Branch ………. 600

31 Branch ………. 475

Expenses ………... 475

31 Branch ………. 35

Accumulated Depreciation, Store Furniture and Fixtures Branch …….. 35

31 Expenses ………. 100

Accumulated Depreciation store Furniture and Fixtures branch ……. 100

1/120 x P12,000, or P100 (depreciation for one Month; asset life, 10 years) 31 Income Summary ……… 46,000 Merchandise Inventory ……… 46,000 31 Merchandise Inventory ……….. 44,500 Income Summary ……….. 44,500 31 Expenses ………. 750 Accrued Expenses ………. 750 31 Sales ……… 40,925 Purchases ……… 31,600 Expenses ……….. 9,325 31 Branch Income ………. 560 Branch ……….. 560 31 Income Summary ………. 560 Branch Income ………... 560 31 Income Summary ………. 3,665 Retained Earnings ……….. 3,665

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Problem IV 1.

Socrates Company Home Office and Plato Branch

Reconciliation of Reciprocal Ledger Accounts June 30, 20x4

Investment in

Plato Branch Home Office Ledger Ledger

Account Account

(Debit) (Credit)

Balances prior to adjustment P85,000 P33,500

Add: Merchandise shipped to branch 24,000

Less: Acquisition of office equipment by branch

(carried in accounting records of home office)(14,500)

Collection of branch trade accounts receivable (9,000)

Payment of cash by branch (22,000) _______

Adjusted balances P48,500 P48,500

2. (a) Accounting records of home office:

Office Equipment: Plato Branch 14,500

Investment in Plato Branch 14,500

To record acquisition of office equipment by branch.

Cash in Transit 22,000

Investment in Plato Branch 22,000

To record cash in transit from branch. (b) Accounting records of branch:

Home Office 9,000

Trade Accounts Receivable 9,000

To record collection by home office of branch accounts receivable.

Inventories in Transit 24,000

Home Office 24,000

To record shipment of merchandise in transit from home office.

Problem V

((a) BRANCH HOME OFFICE

ACCOUNT ACCOUNT… Balances before Adjustments ……….. P 8,400 P 9,735 Adjustments:

Additions:

Merchandise in transit to branch ………. 615 Collection of Home office receivable by Branch 2,500

Understatement of branch net income for Nov.. 90

P10,990 P10,350 Deductions:

Merchandise return to home office in transit ………. 640

Corrected Balances ……… P10,350 P10,350 (b) Branch Books:

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Shipments from Home Office-in Transit ………. 615

Home Office ………... 615

Home Office Books: Branch ……… 2,500 Accounts Receivable ……….. 2,500 Branch ……… 90

Retained Earnings ………. 90

Merchandise Returns from Branch – in Transit ………. 640

Branch ……….. 640

Multiple Choice Problem 1. d Branch A Branch B Assets: Inventory, January 1 P 21,000 P 19,000 Imprest branch fund 2,000 1,500 Accounts receivable, January 1 55,000 43,500 Total Assets P 78,000 P 64,000 Less: Liabilities -0- -0-Home Office Current Account P 78,000 P 64,000

2. b

Branch A Branch B Assets: Inventory, December 31 P 19,000 P 12,000 Imprest branch fund 2,000 1,500 Accounts receivable, December 31 70,000 53,500 Total Assets P 91,000 P 67,000 Less: Liabilities -0- -0-Home Office Current Account P 91,000 P 67,000 3. d – incidentally, the entry in the books of the branch would be as follows: Profit and loss summary ……… xxx

Home Office Current………. Xxx

4. c

January

1,20x4 January 1,20x5 Assets:

Inventory P 37,000 P 41,000

Petty cash fund 3,000 3,000

Accounts receivable 43,000 49,000

Total Assets P 83,000 P 93,000

Less: Liabilities _____-0-

_____-0-Home Office Current Account P 83,000 P 93,000

5. a – refer to No. 4 for computations 6. a

Sales P 74,000

Less: Cost of goods sold:

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Less: Inventory, ending……… 9,180 58,500 Gross profit……… P 15,500 Less: Expenses – 6,820 Net Loss……….. P 8,680 7. a January 1, 20x6 Assets: Cash P 4,200 Inventory 9,180 Accounts receivable 12,800 Total Assets P 26,180 Less: Liabilities

_____-0-Home Office Current Account P 26,180

8. a – nominal accounts have zero beginning balance. 9. d Branch Current H. Office Current Unadjusted balance, 6/30/20x4 P 225,770 P 226,485* Add (Deduct): Adjustments

1 Erroneous recording of branch equipment 3150 2. Insurance premium recorded twice ( 675) 3. Erroneous recording of freight ( 90) 4. Discount on merchandise ( 800) 5. Failure by the branch to record share in advertising 700 6. error by the home office to record remittance of

Cebu 3,000 ________

Adjusted balance, 6/30/20x4 P 228,770 P 228,770

* The P226,485 is compute simply by working back with P228,770 adjusted balance as the starting point.

10. c

Home Office Books (Branch Current-

Dr. balance)

Branch Books (Home Office Current –

Cr. balance)

Unadjusted balance P518,575 P452,276

Add (deduct) adjustments:

In transit 10,500 Remittance ( 17,000) Returns ( 775) Cash in transit 25,000 Expenses - HO Expenses – branch Error ( 800) ________ _____224 12,000 Adjusted balance P 500,000 P 500,000 11. d

Home Office Books Branch Books

P2-07

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(Branch Current-

Dr. balance) (Home Office Current –Cr. balance)

Excess freight ( 750) Cash in transit ( 11,000) Returns ( 4,000) Expenses – branch ________ 5,000 Adjusted balance P 500,000 P 500,000

12. c – refer to No. 11 for computations 13. a – refer to No. 11 for computations 14. No answer available – P495,750

15. d - No entry should be made in the books of the home office, since the freight should be chargeable to the branch and the payment of the freight was made by the branch.

16. b

Home Office Books (Branch Current-

Dr. balance)

Cr. balance)

Remittance (40,000)

Returns (15,000)

Error by the branch 300

Expenses – branch

________ 28,000

Adjusted balance P 535,000 P 535,000

17. c

Home Office Books (Branch Current- Dr.

balance)

Cr. balance)

In transit 37,500

HO A/R collected by br. 10,500

Supplies returned ( 4,500)

Error in recording Br. NI ( 1,080) Cash sent to branch

to General Expense by HO 25,000 25,000

Adjusted balance P 179,920 P 179,920

18. d – refer to No. 17 for computation. 19. a

balance)

Cr. balance)

In transit 5,800

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Cash in transit 2,000 2,000

Error in recording Br. NI ( 3,600) _______

Adjusted balance P38,900 P38,900

20. a – refer to No. 19 for computations 21. a

balance)

Cr. balance)

Collection of branch A/R ( 800)

In transit 3,200

Purchase of furniture ( 1,200)

Return of excess merchandise ( 1,500)

Remittance ( 500) _______

Adjusted balance P46,400 P46,400

22. b – refer to No. 21 for computations 23. (C)

Sales (P350,000 + P100,000)……….P 450,000 Less: Cost of goods sold:

Purchases (P400,000 + P50,000)………. P 450,000

Less: Inventory, ending……… 90,000 360,000 Gross profit……… P 90,000 Less: Expenses –

Salaries and commission……….. P 70,000 Rent……… 20,000

Advertising supplies (P10,000 – P6,000)……… 4,000

Other expenses………. 5,000 99,000 Net Loss……….. P( 9,000) 24. a

In adopting the imprest system for the agency working fund, the home office writes a check to the agency for the amount of the fund. Establishment of the fund is recorded on the home office books by a debit to the Agency working fund and credit cash. The agency will request fund replenishment whenever the fund runs low and at the end of each fiscal period. Such a request is normally accomplished by an itemized and authenticated statement of disbursements and the paid vouchers. Upon sending the agency a check in replenishment of the fund, the home office debits expense or other accounts for which disbursements from the fund were reported and credits cash.

25. d

Normally, transactions of the agency are recorded in the books of the home office separately identified with the appropriate agency.

Theories 1

. True 6. False 11. False 16. b 21. a 26. c 31. b

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. . . 3

. False 8. False 13. True 18. d 23. b 28. d 33. c

4 .

False 9. True 14. True 19. a 24

. b 29. d 34 . c 5 . True 10 , True 15. True 20. c 25 . a 30. c 35 . c 36 . d