Chapter 13

Problem I
Books of Home Office
Correcting entries:
A. Sales............................................................................................................... 42,000
Shipments to Branch................................................................ …………
35,000
Unrealized Intercompany Inventory Profit...........................................
7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Entry Made Correct/Should be Entry
Branch Current…………… 42,000 Branch Current……….. 42,000
Sales…………………… 42,000 Shipments to Branch 35,000
Unrealized Int. Inv Pr. 7,000
B. Shipments to Branch...................................................................................... 625
Unrealized Intercompany Inventory Profit................................................... 125
Sales Returns........................................................................................... 750
Cost of merchandise returned by branch: P750/1.20= P625.
Entry Made Correct/Should be Entry
Sales Returns……………… 750 Shipments to Branch………. 625
Branch Current……… 750 Unrealized Int. Inv Profit…… 125
Branch Current…………. 750
Results of Branch Operations:
A. Branch Net Income/Loss from its own operations:
Branch Income Summary............................................................................... 2,600
Branch Current…................................................................................ 2,600
B. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch
Inventory/ Unrealized Intercompany Inventory Profit:
Unrealized Intercompany Inventory Profit.................................................... 4,125
Branch Income Summary.................................................................. 4,125
Unrealized Profit
Cost (Billing Price
Billing Price (Billing/1.20 Minus Cost)
)
Inventory, December 1 P 0 P 0 P 0
Shipments during December 42,000 35,000 7,000
Less: Returns _____750 ____625 ____125
Available for Sale (before adjustment) P 41,250 P 34,375 P 6,875
Less: Inventory, Dec. 31 (after 16,500 13,750 __2,750
adjustment)
Reduction in unrealized profit
account- adjustment to branch profit
for overstated of cost of goods sold P 24,750 P 20,625 *P 4,125
(adjustment)
*or, P24,750 x 20/120 = P4,125;
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 in Allowance................................................................. P4,125
Branch Income Summary (P4,125 – P2,600)....................................................1,525
Income Summary....................................................................................
1,525
Therefore, the Real/True/Adjusted Branch Net Income/Branch Net Income in so far as
HO is concerned, amounted to P1,525, computed as follows:
Branch net loss as reported/unadjusted……………………………………………………(P2,600)
Add: Overvaluation of branch inventory/Realized profit from branch sales……….. 4,125
Real/True/Adjusted Branch Net Income or Branch NI in so far as HO is concerned P1,525
Problem II
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment
on December 31, calculated as follows:
Unrealized Profit
Cost (Billing Price
Billing Price (Billing/1.35 Minus Cost)
)
Inventory, December 1 P 16,200 P 12,000 P 4,200
Shipments during December __20,250 _ 15,000 __ 5,250
Available for Sale (before adjustment) P 36,450 P 35,625 P 9,450
Less: Inventory, Dec. 31 (after __18,900 _14,000 __4,900
adjustment)
Reduction in unrealized profit
account- adjustment to branch profit
for overstated of cost of goods sold P 17,550 P 21,625 *P 4,550
(adjustment)
* or, P17,550 x 35/135 = P4,550

b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch

Inventory/ Unrealized Intercompany Inventory Profit (refer to “a” for
computation):
Unrealized Intercompany Inventory Profit.................................................... 4,550
Branch Income Summary.................................................................. 4,550
c.
Home Office Books Branch Books
Shipments to Branch 400 Home Office Current 540
Unrealized Int Inv. Pr 140 Shipments to Branch 540
Branch Current 540
Cost of merchandise returned: P540/1.35, or P400.

Problem III
1. 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:
Unrealized Profit
Cost (Billing Price
Billing Price (Billing/1.20 Minus Cost)
)
Inventory, December 1 **P 12,000 *P 10,000 P 2,000
Shipments during December __9,600 _ 8,000 __ 1,600
Available for Sale (before adjustment) P 21,600 P 18,000 P 3,600
Less: Inventory, Dec. 31 (after __8,400 __7,000 __1,400
adjustment)
Reduction in unrealized profit
account- adjustment to branch profit
for overstated of cost of goods sold P 13,200 P 11,000 ***P 2,200
(adjustment)
 *P2,000/20% = P10,000; ***P13,200 x 20/120 = P2,200

2. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch

Inventory/ Unrealized Intercompany Inventory Profit (refer to “a” for
computation):
Unrealized Intercompany Inventory Profit......................................... 2,200
Branch Income Summary.......................................................... 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 Cost Unrealized
 Branch (Billing/1.1 Profit
/3) (Billing Price
Minus Cost)
Inventory, P 12,500 P 9,375 P 3,125
Dec.1............................................................
Shipments during 10,500 7,875 2,625
December......................................
Total in unrealized profit on December P 5,750
31.................
Inventory, 14,200 10,650 3,550
Dec.31.........................................................
Reduction in unrealized profit account-
adjustment to branch profit for overstated of
cost of goods P 2,200
sold.................................................................

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 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
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
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
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

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 H. Office
Current 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
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

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

RUGGLES CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P
256,000
Cost of goods sold:
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: Adjusted branch net income............................................................................. 13,500
Combine net income.................................................................................................... P 4,500

(2)
RUGGLES CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P
334,500
Cost of goods sold:
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

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 H. Office
Current 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
Cost of goods sold.............................................................................
101,530
Gross profit.................................................................................................................... P
38,470
Operating expenses....................................................................................................
24,300
Net income................................................................................................................... P
14,170

Income Statement – Home Office

Sales.............................................................................................................................. P
155,000
Cost of goods sold:
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.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P
295,000
Cost of goods sold:
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

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 recognize 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 1,600
Office……………………………………..
Freight 350
In………………………………………………………………

b. Books of branch No. 5:

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

c. Books of the Home Office

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

Shipments to Branch No. 1,600

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

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 67,600
40/140
Unrecorded branch expenses ( 2,500)
True Branch Net Income P 70,100

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

5. a

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

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

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

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

Cost of sales of Home Office…………………………………………………………….P500,000

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

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

11. 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%.

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

13. b
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

14. 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
15. 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…………………………………………………………………………….. P19,200
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

16. d
Billed Cost Allowance
Price
 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
17. d
Billed Price Cost Allowance
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, 20x4…………………………………P 15,000

Less: Shipments from home office at billed price*………………………… 12,000
Merchandise from outsiders……………………………………………………P 3,000

18. 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………………………………………………………………… P 256,800
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
19. 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

20. d
Billed Cost Allowance
Price
Merchandise inventory, 8/1/x4 60,000
Shipments (400,000 x 25%) 400,000 *100,,000
Cost of goods available for sale 160,000
Less: MI, 8/31/x4 (160,000 x 25%) 160,000 40,000
Overvaluation of CGS/RPBSales 120,000
21. b
(1) Sales P 40,000
Less: Cost of goods sold:
Inventory, 1/1/2003 (P4,950 / 110%) P 4,500
 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

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

23. a – P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to
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%
Billed Price Cost Allowance
Merchandise inventory, 1/1/x4 0
Shipments 108,000
Cost of goods available for sale 108,000
Less: MI, 12/31/x4 (P60,000 x 80%) 48,000
Overvaluation of CGS (60,000 x 60,000 10,000*
20/120)

24. 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

25. c
125% 100% 25%
Billed Price Cost Allowance
Merchandise inventory, 1/1/x4 40,000
Shipments 250,000
Cost of goods available for sale 290,000
 Less: MI, 12/31/x4 (P60,000 x 80%) 60,000
Overvaluation of CGS(230,000x 230,000 46,000*
25/125)

26. b – P326,000
Sales (P600,000 + P300,000) ………………………………………………….. P 900,000
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] ………………………. … P 132,000
Add: Purchases…………………………………… 350,000
Cost of goods available for sale………………… P 482,000
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

27. 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

28. 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

29. 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
30. c
Sales ……………………………………………………………………... P155,000
Less: Cost of Sales
Inventory, 1/1/10…………………………………………….. P 23,000
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

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

Less: Expenses ……………………………………………………………. 52,000
Net income – home office ……………………………………………. P 20,000

31. 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
Gross profit. ……………………………………………………………. P 28,870
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

32. 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

33. 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

34. 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.)

35. 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
36. 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

37. c
Home Office Books Davao Branch Baguio Branch
Davao Branch…39,000 SFHO…………….37,700
STB, cost……. Freight-in………. 1,300
32,500 HOC…………..
Unrealized profit 39,000
5,200
Cash (freight)….
1,300
BC – Baguio……19,630 HOC……………….20,150 SFHO………18,850
Excess freight… 520 SFHO(50%)… Freight-in.. 780
BC-Davao……. 18,850 HOC……...
20,150 Freight-in (50%) 19,630
650
Cash…………......
 650

38. c – (P300,000 x ¼ = P75,000, ending inventory x (P300,000 – P250,000)/P300,000 =

P12,500
39. d
40. d
41. b – refer to No. 21
42. b – refer to No. 21
43. c – refer to No. 21
44. c
45. d

Quiz – XIII
1. P63,000
Merchandise inventory, December 31 at cost –
From outsiders (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . . . P 18,000
.....
From home office (see no.2) . . . . . . . . . . . . . . . . . . . . . . . . 45,000
....
P63,000

2. P18,000
Branch inventory, 12/31 per books . . . . . . . . . . . . . P 72,000
....
Less Branch inventory from HO at billed price:
Overvaluation of branch P 9,000
inventory . . . . . . . . . . .
Cost of branch inventory (P9,000 ÷ 45,000 54,000
20%) . . . . . . .
Branch inventory from outsiders . . . . . . . . . . . . . . . P 18,000
....

3. P93,600
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 351,000
.....
Cost of sales:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,000
.....
Shipments from HO at cost (P216,000 180,000
÷120%) . . .
Cost of goods available per sale . . . . . . . . . . . 234,000
..
Less inventory, 12/31 (see 63,000 171,000
no.1) . . . . . . . . . . . . . . .
Gross 180,000
Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,400
......
Branch net income as far as the HO is concerned . . P 93,600
.
4. P14,040
Allowance for overvaluation of branch inventory . . P119,880
.
Less Overvaluation of shipments from HO:
Billed 468,000
price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost (P468,000 ÷ 130%) . . . . . . . . . . . . . . . . 360,000 108,000
.....
Overvaluation of beginning inventory from HO: . . . P 11,880
.
Add Beginning inventory from HO, at cost (11,880
÷ 39,600
30%) .
Beginning inventory from HO, at billed price . . . . . P 51,480
..

Merchandise inventory, January P 65,520

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

5. P47,340
Sales ……………………………………………………… P648,000
Cost of sales:
Merchandise inventory January
1-. . . . . . . . . . . .
From outsiders (see P14,040
no.4) . . . . . . . . . . . . . . . . .
From HO, at cost (see no.4) . . . . . . . . . . . . 39,600 P 53,640
...
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,520
.....
Shipments from HO, at cost
(equal Shipments to Branch) . . . . . . . . . . . . . . . 360,000
...
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587,160
.....
Less Merchandise inventory, December 31 -
From outsiders (P58,500– P46,800) . . . . . . 11,700
....
From HO, at cost (P46,800 ÷ 36,000 47,700 539,460
130%) . . . . . . . . .
Gross 108,540
profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,200
.....
Branch net income in so far as the HO is
concerned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 47,340
...
6. P45,000
Balance of Allowance for overvaluation of branch
inventory account before adjustment . . . . . . . . . P 69,000
Less Overvaluation of shipments from HO:
Billed price (P240,000 x 125%). . . . . . . . . . . . . . . . . P 250,000
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 60,000
Overvaluation of beginning inventory. . . . . . . . . . . . . 9,000
Add Beginning inventory at cost (P11,640 ÷ 25%) . . . . 36,000
Branch beginning inventory at billed price . . . . . . . . . P 45,000

7. P63,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 480,000
Cost of sales: (see no.6) . . . . . . . . . . . . . . . . . . . . . . . . .
Beginning inventory. . . . . . . . . . . . . . . . . . . . . . . . . P 45,000
Shipments from HO (P240,000 x 125%). . . . . . . . . . 300,000
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,000
Less ending inventory. . . . . . . . . . . . . . . . . . . . . . . . 48,000 297,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,000
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Branch net income, per books . . . . . . . . . . . . . . . . . . . P 63,000

8. P122,400
Branch net income, per books (see no. P 63,000
7) . . . . . . . . .
Add realized profit -
Allowance for overvaluation of branch P 69,000
inventory
Less Overvaluation of branch ending inventory:
Billed price. . . . . . . . . . . . . . . . . . . . . . . . . P 48,000
.....
Cost (P48,000 ÷ 125%). . . . . . . . . . . . . . . 38,400 9,600 59,40
..... 0
True branch net income. . . . . . . . . . . . . . . . . . . . . P
... 122,400

9. 20%
Inventories, January 1, 20x5 at billed P 90,000
price. . . . . . . . . . . . . . . . . . . . . .
Shipments from 432,000
HO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522,000
.......
Less Allowance for overvaluation of branch 87,000
inventory. . . . . . . . . . . .
Cost of merchandise from home P435,000
office . . . . . . . . . . . . . . . . . . . . . . . .

Allowance for overvaluation of branch P 87,000

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

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

11. P129,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P
....... 720,000
Cost of sales:
Inventories, January 1 at cost (P90,000 ÷ 120%) . . . . . P 75,000
.....
Shipments from HO, at cost (see no. 360,000
10) . . . . . . . . . . . . . . . .
435,000
CGAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Inventories, December 31 at cost (P100,800 ÷ 120%) . 84,000 351,000
.....
Gross 369,000
profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,00
...... 0
Adjusted branch profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P
..... 129,000

12. P4,800
Inventory , January 1 per books . . . . . . . . . . . . . . . . . . . . . . . P 24,000
....
Less Inventory, January 1 from HO at billed price
Allowance for overvaluation of branch inventory . . . . . . P 28,900
..
Overvaluation of shipments from HO (P96,000 – 24,000
P72,000) . .
Overvaluation of beginning inventory from HO . . . . . . . 4,800
...
Add Inventory for HO, at cost (P4,800 ÷ 14,500 19,200
33.33%) . . . . . . . . . .
Inventory, January 1 from P 4,800
outsiders. . . . . . . . . . . . . . . . . . . . . . . . .

13. P66,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P
..... 240,000
Cost of sales:
Inventory, January 1(cost)
From outsiders (see no.12) . . . . . . . . . . . . . . . . P
 ..... 4,800
From HO, at cost . . . . . . . . . . . . . . . . . . . . . . . . 14,500 P
..... 19,200
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
.....
Shipments from HO, at cost . . . . . . . . . . . . . . . . . . 72,000
....
127,200
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..
Less Inventory, December 31 (cost) -
From 7,200
outsiders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
From HO, at cost (P24,000 ÷ 133%). . . . . . . . . 18,000 25,200 102,000
.....
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,000
......
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
.....
True branch net P66,000
income . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

16. P89,040
Balance of allowance for overvaluation of branch P
inventory 94,800
Less Overvaluation of branch ending inventory:
Billed price (P49,680 – P
P20,880) . . . . . . . . . . . . . . . . . . . . . 28,800
 Cost (P28,800 ÷ 23,040 5,760
125%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P89,040
......

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

18. P26,400
Balance of allowance for overvaluation of branch P
inventory 43,200
Less Overvaluation of branch ending inventory from HO:
Billed price (P120,000 – P19,200) . . . . . . . . . . . . . . . P100,80
..... 0
Cost (P100,800 ÷ 84,000 16,800
120%) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized branch profit to be P
adjusted . . . . . . . . . . . . . . . . . . . 26,400

19. P9,990
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P
...... 189,000
Cost of sales:
Inventory, January 1 at cost (P27,000÷ P 21,360
125%) . . . . . . . .
Shipments from HO, at cost . . . . . . . . . . . . . . . . . . . 126,000
....
147,360
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...
Inventory, December 31 at cost P35,100 ÷ 120%) . 29,250 118,110
....
Gross 70,890
profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,900
......
 True branch P 9,990
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20. P67,290
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P
...... 636,000
Cost of sales:
Inventory, January 1. . . . . . . . . . . . . . . . . . . . . . . . . P 69,000
.....
492,000
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561,000
......
Less Shipment to branch . . . . . . . . . . . . . . . . . . . . . 126,000
.....
Cost of goods available for own sale . . . . . . . . . . . . 435,000
...
Less Inventory, December 31. . . . . . . . . . . . . . . . . . 85,500 349,500
....
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286,500
......
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,200
......
Net income of home 57,300
office . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add Branch net income (see no. 9,990
19) . . . . . . . . . . . . . . . . . . .
Combined net income . . . . . . . . . . . . . . . . . . . . . . . . . . . P 67,290
...

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

22. Branch Inventory, at cost: (P25,000 + P1,000) x 60%.........................P 15,600
23. P30,000
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

Theories

1 True 6. False 11. False 16. True 21. D

.
2 False 7. False 12. True 17. True 22. A
.
3 True 8. False 13. False 18. True 23. d
.
4 True 9. True 14. True 19. False 24. d
.
5 False 10. True 15. False 20. d 25. a
.
26. c