CPA REVIEW SCHOOL OF THE PHILIPPINES MANILA PRACTICAL ACCOUNTING PROBLEMS II GUERRERO / GERMAN

SIY / DE JESUS / LIM / FERRER

PARTNERSHIP ACCOUNTING

PROBLEM 1. Karen Joy Company operates a branch in Alabang. At close of the business on December 31, 2013, the Alabang Branch account in the home office books showed a debit balance of P265,000. The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were ascertained: a. Computer equipment costing the home office P27,000 was sent to Alabang branch. The home office will maintain the records of the asset used by the branch. Meanwhile, back at the branch no entry was made. b. The branch acquired a machinery costing P18,000. The home office will maintain the records of the asset used by the branch. The home office was not yet notified. c. The home office charged the branch for freight amounting to P2,000. It should have been charged to its customer. d. The home office inadvertently recorded a Alabang branch remittance of P50,000, as collection from its customers on account. e. On December 24, 2013, the branch sent a check for P35,000 to its suppliers on account. The branch erroneously recorded the transaction as a remittance to the home office and sent a copy of the debit memo to the home office. The home office recorded this upon receiving the debit memo on December 29, 2013. f. On December 26, 2013 the branch returned P15,000 of excess merchandise to the home office. The merchandise was received by the home office on December 30, 2013 and credited the Laguna Branch account. g. The home office allocated advertising and rent expense totaling P3,000 to the Alabang branch. The home office charged the said expense to Laguna branch by mistake. The Alabang branch had not entered the allocation at year-end. h. A home office customer remitted P25,000 to the branch. The branch inadvertently recorded this transaction on December 28, 2013 as a transfer of cash from the home office. The home office made no entry during the year. i. Inventory costing P28,000 was sent to the branch by the home office on December 14, 2013. The branch recorded the transaction as a purchase of merchandise on account from outsiders by mistake. j. The Alabang branch recorded a debit memo from Home Office of P15,000 as P51,000. 1. Compute the unadjusted balance of the home office current account as of December 31, 2013 2. What are the reconciled balances of the investment in Alabang branch account and the Home office

account?

PROBLEM 2. On September 1, 2013, the ELOIZA BIEN Company established an agency in Puerto Princesa, sending its merchandise samples costing P135,000 and a working fund of P70,000 to be maintained on the imprest basis. During the month of September, the agency transmitted to the home office sales orders that cost at P1,500,000. However, the home office was able to deliver only 80% of the orders. Total cash of P1,000,000 was collected from the customers. A home office disbursement chargeable to the sales agency includes the acquisition of furniture and fixtures for Puerto Princesa at P120,000 to be depreciated at 25% per annum. The agency paid expenses of P68,500 and received replenishment thereof from the home office. The agency samples are good until November 30, 2014 only. It was estimated that the gross profit on goods shipped to bill agency sales orders averages 40%. 3. What is the net income of the agency for the month ended September 30, 2013?? PROBLEM 3. Annarose Company had an agency in Quezon City. During the year, the transactions of the agency are summarized below: Sales Disbursements: Purchases Salaries Rent Supplies Other expenses P800,000 600,000 80,000 40,000 16,000 6,000

The agency had P120,000 of accounts receivable and P50,000 of accounts payable as of the end of the period. At the same time there are inventories on hand of P90,000 and unused supplies of P2,000. The agency was set up as an experiment for one year and would be closed if losses were incurred. 4. What is the net income or loss for the first year of operations of the agency? PROBLEM 4. The home office bills its Timog branch at 40% of the shipping price. During the year 2013, goods costing P240,000 were shipped to the branch. The account Allowance for Overvaluation has a balance of P36,000 at the end of the year after adjustment. The realized Allowance for Overvaluation amounted to P152,000. 5. How much is the ending inventory in the books of the branch? 6. How much is the beginning inventory in the point of view of home office?

PROBLEM 5. The Makati head office opened its Laguna branch on April 8. Merchandise shipments to the branch during the month, billed at 125% of cost, is P160,000. Branch returned damaged merchandise worth P18,000. On April 30, the branch reported a net loss of P12,000 and an inventory of P32,000. 7. What is the adjusted net income (loss) of the branch to be taken up in the books of the home office? PROBLEM 6. The Congressional Avenue branch of Natalie Company has been consistently billed for merchandise it receives at 20% above cost. The branch sells them at 140% of billed price from the home office. On April 27, all the branchs merchandise was destroyed by fire. The branch records recovered shows: Beginning inventory (P56,000 from purchases) Shipments from home office (to April 27) Purchases from outsiders (was all sold at mark-up of 30%) Sales Sales returns and allowances P 560,000 600,000 70,000 1,250,000 28,400

The entire beginning inventory was sold at the usual mark up of 30% on purchases and 140% billed price on shipments from the home office. 8. What is cost of the merchandise destroyed by fire? PROBLEM 7. Paula Company has established several branches that sell the product that it manufactures. Manufactured units are billed to the branches at the manufacturing costs, the branches paying the freight charges from the home office. On November 2, the home office ships goods to Branch No. 1 charging the branch P50,000. The branch pays freight charges of P1,500. It is subsequently discovered that the home office had shipped the goods to Branch No. 1 by mistake and the home office directs Branch No. 1 to forward the goods to Branch No. 2. Branch No. 2 upon receiving the goods pays freight charges from branch No. 1 of P900. If the shipment had been made directly from the home office the freight would have been P2,150. After the delivery, Branch No. 3 ran out of the product that was recently delivered to Branch No. 2. Branch No. 2 was immediately instructed to deliver the goods to Branch No. 3 in anticipation for its sale. Branch No. 3 paid the freight charges of P1,000. If the shipment had been made directly from the home office the freight would have been P3,000. 9. What amount is debited to Branch Current (3) In the books of the home office as the result of the

interbranch transfer of merchandise?

PROBLEM 8. Ma. Consuelos home office shipped inventory to its branch during the year. The following information has been obtained from the records of the home office and the branch at the end of the current year: Shipments from home office Shipments to branch Mark up Total P450,000 375,000 P75,000 Resold . . . . On Hand P90,000 . . . .

10. Assuming the home office does not change its pricing policy to the branch and the beginning inventory of

the branch was recorded at P60,000, what is the year end adjustment for the deferred profit account on inventories?

PROBLEM 9. Rom S. Company bills its branch for merchandise at 135% of cost. On December 31 the balance in the unrealized profit account is to be calculated from the following information reported by the branch: Merchandise from Home office (at billed price) 162,000 202,500 189,000 Merchandise purchase from Outsiders 40,000 120,000 50,000 Merchandise total 202,000 322,500 239,000

Merchandise inventory, 12/1 Merchandise inventory, Dec. Merchandise inventory, 12/31

11. What is the balance of the unrealized profit account in the home office books before any adjustment is

made for branch sales for December?

PROBLEM 10. Alfred Corporation starts a branch operation in a nearby town on January 2, 2013. Merchandise costing P200,000 is shipped to this branch along with equipment costing P100,000. During the year, the home office assigns P20,000 in expenses to the branch and the branch incurs P14,000 of its own expenses. The branch sells 80% of the inventory that it received at a mark up of 40% of its cost and remits P80,000 in cash to its home office. The books are closed on December 31, 2013. 12. What is the correct Home Office account balance on the records of the branch as of December 31, 2013? PROBLEM 11. Presented here is the selected information using perpetual inventory from the separate financial statements of the home office and the branch at the end of the fiscal year, December 31, 2013. The home office has consistently billed merchandise to the branch at a percentage above its cost. The branch was established this year and buys all its merchandise from the home office. Allowance for inventory profit Branch income Cost of goods sold Merchandise inventory, Dec. 31, 2013 Home office, preclosing Net income Home Office P 9,000 50,000 Branch P230,000 69,000 500,000 20,000

13. What were the shipments to branch recorded by the home office?

PROBLEM 12. A home office ships inventory to its branch at 125% of cost. The deferred profit account balance at the beginning of the year was P20,000. During the year, the branch was billed P350,000 for inventory transfers from the home office. At year-end, the branchs balance sheet shows P80,000 of inventory on hand that was acquired from the home office. 14. Determine the amount of the branchs beginning inventory as shown in its books. PROBLEM 13. The home office in Asiana shipped merchandise costing P160,000 to Alabang branch and paid for the freight charges of P5,000. Afterwards, the Alabang branch was subsequently instructed to transfer the merchandise to the Manila branch wherein Alabang branch paid for P1,000 of freight. If the shipment was made directly from Asiana to Manila, the freight cost would have been P4,500. 15. The amount of Alabang Branch Current account to be credited in the books of the home office as a result

of the interbranch transfer of merchandise.

PROBLEM 14. Comparative trial balances of the home office and the two branches of Jason Joson Corporation at December 31, 2013 were as follows: Cash Account receivable (net) Inventories Branch No. 1 Branch No. 2 Plant assets (net) Purchases Shipments from home office Expenses Total Accounts payable Other liabilities Loading in branch inventories Share capital, P10 par Retained earnings Home office Sales Shipments to branches Total Home Office P 5,000 80,000 150,000 170,000 165,000 730,000 900,000 300,000 2,500,000 P 150,000 92,000 108,000 500,000 200,000 1,000,000 450,000 P2,500,000 Branch No. 1 P 15,000 30,000 60,000 250,000 300,000 75,000 P730,000 P 45,000 15,000 Branch No. 2 P 22,000 40,000 48,000 205,000 240,000 45,000 P600,000 P 30,000 5,000

170,000 500,000 . P730,000

165,000 400,000 . P600,000

Additional information: Home office and branch inventories at December 31, 2013 were: Home office Branch No. 1 (at billed price) Branch No. 2 (at billed price) P120,000 72,000 96,000

16. What is the mark up rate on merchandise transfers of cost to branches? 17. How much is the beginning inventory of Jason Joson Corporation? 18. How much retained earnings will Jason Joson Corporation report in its year-end balance sheet? PROBLEM 15. The income statement submitted by the AMV City branch to the Home Office for the month of December 31, 2013 follows: Sales Cost of sales: Inventory Dec. 1, 2013 Shipments from Home office Purchases Total Inventory, Dec. 31, 2013 Gross margin Operating expenses Net income for the month The branch inventories consisted of Merchandise from home office Local purchases Total Dec 1 P 70,000 10,000 P 80,000 P600,000 P80,000 350,000 30,000 460,000 100,000

360,000 P240,000 180,000 P 60,000 Dec. 31 P 84,000 16,000 P100,000

After affecting the necessary adjustments, the home office ascertained the true net income of the branch to P156,000. 19. At what percentage of cost did the home office bill the branch for merchandise shipped to it?

PROBLEM 16. A home office transfers inventory to its branch at a 40% markup on cost. During 2014, shipments from home office in the branchs books was P630,000. At year-end, the home office adjusted its Allowance for Overvaluation account downward to P20,000. The branch's balance sheet at the beginning of the year shows P105,000 of inventory acquired from the home office. 20. What is the cost of goods sold of the branch as far as the home office is concerned? PROBLEM 17. A home office ships inventory to its branch at 125% of cost. The required balance of the Deferred Profit account is P50,000. During the year, the shipments to branch was P800,000. At the start of the year, the branch's balance sheet shows P150,000 of inventory on hand that was acquired from the home office. 21. What was the Realized markup? PROBLEM 18. The home office bills its Bernadette branch at 140% of cost. During the year 2014, goods billed at P1,260,000 were shipped to the branch. The account Allowance for Overvaluation in the home office books has a balance of P390,000 before adjustment but after returns of merchandise to the home office. The beginning inventory of the branch from the home office at cost is P100,000; the beginning inventory of the branch from outsiders is P25,000; purchases from outsiders is P110,000. 22. What was the cost of goods available for sale of the branch? PROBLEM 19. The home office in Alabang bills its QC branch for shipments of goods at 25% above cost. At the close of business on March 20, 2011, a fire gutted the branch warehouse and destroyed 70% of the merchandise stock stored therein. Thereafter, the following data were gathered from the records of the branch: January 1 inventory Shipments from home office, January 1 through March 20 Net sales, January 1 through March 20 Undamaged merchandise recovered are marked to sell for P 125,000 225,000 281,250 46,875

23. What was the cost of merchandise destroyed by fire?

PROBLEM 20. The BGC Trading Company operates a branch at The FORT. At close of business on December 31, 2013, Home Office account in the branch books showed a credit balance of P500,000. The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the following information were obtained: Merchandise shipments of P200,000 made by the home office on December 28, 2013 were received by The FORT on January 4, 2011. However, the home office charged only ninety percent of this shipment to The FORT; the balance was debited to the account of DIVISORIA Branch. Branch collections of P75, 000 were deposited for the account of the home office on December 30, 2013; sixty percent was credited on the home office bank account as of January 2, 2011; and the balance was returned to the depositor marked NSF. The branch received a cash transfer amounting to P30,000 from the home office on January 3, 2014. The home office initiated the fund transfer last December 30, 2013 but it was inadvertently charged to Advances to Officers account. The branch reported a net income of P40,000 which was taken up by the home office as a P4,000 loss.

24. What was the reconciled balances of the branch current and home office account on December 31, 2013 25. What is the unadjusted branch current account in the home office books on December 31, 2013 PROBLEM 21. The Makati head office opened its Manila branch on April 1. Merchandise shipments to branch during the month, billed at 125% of cost, is P600,000. Branch returned damaged merchandise recorded at P50,000. On April 30, the branch reported a net loss of P20,000 and an inventory of P225,000.

26. True income (loss) of the branch.

PROBLEM 22. Stephanie Company established a branch in Ayala to distribute part of the goods purchased by the home office. The home office prices inventory shipped to the branch at 25% above cost. The following account balances were taken from the ledger maintained by the home office and the branch:

Stephanie, Co.
Sales Beginning inventory Purchases Shipments to branch Shipments from home office Operating expenses Ending inventory P224,000 46,000 148,000 44,000 45,600 32,000

Ayala Branch
P96,000 25,600 55,000 22,800 14,400

27. The combined cost of goods sold of the home office and the branch is. 28. The combined net income of the home office and the branch.
PROBLEM 23. The home office bills its East branch at 125% of cost during the year 2014 and 130% of cost during the year 2013. In 2014 goods billed at P743,750 were shipped to the branch. The account Allowance for Overvaluation has a balance of P42,000 at the beginning of the year. The branch started to acquire merchandise from outsiders during the year in the amount of P35,000.

29. Cost of goods available for sale of the branch at cost

PROBLEM 24. Presented below are items taken from the unadjusted trial balance of the Kristalyn branch books of Ma. Loribelle Company on December 31, 2013: Purchases from outsiders Merchandise inventory, January 1, (10,500 of which came from outside suppliers) Merchandise inventory, December 31, (50% represents outside purchases) Sales Expenses 162,000 49,500 65,000 600,000 51,000

It is the companys policy to bill all branches for merchandise shipments at 30% above cost. The true income of the branch for the year is P104,000. 30. The shipments from the home office amounted to what amount? PROBLEM 25. Carlo Ibarra transfers inventory to its branch operation located in another city. In 2013, Carlo Ibarras home office sold inventory costing P480,000 to its branch for P600,000. The branch sold 45% of the inventory in 2013 for P360,000 and the remaining 55% in 2014 for P590,000. In 2014, Carlo Ibarra transferred P300,000 of inventory to its branch for P450,000. The sold one-third of the inventory in 2014 for P280,000 and two-thirds in 2015 for P560,000. 31. What is the cost of sales to be recorded by the home office with regard to the branch for the year 2014? PROBLEM 26. Trial balances for the home office and the branch of Jeffer Company show the following items, before adjustment on December 31. Difference in the shipment account balances result from the home office policy of billing the branch for merchandise at 20% above cost. Unrealized intercompany profit Shipments to branch Purchases from outsiders Shipments from home office Merchandise inventory, December 1 Home Office Books P 36,000 80,000 Branch Books P 25,000 96,000 150,000

32. What part of the branch inventory on December 1 represented purchases from outsiders? 33. What part of the branch inventory on December 1 represented goods acquired from the home office? PROBLEM 27. Charisse Company owns the Royal Crown in Quezon Avenue and a branch in Lucena City. During 2014, the home office shipped to the branch supplies costing P120,000 at a billed price of 20% above cost. The inventories of supplies at the branch were as follows: January 1, 2014, P90,000; December 31, 2014, P108,000. On December 31, 2014, the home office holds inventories of P160,500 which P10,500 held on consignment. Both locations use the periodic inventory method. 34. How much is the inventories in a combined balance sheet as of December 31, 2014? PROBLEM 28. The Home Office sells merchandise to its branch at 120 of cost. The branch was established several years ago with the policy that all its merchandise would be acquired from the home office. The following information is available from the records of the home office and the branch: Allowance for unrealized gross margin in branch inventory P46,000; branch beginning inventory P36,000; branch ending inventory P60,000. 35. How much is the total shipments from home office recorded by the branch during the current year?

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