Chapter 13

Problem I
Sales....................................................................................................................... 42,000
Shipments to Newark Branch................................................................
35,000
Unrealized Intercompany Inventory Profit...........................................
7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Shipments to Newark Branch.............................................................................
Unrealized Intercompany Inventory Profit........................................................
Sales Returns...........................................................................................
750
Cost of merchandise returned by branch: P750/1.20= P625.

625
125

Newark Branch Income.....................................................................................

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

2,600

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

4,125
Newark Branch.......................................................................................
4,125
Decrease in Unrealized Intercompany Inventory Profit:
Balance prior to adjustment, 12/31, P7,000 P125............... P6,875
Balance required in account, 12/31,
P16,500 (P16,500/1.20)........................................................... 2,750
Decrease.................................................................................... P4,125
Newark Branch Income...................................................................................... 1,525
Income Summary....................................................................................
1,525
Problem II
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on
December 31, calculated as follows:
Merchandise transferred by home office at billed price,
35% above cost (P16,200 plus P20,250)............................................. P36,450
Merchandise transferred by home office at cost, P36,450/1.35.... 27,000
Additions to unrealized profit account resulting from transfers
by home office..................................................................................... P9,450
b. Unrealized Intercompany Inventory Profit.................................................. 4,550
Cash.......................................................................................................

4,550

Balance of unrealized profit account at December 31

(as calculated above).......................................................................................................... P 9,450
Required balance, December 31, to reduce inventory to cost:
Ending inventory of merchandise shipped to branch by home office:
At billed price................................................................................................. P 18,900
At cost (P 18,900/1.35)..................................................................................
14,000
4,900
Required decrease in unrealized profit account as a result

of branch sales......................................................................................................................
P4,550
c. Branch Books:
Home Office........................................................................................... 540
Shipments from Home office...................................................
Home Office Books:
Shipments to Branch.............................................................................. 400
Unrealized Intercompany Inventory Profit........................................... 140
Branch........................................................................................
Cost of merchandise returned: P540/1.35, or P400.

540

540

Problem III
a. The branch office inventory as of December 1 considered of:
Shipments from Home Office (see below)............................................................. P 12,000
Purchases from outsiders (balance of inventory)..................................................
3,000
Total inventory........................................................................................................... P 15,000
Goods acquired from home office and included in branch inventory at billed price are calculated
as follows:
Balance of unrealized intercompany inventory profit, December 31.................... P 3,600
Additions to unrealized profit account during December, 20% of
shipments to branch (20% x P8,000).............................................................................
1,600
Balance of unrealized profit account, December 1.................................................. P 2,000
Balance of unrealized profit account, December 1, P2,000 / 20% markup on
cost equals December 1 inventory at cost................................................................ P 10,000
Add 20% markup...........................................................................................................
2,000
Goods in branch inventory at billed price................................................................. P 12,000
b. Unrealized Intercompany Inventory Profit......................................... 2,200
Branch Income............................................................................

2,200

Calculation of reduction in Unrealized Intercompany

Inventory Profit:
Balance of unrealized profit account, December 31.........................P 3,600
Required balance, December 31, to reduce inventory to cost
At billed price................................................................... P8,400
At cost (P8,400/1.20).......................................................
7,000
1,400
Required decrease in unrealized profit account as a result
of branch sales........................................................................................ P 2,200
Problem IV
(1) Dec.31 Selling Expenses............................................................................ 260
Store Supplies............................................................................
Supplies used: P400 P140, or P260.
31

Selling Expenses............................................................................ 80
Accumulated Depreciation-Store Furniture........................
80
Depreciation:1% of P8,000, or P80.

260

31 Selling Expenses............................................................................
Accrued Expenses Payable.................................................

120

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

150
Selling Expenses.....................................................................
31 Income Summary......................................................................... 16,000
Merchandise Summary.........................................................
31 Merchandise Summary................................................................. 16,950
Income Summary......................................................................
31 Notes Payable..................................................................................1,000
Home Office...............................................................................

120
150
16,000
16,950
1,000

31 Sales.................................................................................................20,500
Income Summary.......................................................................
20,500
31 Income Summary........................................................................... 21,900
Purchases....................................................................................
Shipments from Home Office...................................................
Selling Expenses..........................................................................
General Expenses.......................................................................
31 Home Office....................................................................................... 450
Income Summary.......................................................................
(2) Dec.31 Branch No. 1.................................................................................... 1,000
Cash............................................................................................
Branch No. 1 Income.....................................................................
Branch No. 1...............................................................................

450

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

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

5,000
10,500
4,560
1,840
450
1,000
450
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 accountadjustment to branch profit for overstated of
cost of goods
P 2,200
sold.................................................................
31 Branch No. 1 Income............................................................... 1,750

Income Summary.............................................................

Problems V
(1)

1,750

SPENCER CO.
Balance Sheet for Branch
December 31,20x4

Assets
Liabilities____________________
Cash..................................................... P 2,650
P 4,200
Accounts receivable........................ 12,850
105
Merchandise inventory..................... 14,600
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
liabilities............................................ P 33,544

Accounts payable...................................
Accrued expenses...................................
Home

Total

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
Liabilities and Stockholders

Assets
Equity_______
Cash..................................................... P10,350
Cash in transit.....................................
1,500
Accounts receivable........................
26,200
P 35,660
Merchandise inventory..................... 24,200
Store supplies......................................
380
Prepaid expenses...............................
350
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 assets........................................ P 96,184
96,184

Liabilities
Accounts payable................ P 35,400
Accrued expenses...............
260
Stockholders Equity
Capital Stock......................... P 65,000
Less deficit..............................
4,476

Total liabilities and

stockholders equity............................... P

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
Accounts Receivable
39,050
Merchandise Inv .
36,850
39,965
Store Supplies ..
680
Prepaid Expenses ..
Furniture & Fixtures P12,100
60,524
Less accumulated
Depreciation ...
3,161
8,939
Total assets
P100,489
P100,489

Liabilities
Accounts Payable ..
Accrued Expenses .

P39,600
365

Stockholders Equity
470
Capital Stock P65,000
Less deficit .
4,476
Total liabilities and
stockholders

equity

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)
Dec

Dec.

Branch Books
31

Income Summary ..
Merchandise Inventory ..

14,400

31

Merchandise Inventory
Income Summary .

14,600

Store Supplies Expense .

Store Supplies
Store supplies used: P580 P300, or P280

31

Prepaid Expenses
Miscellaneous General Expense .

120

31

Miscellaneous General Expense

Accrued Expenses ..

105

31

Depreciation Expense F&F ..

Accumulated Depreciation
Depreciation: 1% of P3,600

36

31

Miscellaneous General Expense ..

Home Office

220

31

Sales
20,000
Income Summary .

31

31
(b)
Dec

14,600

31

20,000

280

280

120
105

Income Summary
22,221
Purchases
Shipments from Home Office
Advertising Expense .
Salaries and Commissions Expense .
Store Supplies Expense
Miscellaneous Selling Expense ..
Rent Expense .
Depreciation Expense F&F .
Miscellaneous General Expense .
Home Office .
Income Summary ..

14,400

3,021

36

220

4,100
10,200
2,800
2,350
280
1,050
1,500
36
905
3,021

Home Office Books

31

Income Summary .
Merchandise Inventory .

31,500

31

Merchandise Inventory ...

Income Summary

24,200

31

Store Supplies Expense .

Store Supplies
Store supplies used: P940 P380, or : 560

31,500
24,200

560
560

Dec

31

Prepaid Expense
Miscellaneous General Expense

350

31

Miscellaneous General Expense ..

Accrued Expenses .

260

31

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

85

31

Cash in Transit .
Branch

1,500

31

Sales
Shipments to branch .......................
Income Summary .

44,850
8,500

31

31

260

Income Summary
42,405
Purchases
Advertising Expense .
Salaries and Commissions Expense .
Store Supplies Expense
Miscellaneous Selling Expense ..
Rent Expense .
Depreciation Expense F&F .
Miscellaneous General Expense .
Branch Income ..
Branch

3,021

31

Unrealized Intercompany Inventory Profit .

Branch Income
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

1,750

31

Income Summary
Branch Income .

1,271

31

Income Summary
Retained Earnings .

2,374

Problem VI

350

85

1,500

53,350
27,600
2,850
4,250
560
1,850
2,700
85
2,510
3,021
1,750

1,271
2,374

1.
Branch
Current
Unadjusted balance, 12/31/20x4
Add (Deduct): Adjustments
1 Cash in transit
2. Merchandise in transit
3. Branch expenses paid by home office
4. Cash in transit from home office
Adjusted balance, 12/31/20x4

P 44,000

H. Office
Current
P 9,000

( 10,000)

_______
P 34,000

10,000
12,000
3,000
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
Gross profit..................................................................................................................
P477,500
Expenses......................................................................................................................
382,000

582,500

Net income from own operations............................................................................

Add branch net income...........................................................................................
Total income...............................................................................................................

P 95,500
16,650
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...............................................................................................................
Income Summary..........................................................................................
24,500

24,500

(4) Branch Income.....................................................................................................

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

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
Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold..................................................................

9,750
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................................................................................................................................
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.............................................................................
Gross profit....................................................................................................................
18,000
Operating expenses....................................................................................................
Net income...................................................................................................................
RUGGLES CO.
Income Statement for Home Office
For Year Ended December 31, 20x4

60,500
P
P

12,500
5,500

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 branch net income............................................................................................
13,500
Total 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.........................................................................................................
Home Office.....................................................................................................
5,500

5,500

(4) Branch......................................................................................................................
Branch Income................................................................................................
5,500
Unrealized Intercompany Inventory Profit...............................................................
Branch Income..............................................................................................
8,000

5,500

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..........................................................................................................
Retained Earnings............................................................................................
4,500
Problem IX
1.
Branch
Current
Unadjusted balance, 12/31/20x4
Add (Deduct): Adjustments
1 Remittance

P 60,000
I 1,700)

H. Office
Current
P 51,500

4,500

2. Cash in transit
3. Shipments in transit
Adjusted balance, 12/31/20x4

P 57,300

1,800
5,800
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 recognized the loss from fire on the home office books
immediately, the following entry may be made:
Branch Loss from Fire (or Retained Earnings)...................................... 30,000
Unrealized Intercompany Inventory Profit........................................... 6,000
Branch.........................................................................................
36,000
Problem XI
a. Books of Branch A:
Home Office........................................................................................ 1,500
Cash.........................................................................................

1,500

b. Books of branch B:
Cash...................................................................................................... 1,500
Home Office............................................................................

1,500

c. Books of Home Office:

Branch B............................................................................................... 1,500
Branch A..................................................................................
Problem XII
a. Books of Branch No. 1 :
Home Office .
Shipments from Home
Office..

1,950

1,600

1,500

Freight
In
b. Books of branch No. 5:
Shipments from Home
Office
Freight
In
Home Office.
Cash
c. Books of the Home Office
Branch No. 5..
Excess Freight on Inter branch Transfer of
Merchandise..
Branch No. 1
Shipments to Branch No.
1..
Shipments to Branch No.
5
Multiple Choice Problems
1. c - P50,400, billed price x 40/140 = P 14,400

350

1,600
400
1,750
250
1,750
200
1,950
1,600
1,600

2. b
Ending inventory in the combined income statement:
From Home Office: (P50,000-P6,600) x 100/140
From Outsiders
3. a

True Branch Net Income

Branch Net Income
Add (deduct):
Overvaluation of cost of goods sold/realized profit
from sales made by branch:
Shipments from home office.
P
280,000
Less: Ending inventory, at billed
price (P50,000 P6,600)
43,400
Cost of goods sold from home
office at billed price
P
236,600
Multiplied by: Mark-up
40/140
Unrecorded branch expenses
True Branch Net Income

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

P 31,000
6,600
P 37,600
P
5,000

67,600
( 2,500)
P 70,100

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
Note to teachers: The Intercompany Profit Deferred amounting to P6,000 should
be in the column of Home Office
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 soldP 20,000
Cost of sales of Home Office.P 500,000
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
Less: branch Net Income as reported by the branch
Overvaluation of CGS
Less: Cost of goods sold from home office at BP
Inventory, December 1
Shipment from HO
COGAS
Less: Inventory, December 31
CGS from home office, at cost

P156,000
60,000
P 96,000
P 70,000
350,000
P 420,000
84,000

336,000
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
Less: Rental expense charged by the home office
(P1,000 x 6 months)
Adjusted NI as reported by the Branch
Add: Overvaluation of CGS
MI, beginning
SFHO
COGAS

P 20,000
6,000
P 14,000
Billed Price
0
550,000
550,000

Less: MI, ending

CGS, at BP
X: Mark-up ratio
True/Adjusted/Real Branch Net Income
14. d

15. d

75,000
475,000
25/125

95,000
P109,000

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
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment.P 7,200
Less: Allowance of ending branch inventory (P20,000 x 84% =
P16,800 x 20/120. 2,800
Overvaluation of Cost of Goods Sold. .P 4,400

Adjusted branch net income:

SalesP60,000
Less: Cost of goods sold:
Inventory, January 1, 2003.P 30,000
Add: Purchases..... 11,000
Shipments from home office..
19,200
Cost of Goods available for sale P 60,200
Less: Inventory, December 31, 2003.
20,000
40,200
Gross profit.. P 19,200
Less: Expenses.. 12,000
Unadjusted branch net income.P 7,800
Add: Overvaluation of Cost of Goods Sold.
4,400
Adjusted branch net income..P 12,000
16. d
Billed
Price
*P 36,000
28,800

Cost

Allowance

Merchandise Inventory, 12/31/2005

P 30,000
P 6,000
Shipments
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
Merch. Inventory, 12/31/20x4
*P12,000
Shipments
9,600
Cost of Goods Sold
*P2,000 / 20% = P10,000 + P2,000 = P12,000.

Cost
P10,000
8,000

Allowance
P 2,000
1,600
P 3,600

Merchandise inventory, December 1, 20x4P 15,000

Less: Shipments from home office at billed price* 12,000

Merchandise from outsidersP 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
P256,800
Less: Merchandise Inventory, 12/31/2003
Home Office, cost.
P 3,000
Branch: Outsiders. P
150
From Home Office (P1,800 P150)/110%................
1,500
1,650
4,650
Cost of Goods Sold
P252,150
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
Price
Merchandise inventory, 8/1/x4
Shipments (400,000 x 25%)
Cost of goods available for sale
Less: MI, 8/31/x4 (160,000 x 25%)
Overvaluation of CGS/RPBSales

400,000
160,000

Cost

Allowance
60,000
*100,,000
160,000
40,000
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)

Less: Cost of Sales
Inventory, 1/1/20x4
Purchases
Shipments from home office
Cost of goods available for sale
Less: Inventory, 12/31/20x4
Gross profit
Less: Expenses
(P76,000 + P24,000)
Net income, unadjusted
Add: Overvaluation of CGS
Adjusted branch net income

25. c
Merchandise inventory, 1/1/x4
Shipments
Cost of goods available for sale
Less: MI, 12/31/x4 (P60,000 x 80%)
Overvaluation
of
CGS(230,000x
25/125)

P192,000
P

0
52,000
108,000
P 160,000
60,000
100,000
P 92,000
100,000
P( 8,000)
10,000
P 2,000

125%
Billed Price
40,000
250,000
290,000
60,000
230,000

26. d P326,000
Sales (P600,000 + P300,000)
Less: Cost of goods sold
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)]
Add: Purchases
Cost of goods available for sale
Less: MI, ending
[P30,000 + (P60,000/1.25)]
Gross profit

100%
Cost

25%
Allowance

46,000*

P 900,000
P132,000
350,000
P482,000
78,000

404,000
P 496,000

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

Net Income
27. b
Sales (P537,500 + P300,000)
Less: Cost of goods sold
Merchandise inventory, beg.
[P50,000 + (P60,000/1.20)]
Add: Purchases
Cost of goods available for sale
Less: MI, ending
[P70,000 + (P60,000/1.20)]
Gross profit
Less: Expenses (P120,000 + P50,000)
Net Income

_ 170,000
P 326,000
P 837,500
P 87,500
500,000
P587,500
120,000

467,500
P 370,000
_ 170,000
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 SaleP 147,000
Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200
89,800
Gross profit
P 90,200
Less: Expenses (P28,000 + P12,000)
40,000
Net Income.
P 50,200
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
Less: Cost of Sales
Inventory, 1/1/10
Purchases
Cost of goods available for sale
Less: Shipment/Sales to Branch,
at cost (P110,000/110%)
Cost of goods available for HO
Sale
Less: Inventory, 12/31/10
Gross profit
Less: Expenses
Net income home office

P155,000
P 23,000
190,000
P213,000
100,000
P113,000
30,000

83,000
P 72,000
52,000
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

MI. 1/1/2010
Shipments
110,000
Available for sale
-: MI, 12/31/10
***15,400
CGS
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110

100,000

Allowance
1,000
**10,00
0
11,000
****1,400
9,600

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

36. b

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
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 Branch39,000
STB, cost.
32,500
Unrealized profit
5,200
Cash (freight).
1,300
BC Baguio19,630
Excess freight
520
BC-Davao.
20,150

Davao Branch
SFHO.37,700
Freight-in. 1,300
HOC..
39,000

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

Baguio Branch

SFHO18,850
Freight-in..
780
HOC...
19,630

38. c (P300,000 x = 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) . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
From home office (see no.2) . . . . . . . . . . . . . . . . . . . . . . . .
....

P 18,000
45,000
P63,000

2. P18,000
Branch inventory, 12/31 per books . . . . . . . . . . . . .
....
Less Branch inventory from HO at billed price:
Overvaluation of branch
inventory . . . . . . . . . . .
Cost of branch inventory (P9,000
20%) . . . . . . .
Branch inventory from outsiders . . . . . . . . . . . . . . .
....
3. P93,600
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
Cost of sales:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
Shipments from HO at cost (P216,000
120%) . . .
Cost of goods available per sale . . . . . . . . . . .
..
Less inventory, 12/31 (see
no.1) . . . . . . . . . . . . . . .
Gross
Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......
Branch net income as far as the HO is concerned . .
.
4. P14,040
Allowance for overvaluation of branch inventory . .
.
Less Overvaluation of shipments from HO:
Billed
price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost (P468,000 130%) . . . . . . . . . . . . . . . .
.....
Overvaluation of beginning inventory from HO: . . .
.
Add Beginning inventory from HO, at cost (11,880

30%) .
Beginning inventory from HO, at billed price . . . . .

P 72,000
P 9,000
45,000

54,000
P 18,000

P 351,000
54,000
180,000
234,000
63,000

171,000
180,000
86,400
P 93,600

P119,880
468,000
360,000

108,000
P 11,880
39,600
P 51,480

..
Merchandise inventory, January
1................
Less Beginning inventory from HO, at billed price
(see
above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Beginning inventory from
outsiders . . . . . . . . . . . . . . .
5. P47,340
Sales
Cost of sales:
Merchandise inventory January
1-. . . . . . . . . . . .
From outsiders (see
no.4) . . . . . . . . . . . . . . . . .
From HO, at cost (see no.4) . . . . . . . . . . . .
...
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
Shipments from HO, at cost
(equal Shipments to Branch) . . . . . . . . . . . . . . .
...
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
Less Merchandise inventory, December 31 From outsiders (P58,500 P46,800) . . . . . .
....
From HO, at cost (P46,800
130%) . . . . . . . . .
Gross
profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
Branch net income in so far as the HO is
concerned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...

P 65,520
51,480
P 14,040

P648,000

P14,040
39,600

P 53,640
173,520
360,000
587,160

11,700
36,000

6. P45,000
Balance of Allowance for overvaluation of branch
inventory account before adjustment . . . . . . . . .
Less Overvaluation of shipments from HO:
Billed price (P240,000 x 125%). . . . . . . . . . . . . . . . .
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overvaluation of beginning inventory. . . . . . . . . . . . .
Add Beginning inventory at cost (P11,640 25%) . . . .
Branch beginning inventory at billed price . . . . . . . . .
7. P63,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales: (see no.6) . . . . . . . . . . . . . . . . . . . . . . . . .

47,700

539,460
108,540
61,200
P 47,340

P 69,000
P 250,000
200,000

60,000
9,000
36,000
P 45,000
P 480,000

Beginning inventory. . . . . . . . . . . . . . . . . . . . . . . . .
Shipments from HO (P240,000 x 125%). . . . . . . . . .
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less ending inventory. . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch net income, per books . . . . . . . . . . . . . . . . . . .
8. P122,400
Branch net income, per books (see no.
7) . . . . . . . . .
Add realized profit Allowance for overvaluation of branch
inventory
Less Overvaluation of branch ending inventory:
Billed price. . . . . . . . . . . . . . . . . . . . . . . . .
.....
Cost (P48,000 125%). . . . . . . . . . . . . . .
.....
True branch net income. . . . . . . . . . . . . . . . . . . . .
...

P 45,000
300,000
345,000
48,000

297,000
183,000
120,000
P 63,000
P 63,000

P 69,000
P 48,000
38,400

9,600

59,40
0
P
122,400

9. 20%
Inventories, January 1, 20x5 at billed
price. . . . . . . . . . . . . . . . . . . . . .
Shipments from
HO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.......
Less Allowance for overvaluation of branch
inventory. . . . . . . . . . . .
Cost of merchandise from home
office . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for overvaluation of branch
inventory . . . . . . . . . . . . . . .
Divide by Cost of merchandise from HO (see
above) . . . . . . . . . . . .
Percentage of profit on cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
10. P360,000
Shipments from HO, at billed price . . . . . . . . . . . . . . . . . . . . . . .
.....
Divide by the billing
percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance of shipments to Branch account. . . . . . . . . . . . . . . . . . .
...
11. P129,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.......

P 90,000
432,000
522,000
87,000
P435,000
P 87,000
P 435,000
20%

P 432,000
120%
P 360,000

P
720,000

Cost of sales:
Inventories, January 1 at cost (P90,000 120%) . . . . .
.....
Shipments from HO, at cost (see no.
10) . . . . . . . . . . . . . . . .

P 75,000
360,000
435,000

CGAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Inventories, December 31 at cost (P100,800 120%) .
.....
Gross
profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......
Adjusted branch profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
12. P4,800
Inventory , January 1 per books . . . . . . . . . . . . . . . . . . . . . . .
....
Less Inventory, January 1 from HO at billed price
Allowance for overvaluation of branch inventory . . . . . .
..
Overvaluation of shipments from HO (P96,000
P72,000) . .
Overvaluation of beginning inventory from HO . . . . . . .
...
Add Inventory for HO, at cost (P4,800
33.33%) . . . . . . . . . .
Inventory, January 1 from
outsiders. . . . . . . . . . . . . . . . . . . . . . . . .
13. P66,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
Cost of sales:
Inventory, January 1(cost)
From outsiders (see no.12) . . . . . . . . . . . . . . . .
.....
From HO, at cost . . . . . . . . . . . . . . . . . . . . . . . .
.....
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
Shipments from HO, at cost . . . . . . . . . . . . . . . . . .
....

84,000

351,000
369,000
240,00
0
P
129,000
P 24,000

P 28,900
24,000
4,800
14,500

19,200
P 4,800

P
240,000
P
4,800
14,500

P
19,200
36,000
72,000
127,200

CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..
Less Inventory, December 31 (cost) From
outsiders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
From HO, at cost (P24,000 133%). . . . . . . . .

7,200
18,000

25,200

102,000

.....
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
True branch net
income . . . . . . . . . . . . . . . . . . . . . . . . . . . .

138,000
72,000
P66,000

14. 25%
Shipments from home office (billed
price) . . . . . . . . . . . . . . . . . . . . . . . . .
Divide by shipments to branch (cost) . . . . . . . . . . . . . . . . . . . . . . . .
.....
Billing
percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Less percentage at
cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of mark-up on
cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15. P24,000
Balance of allowance for overvaluation of branch inventory account
Less Overvaluation of shipments from HO (P450,00 P360,000) . . .
....
Overvaluation of beginning inventory from HO . . . . . . . . . . . . . . . . .
....
Add Cost of beginning inventory from HO (P4,800 25%) . . . . . . . .
....
Branch beginning inventory from
HO . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16. P89,040
Balance of allowance for overvaluation of branch
inventory
Less Overvaluation of branch ending inventory:
Billed price (P49,680
P20,880) . . . . . . . . . . . . . . . . . . . . .
Cost (P28,800
125%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......

P
450,000
360,000
125%
100
25%

P 94,800
90,000
4,800
19,200
P 24,000

P
94,800
P
28,800
23,040

17. P36,000
Balance of Allowance for overvaluation of branch inventory . . . . .
..
Less Overvaluation of shipments from HO (P115,200 P96,000) . . .
. ...
Overvaluation of beginning inventory from
HO . . . . . . . . . . . . . . . . . . . .
Add Cost of beginning inventory from HO (P24,000 20%) . . . . . . .
....

5,760
P89,040

P 43,200
19,200
24,000
120,000

Beginning inventory from HO, at billed price. . . . . . . . . . . . . . . . . . .

....
Merchandise inventory, January 1 per
books . . . . . . . . . . . . . . . . . . . . . .
Less beginning inventory from HO (see
above) . . . . . . . . . . . . . . . . . . . . .
Branch beginning inventory from
outsiders . . . . . . . . . . . . . . . . . . . . . . . .
18. P26,400
Balance of allowance for overvaluation of branch
inventory
Less Overvaluation of branch ending inventory from HO:
Billed price (P120,000 P19,200) . . . . . . . . . . . . . . .
.....
Cost (P100,800
120%) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized branch profit to be
adjusted . . . . . . . . . . . . . . . . . . .
19. P9,990
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......
Cost of sales:
Inventory, January 1 at cost (P27,000
125%) . . . . . . . .
Shipments from HO, at cost . . . . . . . . . . . . . . . . . . .
....
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...
Inventory, December 31 at cost P35,100 120%) .
....
Gross
profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......
True branch
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20. P67,290
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......
Cost of sales:
Inventory, January 1. . . . . . . . . . . . . . . . . . . . . . . . .
.....

P 36,000

P
43,200
P100,80
0
84,000

16,800
P
26,400
P
189,000

P 21,360
126,000
147,360
29,250

118,110
70,890
60,900
P 9,990

P
636,000
P 69,000
492,000

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..
CGAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......

P
144,000
P
180,000
144,000

561,000

Less Shipment to branch . . . . . . . . . . . . . . . . . . . . .

.....
Cost of goods available for own sale . . . . . . . . . . . .
...
Less Inventory, December 31. . . . . . . . . . . . . . . . . .
....
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
......
Net income of home
office . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add Branch net income (see no.
19) . . . . . . . . . . . . . . . . . . .
Combined net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
...

126,000
435,000
85,500

349,500
286,500
229,200
57,300
9,990
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
.
2
.
3
.
4
.
5
.

True

6.

False

11.

False

16.

True

21.

False

7.

False

12.

True

17.

True

22.

True

8.

False

13.

False

18.

True

23.

True

9.

True

14.

True

19.

False

24.

10.

True

15.

False

20.

25.

26.

False