CHAPTER 11

1. 7/1 Furniture, Quezon Agency 15,000

Furniture 15,000

Working Funds, Quezon Agency 10,000

Cash 10,000

a) Inventory Samples, Quezon Agency 50,000

Shipment to Quezon Agency 50,000

b) Advertising Materials, Quezon Agency 7,500

Cash 7,500
The advertising materials & literatures
were transferred to Quezon City Agency.

c) Accounts Receivable 63,000

Cash 21,000
Sales, Quezon Agency 84,000

Cost of Sales, Quezon Agency 40,000

Shipments to Quezon Agency 40,000

d) Utility Expense, Quezon Agency 1,000

Commission Expense, Quezon Agency 5,000
Rent Expense, Quezon Agency 3,000
Cash 9,000

e) Bad Debts Expense, Quezon Agency 2,500

Accounts Receivable 2,500

f) Samples Expense 15,000

Inventory Samples, Quezon Agency 15,000

g) Advertising Expense, Quezon Agency 4,500

Advertising Materials, Quezon Agency 4,500

h) Depreciation Expense, Quezon Agency 1,250

Accum. Depn. Furniture 1,250

i) Bonus Expense, Quezon Agency 1,825

Accrued Bonus 1,825
5% (84,000 45,000 2,500)
Closing Entries:
Sales, Quezon Agency 84,000
Cost of Sales, Quezon Agency 40,000
Samples, Quezon Agency 15,000
Utilities, Quezon Agency 1,000
Commission, Quezon Agency 5,000
Rent, Quezon Agency 3,000
Bad Debts, Quezon Agency 2,500
Advertising, Quezon Agency 4,500
Depreciation, Quezon Agency 1,250
Bonus, Quezon Agency 1,825
Income & Expense Summary, Quezon Agency 9,925

Sales 84,000
Less Cost of Sales 40,000
Gross Profit 44,000
Less Expenses: Samples 15,000
Commission 5,000
Advertising 4,500
Rent 3,000
Bad Debts 2,500
Salary & Bonus 1,825
Utility 1,000
Depreciation 1,250 34,075
Net Income Agency P 9,425

2. Investment in Cebu Home Office Equity

a) 6,750,000 h) 1,912,500 h) 1,912,500 a) 6,750,000
d) 400,000 d) 400,000
1
Profit 672,500 Profit 672,500

Income and Expense S Cash

Cost of mdse 3,900,000 Sales 6,500,000 Cash transfer 500,000 Paid expenses 775,000
Advertising 400,000 Collections 5,000,000 Paid suppliers 900,000
Commission 325,000 Cash transfer 1,192,500
Operating exp 450,000
Depreciation 2,500
Net Profit 672,500

a) Branch Book b) Home Office Book

3. a) Cash 50,000 a) Investment in Davao 110,000
Shipments from HO 60,000 Shipments to Branch 60,000
HO Equity 110,000 Cash 50,000

b) HO Equity 29,400 b) Furn. & Equipt., Davao Br. 29,400

Accounts Payable 29,400 Investment in Davao 29,400

c) Purchases 40,000 c) Purchases 220,000

Accounts Payable 40,000 Accounts Payable 220,000

d) Loss on Discount 600 d) Investment in Davao 30,000

Accounts Payable 29,400 Cash 30,000
HO Equity 30,000
e) Cash 48,000 fe Cash 240,000
Accts Recble 72,000 Accts Recble 100,000
Sales 120,000 Sales 340,000

f) Accounts Payable 30,000 f) Accounts Payable 60,000

Cash 30,000 Cash 60,000

g) Supplies Expense 5,000 g) Utilities Expense 6,000

Utilities Expense 3,000 Salaries Expense 45,000
Rent Expense 2,000 Rent Expense 25,000
Cash 10,000 Advertising Expense 24,500
Cash 100,500
h) Cash 17,500
Accounts Receivable 17,500 h) Cash 40,000
Accounts Receivable 40,000
i) HO Equity 25,000
Cash 25,000 i) Cash 25,000
Investment in Davao 25,000
j) Salaries Expense 8,000
Advertising Expense 5,000 j) Inv. In Davao 13,000
HO Equity 13,000 Salaries Expense 8,000
Advertising Expense 5,000
k) HO Equity 15,500
Cash 15,500 k) Notes Payable 15,000
Interest Expense 500
Inv. In Davao 15,500
l) Home Office Euqity 5,000
Shipments from HO 5,000 l) Shipments to Branch 5,000
Inv. In Davao 5,000
n) Depreciation Expense 245
HO Equity 245 m) Utilities Expense 16,500
Utilities Payable 16,500
o) Merchandise Inventory 30,000
Sales 120,000 n) Inv. In Davao Branch 245
Purchases 40,000 Accum. Depn. Furn. & Fix 245
Supplies Expense 5,000
Utilities Expense 3,000 Depn. Expense 3,000
Rent Expense 2,000 Accum Depn. Plant Asset 3,000
Salaries Expense 8,000
Advertising Expense 5,000 o) Sales 340,000
Depreciation Expense 245 Merchandise Inventory 58,000
Shipments from HO 55,000 Shipments to Davao 55,000
Loss on Discount 600 Merchandise Invty. Beg. 75,000
Income & Expense Summary 31,155 Purchases 220,000
Utilities Expense 22,500
Income & Expense Summary 31,155 Salaries Expense 37,000
HO Equity 31,155 Rent Expense 25,000
Advertising Expense 19,500
Depreciation Expense 3,000
Interest Expense 500
Income & Expense Sum. 50,500

Investment in Davao 81,1655

Branch Inc. & Exp. Sum. 81,655

Branch Inc. & Exp. Sum. 31,155

Income & Expense 31,155

Income & Expense Sum. 87,155

Retained Earnings 87,155

2
 U Company Davao Branch
Income Statement
For the month ended April 30, 2011

Sales P120,000
Less: Cost of Sales
Purchases P40,000
Shipments from Home Office 55,000
Total Goods available for sale 95,000
Less Merchandise Inventory end 30,000 65,000
Gross Profit 55,000
Less: Operating Expenses
Salaries Expense P 8,000
Supplies 5,000
Advertising 5,000
Utilities 3,000
Rent 2,000
Depreciation 245 23,245
Net Operating Income 31,755
Less Loss on Discount 600
Net Income 31,155

U Company Home Office

Income Statement
For the month ended April 30, 2011
Sales P340,000
Less: Cost of Sales
Merchandise Inventory beg. P 75,000
Purchases 220,000
Total Goods Available for sale 295,000
Less: Inventory end P58,000
Shipments to Davao 55,000 113,000 182,000
Gross Profit 158,000
Less: Operating Expenses
Salaries 37,000
Rent 25,000
Utilities 22,500
Advertising 19,500
Depreciation 3,000 107,000
Operating Income 51,500
Less Interest Expense 500
Net Income From Own Operation P50,500
Add: Net Income from Branch Operation 31,155
Net Income 81,655

U Company Home Office

Combined Income Statement
For the month ended April 30, 2011
Sales 460,000
Less Cost of Sales
Inventory beg. 75,000
Purchases 260,000
335,000
Less: Inventory end 88,000 247,000
Gross Profit 213,000
Less Operating Expenses
Salaries 45,000
Rent 27,000
Advertising 24,500
Utilities 25,500
Supplies 5,000
Depreciation 245 130,245
82,755
Less: Loss on Discount P 600
Interest Expense 500 1,100
3
 Net Income 81,655

b) Home Office Food Corp. b) Branch Book Food House Center

4. 1/3 Investment in FHC 18,300 Equipment 18,300
Equipment 18,300 HO Equity FC 18,300

4 Investment in FHC 6,000 Rent Expense 6,000

Cash 6,000 HO Equity FC 6,000

10 Shipments 7,500 HO Equity FC 8,100

Freight Expense 600 Shipments from HO 7,500
Investment in FHC 8,100 Freight In 600

15 Cash 630 HO Equity FC 630

Investment in FHC 630 Shipments from HO 630

20 Cash 3,000 HO Equity FC 3,000

Investment in FHC 3,000 Accounts Receivable 3,000

22 Investment in FHC 21,000 Shipments from HO 20,000

Shipments to FHC Branch 20,000 Freight In 1,000
Cash 1,000 HO Equity FC 21,000

28 Investment in FHC 4,500 Accounts Payable 4,500

Cash 4,500 HO Equity FC 4,500

30 Representation Expense 250 HO Equity FC 250

Investment in FHC 250 Cash 250

31 Investment in FHC 25,000 Inc. & Exp. Summary 25,000

Branch Inc. & Exp. Summary 25,000 HO Equity FC 25,000

5. a) Closing Entries Branch b) Closing Entries HO

Inc. & Exp. Summary 8,850 Shipments to Branch 52,350
Sales 101,100 Sales 507,650
Merchandise Invty. End 36,150 Merchandise Inventory end 83,450
Merchandise Iinventory beg. 37,500 Merchandise Inventory beg. 95,800
Operating Expenses 56,250 Purchases 300,500
Shipments from HO 52,350 Operating Expenses 69,500
Income & Expense Sum. 177,650
HO Equity 8,850
Income & Expense Summary 8,850 Branch Inc. &Exp. Summary 8,850
Investment in HO 8,850

Income & Exp. Summary 8,850

Branch Inc. & Exp. Sum. 8,850

Income & Exp. Summary 168,800

Retained Earnings 168,800

Manila Toy Company Branch

Income Statement
For the year ended Dec. 31, 2011
Sales 101,100
Less: Cost of Sales
Inventory Beginning 37,500
Shipments from HO 52,350
TGAS 89,850
Less: Inventory end 36,150 53,700
Gross Profit 47,400
Less Operating Expenses 56,250
Net Loss ( 8,850)

Manila Toy Company Home Office

Income Statement
For the year ended Dec. 31, 2011
Sales 507,650
Less: Cost of Sales
Inventory beg. 95,800
Purchases 300,500
TGAS 396,300
Less: Inventory end 83,450
Shipment for branch 52,350 135,800 260,500
Gross Profit 247,150
Less: Operating Expenses 69,500
Net Income from Home office 177,650
Less net Loss from Branch Operation 8,850
Net Income 168,800

Manila Toy Company

Combined Income Statement
For the year ended Dec. 31, 2011

Sales 608,750
Less: Cost of Sales
Inventory beg. 133,300
4
 Add: Purchases 300,500
TGAS 433,800
Less: Inventory end 119,600 314,200
Gross Profit 294,450
Less: Operating Expenses 125,750
Net Income 168,800

Manila Toy Company Branch

Statement of Financial Position
Dec. 31, 2011
Assets
Cash P 64,600
Notes Receivable 35,800
Accounts Receivable 37,300
Inventories 36,150
Furniture & Equipment P173,850
Home Office Equit (182,700 8,850) P173,850
Manila Toy Company Home Office
Statement of Financial Position
Dec. 31, 2011
Assets Equities
Cash P42,000 Accounts Payable P 41,000
Merchandise Receivable 7,000 Capital Stock P200,000
Accounts Receivable 80,400 Retained Earnings 193,800 393,800
Inventories 83,450
Current Assets P212,850
Investment in Branch 173,850
Furniture & Equipment 48,100 _______
Total Assets P434,800 Total Equities P434,800

MULTIPLE CHOICE

1. 2) Sales P 87,500 1) Sales P87,500

Cost of Sales (70,000) Divide by 1.25
Expenses ( 3,500) Cost of Sales P70,000
Samples ( 2,500)
Agency Profit P 11,500
Answer: B Answer: D

2. Cash and merchandise transfers P230,000

Equipment purchased by HO for branch use 120,000
Freight 2,500
Investment balance P352,500 Answer: B

3. Investment Balance P540,000

a) equipment transfer to branch -
b) furniture bought by branch ( 35,000)
c) branch note paid by home office 35,525
Updated invetsment balance P540,525
Answer: C

4. 1) shipments P10,000
freight 1,500
returns ( 2,500)
freight paid ( 400)
allocated freight ( 375)
net increase P 8,225

Answer: C

2) Shipments P10,000
Returns ( 2,500)
Increase by P 7,500
Answer: A

5
 CHAPTER 12

1. Home Office Baguio Branch Binan Branch

a) Invest. In Baguio 50,000 Cash 50,000 Cash 25,000
Invest. In Binan 25,000 HO Equity 50,000 HO Equity 25,000
Cash 75,000
Ship. From HO 120,000
b) Invest. In Baguio 120000 HO Equity 120,000 No entry
Ship. To Baguio
Freight In 2,000 No entry
c) Invest. In Baguio 2,000 HO Equity 2,000
Cash 2,000

d) No entry Purchases 12,500 No entry

Accts Payable 12,500

e) Invt. In Baguio 28,000 Equity 28,000 No entry

Cash 28000 HO Equipt. 28,000

f) No entry Furniture 20,000

Cash 20,000

g) Invest. In Binan 15,300 HO Equity 15,300 Notes Payable 15,000

Inves. In Baguio 15,300 Cash 15,300 Interest Expense 300
HO Equity 15,300
h) Invest. in Binan 12,350 HO Equity 12,500
Excess Freight on Ship. From HO 12,000 Ship. From HO 12,000
Interbranch trnsfer 150 Freight In 200 Freight In 350
Invest. In Baguio 12,500 Cash 300 HO Equity 12,350

i) Depn. Expense 233 Depn/ Expense 167

Accum. Depn. 233 Accum/ Depn. 167

j) Invest in Baguio 15,000 Income Summary 15,000 Home Office E. 5,000

Branch P&L 15,000 Home Office E. 15,000 Income Sum. 5,000

Branch P&L 5,000

Inv. In Binan 5,000

2. April May
a) Sales P180,000 P300,000
Cost of Sales 88,000 149,000
Gross profit P92,000 P151,000

b) April Billed Cost Mark Up

Shipments 98,000 70,000 28,000
Purchases 40,000 40,000 -
Invty. End from Shipments (21,000) (15,000) ( 6,000)*
Purchases ( 7,000) ( 7,000) ______
Cost of Sales reported/correct/adjust allow 110,000 88,000 22,000

May Billed Cost Mark Up

Invty. 1/1 Shipments 21,000 15,000 6,000
Purchases 7,000 7,000 -
Shipments 140,000 100,000 40,000
Purchases 60,000 60,000 -
Invty. End from Shipments ( 31,500) ( 22,500) ( 9,000)*
6
 Purchases ( 10,500) ( 10,500) -
Cost of Sales reported/correct/adjust allow 186,000 149,000 37,000
*ending mark-up is based on inventory end coming from HO
Mark-up rate is based on cost in April and based on billed price in May

3. Harrys Drive Branch Harrys Hobby Shop

a) Shipments from HO 240,000 a) Investment in Branch 240,000
HO Equity 240,000 Shipments to Branch 200,000
Allow. For Overvaluation 40,000
b) Freight In 10,000
HO Equity 10,000 b) Investment in Branch 10,000
Cash 10,000
c) Cash 300,000
Sales 300,000 g) Investment in Branch 36,000
Branch Inc. & Exp. Sum. 36,000
d) Operating Expenses 64,000
Cash 64,000 h) All for Overvaluation 32,000
Branch Inc. & Exp. Sum. 32,000
e) Merchandise Inventory 50,000
Inc. & Exp. Summary 50,000 i) Branch Inc. & Exp. Sum. 68,000
Inc. & Exp. Sum. 68,000

f) Sales 300,000
Inc. & Exp. Summary 14,000 Shipments at Billed Price P240,000
Shipments from HO 240,000 Less Inventory End at Billed price 48,000
Operating Expense 64,000 Cost of Sales at billed price 192,000 /1.2
Freight In 10,000 Cost of Sale at Cost 160,000
Overstatement of Cost of Sales P 32,000
g) Inc. & Exp. Summary 36,000
HO Equity 36,000

4. Shipments from Home Office 360,000

Freight In 3,600
Home Office Equity 396,000

Operating Expenses 132,000

Cash 132,000

Cash 520,750
Sales 520,750

Inventory End 146,450 e) Investment 121,600

Sales 520,750 Branch Inc. & Exp. Sum. 121,600
Inventory Beg. 50,000
Shipments 360,000 Allow. For MU 94,000
Freight In 3,600 Branch Inc. & Exp. Sum. 94,000
Operating Expenses 132,000
Income & Expense Sum. 121,600 Branch Inc. & Exp. Sum. 215,600
Inc. & Exp. Sum. 215,600
Income & Expense Sum. 121,600
Home Office Equity 121,600

4. Cost of Sales At billed Price At Cost

Merchandise Inventory beg. 50,000 42,000
Add: Shipments 360,000 216,000
Freight In 3,600 3,600
Less Merchandise Inventory End (146,450) c) ( 88,450)
a) 267,150 b) 173,150

5. Billed (125%) Cost (100%) Mark Up (25%)

Inventory 15,000 12,000 3,000
Shipments 30,000 24,000 6,000
Total 45,000 36,000 9,000
Inventory End
28,170-8,670 19,500 15,600 3,900
Cost of Sales 25,500 20,400 5,100

a) Inventory from Shipments 15,000

From Purchases 5,500
Total inventory of the branch as of Jan. 1 20,500

b) Sales 68,000
Less: Cost of Sales
Inventory Beg. 20,500
Add: Shipments from HO 30,000
Purchases 20,000
TGAS 70,500
Less Inventory End 28,170 42,330
Reported Gross Profit 25,670
7
 Allowance Adjustment 5,100
Correct Gross Profit 30,770

c) Beginning balance + Allow. On Shipments 9,000

Cost of Sales (Allowance) 5,100
Allowance account balance Dec. 31 3,900

6.a)GP% = Allowance for returns / b) Total Allow. For Mark Up of Shipments

Return of Shipments 29,040 x 75% = P21,780
= 1,875 / 7,500 = 25%

c) Ending Inventory
Ship at billed price P29,040
Ship at cost 21,780
Mark Up 7,260
Total Mark Up 10,000
MU on Beg. Inventory 2,740
Divide by GP% 25%
Beg. Inventory coming from HO 10,960
Total Beginning inventory 22,700
Beginning Inventory from Purchases 11,740

d) Cost of Sales Reported 64,000

Overstatement:
8,125
End Inventory Total 20,240
End Inventory Purchases 6,000
End Inventory fr shipments 14,240
Multiply GP% 25% 3,560 4,565
Correct Cost of Sales 59,435

e) Adjusted Allowance for Mark Up (20,200 6,000) 25% P3,560

7.a) Inventory beg. 26,400

Shipments 20,000
TGAS at billed price 46,400
Less: Sales 15,000
Sales Return ( 2,000)
13,000 /1.25 10,400
Inventory at date of fire 36,000
Goods not destroyed (6,000 / 1.25) (4,800)
Goods Destroyed as reported a) P31,200/.12
Correct fire loss P26,000

Note: two corrections should be made by home office: reported cost of sales and reported fire loss to
come up with the correct branch profit.

8. West Avenue
Reconciliation Statement of Reciprocal Amount
January 31, 2010
Investment in West Ave. Branch
Balance before adjustments P49,000
Less: Furniture acquired by branch P1,200
Merchandise returned 1,500
Representation Expense 500 3,200
Adjusted balance, Investment in Branch P45,800

HO Equity balance before adjustments P38,400

Add: Payment by HO of branch liability P5,000
Merchandise on transit 3,200 8,200
Less: Accounts Receivable collected by HO ( 800)
Adjusted balance, HO Equity P45,800

Entries: Home Office

Furniture 1,200
Merchandise Inventory 1,500
Representation Expense 500
Investment in Branch 3,200

Branch Book
8
 Accounts Payable 5,000
Shipments from HO 3,200
Accounts Receivable 800
HO Equity 7,400

9.Journal Entries (Home Office)

2) Investment in Beta 2750
Accounts Receivable 2750

3) Investment in Beta 2,000

Charitable Contributions 2,000

4) Beta Branch Inc. & Exp. Summary 3,600

Investment in Beta Branch 3,600

5) Merchandise Inventory 2200

Investment in Beta 2200

Journal Entries (Beta Branch)

1) Merchandise Inventory 5,800
HO Equity 5,800

2) Cash In Transit 2,000

HO Equity 2,000

Investment in Beta 40,000

Add: Accounts Receivable collected by Branch 2,750
Check mailed to branch erroneously recorded to
Charitable accounts 2,000 4,750
Less: Error in recording income 8,400 4,800 3,600
Merchandise Returned by Branch 2,200 ( 5,800)
Adjusted Balance 38,950
Less: Merchandise in transit to Beta 5,800
Cash in Transit 2,000 7,800
Unadjusted Balance of HO Equity in the General Ledger in
Dec. 31 P31,150

10. Makati Co.

Statement of Reconciliation of Reciprocal Accounts
Dec. 31, 2010
Investment in Branch, unadjusted 20,000
Less: Equipment purchased by branch 4,000
Representation Expense 900 4,900
Investment in Branch, adjusted P15,100

HO Equity, unadjusted 8,100

Less: Accounts Receivable ( 2,000)
Cash Remitted by HO 5,000
Advertising Expense 1,000
Merchandise still on transit 3,000 9,000
HO Equity, adjusted P15,100

Makati Branch
Income Statement
For the year ended
Sales 95,000
Less: Cost of Sales
Inventory, Jan. 1 15,000
Add: Purchases 24,000
Shipments from HO 48,000
TGAS 87,000
Less: Inventory, end 23,000 64,000
Gross Profit 31,000
Less: Expenses 17,000
Net Income 14,000

Makati Co. Home Office

Income Statement

9
Sales 392,000
Less Cost of Sales
Inventory, beginning 70,000
Add: Purchases 290,000
TGAS 360,000
Less: Inventory, end 55,000
Shipments to Branch 40,000 95,000 265,000
Gross Profit 127,000
Less: Expenses 44,900
Net Income from Home Office Operations 82,100
Add Branch Income & Expense Summary P14,000
Realized Profit On Shipments to Branch 7,500 21,500
Net Income 103,600

Makati Co.
Combined Income Statement
For the year ended _
Sales 487,000
Less: Cost of Sales
Inventory beginning 82,000
Add: Purchases 314,000
TGAS 396,000
Less: Inventory end 74,500 321,500
Gross profit 165,500
Less: Expenses 61,900
Net Income 103,600

Makati Co. Branch

Statement of Financial Position
As of Dec. _
Assets Liabilities & Equity
Cash 13,000 Accrued Expenses 3,400
Accounts Receivable 10,000 Accounts Payable 13,500
Inventory 23,000 Home Office Equity 29,100
46,000 46,000

Makati Co. Home Office

Statement of Financial Position
As of Dec. _
Assets Liabilities & Owners Equity
Cash 25,000 Accrued Expense 14,000
Accounts Receivable 46,000 Accounts Payable 36,000
Inventories 55,000 Allow. For Overvaluation 3,500 53,500
Equipment 94,000 Capital Stock 50,000
Less: Accum. Depn. 18,000 76,000 Retained Earnings 127,600 177,600
Investment in Branch 29,100 _______
231,000 231,000

Makati Co.
Combined Statement of Financial Position
As of Dec. 31, _
Assets Liabilities & Equity
Cash 38,000 Accrued Expenses 26,400
Accounts Receivable 56,000 Accounts Payable 49,500 75,900
Inventories 74,500 Capital Stock 50,000
Equipment 94,000 Retained Earnings 118,600 168,600
Less Accum. Depn. 18,000 76,000 Total Liabilities &
Total Assets 244,500 Stockholders Equity 244,500

Entries: Home office

a) Equipment, Branch 4,000
Inv. In Branch 4,000

e) Rep. Exp. 900

Inv. In Branch 900

Branch
b) HO Equity 2,000
Accounts Receivable 2,000

c) Cash in Transit 5,000

HO Equity 5,000

d) Advertising Expense 1,000

HO Equity 1,000

e) Shipments from HO 3,000

HO Equity 3,000
10
 Closing Entries Home office
1) Sales 392,000
Merchandise Inventory end 55,000
Shipments to Branch 40,000
Merchandise Inventory beg. 70,000
Purchases 290,000
Expenses 44,900
Income & Expense Summary 82,100

Branch Book
1) Sales 95,000
Merchandise Inventory, end 23,000
Merchandise Inventory beginning 15,000
Purchases 24,000
Shipments from HO 48,000
Expenses 17,000
Income & Expense Summary 14,000

2) Investment In Branch 14,000

Branch Income & Expense Summary 14,000

3) Allowance for Overvaluation 7,500

Realized Profit on Branch Shipments 7,500

Computation:
Billed Price Cost Mark Up
Inventory beginning 15,000 12,000 3,000
Shipments from Home office 48,000 40,000 8,000
TGAS 63,000 52,000 11,000
Ending Inventory (20 2 + 3) 21,000 17,500 3,500
Cost of Goods Sold 42,000 34,500 7,500

4) Branch Income & Expense Summary 14,000

Realized Profit on Branch Shipments 7,500
Income & Expense Summary 21,500

5) Income & Expense Summary 103,600

Retained Earnings 103,600

Makati Company
Working Paper for Combined Financial Statement
For the year ended
Adjusted Adjustment Combined Retained
Trial balance & Elimination Income Statement Earnings Balance Sheet
Debits HO Branch Debit Credit Debit Credit Debit Credit Debit Credit
Cash 25,000 13,000 38,000
Accounts Receivable 46,000 10,000 56,000
Inventories 70,000 15,000 3,000 82,000
Equipment 94,000 94,000
Investment in Branch 15,100 b) 15,100
Purchases 290,000 24,000 314,000
Expenses 44,900 17,000 61,900
Shipments from HO ______ 48,000 a) 48,000
Total 585,000 127,000

Merch. Invty. End

(Balance Sheet) 55,000 23,000 c) 3,500 74,500

Credits
Accum. Depn. 18,000 18000
Accrued Expenses 23,000 3,400 26400
Accounts Payable 36,000 13,500 49500
HO Equity 15,100 b) 15100
Capital Stock 50,000 50000
Retained Earnings 15,000 15,000
Sales 392,000 95,000 487,000
Shipments to Branch 40,000 a)40,000
Allow. For
Overvaluation 11,000 _____ a)11,000
Total 585,000 23,000

Merch. Invty. End

11
(Income Statement) 55,000 23,000 c) 2,500 74,500
Net Income to
Retained Earnings 103,600 103600
561,500 561,500
Retained Earnings to
Balance Sheet 118600 118600
118600 118600 262500 262500
Working paper is under the trial balance approach

11. Investment in Branch Home Office Equity

Unadjusted balances, 12/31/02 352,985 121,600
Shipments in Transit 51,750
Unrecorded Expenses 17,500
Deposit in Transit (50,000)
Unrecorded payment of loan (95,000)
Unrecorded freight _______ 17,135
Adjusted balance, 12/31/02 207,985 207,985

Cash In Transit 50,000 Shipments in Transit 51,750

Loans Payable 95,000 Expenses 17,500
Investment in Branch 145,000 Freight 17,135
HO Equity 86,385
Sales 856,750
Alllowance for Marketing 111,750
Shipments for Branch 745,000

b) Billed Price Cost Price Markup

184,300 155,300 290,000
Shipment 856,750 745,000 111,750
Freight 17,135 17,135
Purchases 40,000 40,000
(294,200 + 6,279 + 51,750) (352,229) (311,279) ( 40,950)
745,956 646,156 99,800

Sales P 920,000
Cost of sale (646,156)
Expenses ( 96,000)
Net Income 177,844

c) Inventory HO 810,000
Branch 311,279
1,121,279

d) Inventory, beginning P 341,000

Purchases 2,000,000
Inventory, end ( 810,000)
Ship to Branch ( 745,000)
Cost of Sales -HO 786,000
Cost of Sales of Branch 646,156
P1,432,156
e) 381,000 + 96,000 = 477,000

12. 1) Billed price Cost Price Mark Up

Inventories 1/1 14,400 12,000 2,400
Shipments 72,000 60,000 12,000
Inventories 12/31 (28,800) (24,000) ( 4,800)
Cost of Sales 57,600 48,000 9,600

2) HO Branch Combined
Sales 500,000 160,000 660,000
Cost of Sales: Beg. Invty. 72,000 14,400 84,000
Purchases 240,000 240,000
Shipments ( 60,000) 72,000
Ending Invty. ( 64,000) (28,800) 88,000
188,000 57,600 236,000
Gross Profit 312,000 102,400 424,000
Expenses 156,000 70,000 226,000
Net Profit 156,000 32,400 * 198,000
*to prove: 156,000 + 32,400 + 9,600 = 198,000

3) Balance Sheet HO Branch Combined

Cash P172,000 P 14,000 P186,000
Receivables 60,000 24,000 84,000
12
 Inventories 64,000 28,800 88,000
Other Assets 400,000 85,600 485,600
North Branch 132,400
Allow. For Mark Up ( 4,800) _______ _______
Total Assets P823,600 P152,400 P843,600

Accounts Payable P140,000 P 20,000 P160,000

Capital Stock 400,000 400,000
Retained Earnings 283,600 283,600
Home Office Equity ______ 132,400 _______
Total Equities P823,600 P152,400 P843,600

MULTIPLE CHOICE
1. Bacolod Branch Cebu Branch
Cash 10,000 HO Equity 10,000
HO Equity 10,000 Cash 10,000

HO Equity 8,330 Cash 8,330

Sales Discount 170 HO Equity 8,330
Accounts Receivable 8,500
Shipment from HO 15,000
HO Equity 15,000 HO Equity 15,000
Shipment from HO 15,000

Shipment from HO 20,000 No entry

Freight In 600
Cash 300
HO Equity 20,300
Shipment from HO 10,000
HO Equity 10,300 Freight In 400
Shipment from HO 10,000 Cash 200
Freight In 300 HO Equity 10,200

Received merchandise costing P3,000

Depn. Expense 25
HO Equity 25

Income & Expense Sum. 32,750 HO Equity 9,500

HO Equity 32,750 Inc. & Expense Sum. 9,500
Answer: B

2.1) Inventory at billed price 6/30 P50,400

Divide by 1.2
Inventory of branch at cost P42,000
Answer: A
2) Shipment at cost (126,000 / 1.2) P105,000
Returns (2,520 / 1.2) ( 2,100)
Inventory end (50,400 / 1.2) ( 42,000)
Cost of Sales P60,900

Overstatement in cost of sales P12,180

Net Loss 7,800
Net Profit P 4,380
Answer: B

3. 1) Reported net income P4,800

Cost of sales: Inventory beg. P3,960
Shipments 17,600
Inventory end ( 4,840)
Billed price 16,720
Divide by 1/1
Cost price 15,200
Overstatement in cost of sales 1,520
Correct net income P6,320
Answer: C
2) Inventory end:
Main P11,200
Branch 4,400
P15,600
Answer: B
13
4. a) Marketing Expense of another branch (10,000)
Cash transfer erroneously credited to
Another branch account (65,700)
Net adjustment in the HO (75,700)
Answer: A

b) Fixed assets not recorded by branch 53,960

Debit memo recorded twice (75,000)
Erroneous recording ( 90)
Net adjustment in the branch (21,130)
Answer: A

CHAPTER 13
1. Net Asset as revalued (4,000,000 +6,000,000 - 1,000,000) P9,000,000
Goodwill:
Expected Earnings 1,750,000
Less normal earnings (18% x 9,000,000) 1,620,000

14
 Excess Earnings 130,000
PV Factor 4.2124 547,600
a) Total Price to be paid P9,547,600

b) Journal entries ABC

Investment in RSD 9,547,600
Cash 9,547,600

Current Assets 4,000,000

Noncurrent Assets 6,000,000
Goodwill 547,600
Liabilities 1,000,000
Investment in RSD 9,547,600

c) 9,547,600 / 120 = 79,563 shares

d) Investment in RSD 9,547,600

Share Capital (79,563 x 100) 7,956,300
Share Premium 1,591,300

2. Acquisition cost P5,000,000

Net Assets:
Other current assets 1,400,000
Plant Assets (net) 9,000,000
Current Liabilities ( 800,000)
Long term debt (1,800,000) 7,800,000
Gain on Bargain Purchase P2,800,000

Consideration paid P5,000,000

Cash balance 200,000
Total for distribution P5,200,000/180,000 shares
Cash distribution ratio = P28.89 /share

Entries in Newton Corp.

a) Investment in Lion 5,000,000 b) Other Current Assets 1,400,000
Cash 5,000,000 Plant Assets 9,000,000
Investment in Lion 5,000,000
Bus Combination Exp 1,000,000 Current Liabilities 800,000
Cash 1,000,000 Long term debt 1,800,000
Gain on Bargain 2,800,000

Entries of Lion Co.

a) Cash 5,000,000 b) Common Stock 1,800,000
Current Liabilities 800,000 APIC 1,200,000
Long Term Debt 2,000,000 Retained Earnings 2,200,000
Retained Earnings 1,000,000 Cash 5,200,000
Plant Assets, net 7,400,000
Other Current Assets 1,400,000

3. Acquisition cost
Common Stock (100,000 x 15) P1,500,000
Contingent liability (300,000 x .863856 x .8) 207,325
P1,707,325
Net assets as revalued
Cash P 60,000
Other Current Assets 500,000
Plant Assets (net) 1,200,000
Current Liabilities (180,000)
Long Term Debt (220,000) 1,360,000
Goodwill P 347,325

Investment in Birchtree Co. 1,707,325

Share Capital 1,000,000
15
 Share Premium 500,000
Liability for contingent consideration 207,325

Business Combination Expenses 180,000

Share Premium 22,000
Cash 202,000

Cash 60,000
Other Current Assets 500,000
Plant Assets (net) 1,200,000
Goodwill 347,325
Current Liabilities 180,000
Long term debt 220,000
Investment In Birchtree 1,707,325

Stock Exchange Ratio

400,000/5 = 80,000 old shares
100,000 (new) / 80,000 (old) = 1.25:1

4. Acquisition Cost:
Shares of Stocks (50,000 x 14) P 700,000
Cash 225,000 P 925.000
Net Assets:
Current Assets 475,000
Plant Assets (net) 1,200,000
Patent (net) 150,000
Current Liabilities ( 300,000)
Long term debt ( 450,000) 1,075,000
Excess (150,000)
Reduce plant assets by 50% of the excess 75,000
Bargain Purchase P 75,000

a) Journal Entries of Gold Corp.

Investment in Ambrosio 925,000
Share Capital 250,000
Share Premium 450,000
Cash 225,000

Business Combination Expenses 50,000

Share Premium 75,000
Cash 125,000

Current Assets 475,000

Plant Assets 1,125,000
Patent 150,000
Current Liabilities 300,000
Long Term Debt 450,000
Investment in Silver 925,000
Gain on Bargain Purchase P75,000
b)Plant Assets: P 1,500,000 c) Patent P500,000
1,125,000 150,000
2,625,000 P650,000
d)Common Stock: P1,500,000 APIC P450,000
250,000 ( 75,000)
P 1,750,000 P375,000

e) Cash Distribution Ratio:225,000 Stock Dist. Ratio: 50,000/10,000

100,000 = 5:1
325,000
divide by 10,000 = 32.50 x 1,200 shares held= P39,000

5. Cosmos Orange
a) Net Assets P500,000 P420,000
GW Ave. Earnings P100,000 P80,000
Normal Earnings 50,000 42,000
50,000 38,000
Cap. Rate 4.329 216,450 4.329 164,502
16
 Net Assets including GW P716,450 P584,502

b) Cosmos (750,000 / 1,300,952 x 10,000 shares) 5,765 shares

Orange (610,000 / 1,300,952 x 10,000 shares) 4,235 shares
c) RC Books:
1) Investment in Cosmos & Orange 1,000,000
Share Capital 1,000,000

2) Business Combination Expenses 25,000

Organization Expenses 20,000
Cash 45,000

3) Current Assets 370,000

Plant Assets 1,150,000
Goodwill 75,000
Liabilities 600,000
Investment in Cosmos & Orange 1,000,000

6. J K
a) Net Tangible Assets 9,000,000 6,000,000
Goodwill:
Expected Earnings P700,000 P560,000
Normal Earnings 630,000 420,000
70,000 140,000
Capitalized at 10% 700,000 10% 1,400,000
Total Contributions 9,700,000 7,400,000
Par Value P 100 P 100
Common shares issued 9,700 7,400

Net Assets Contribution 60% 40%

Average Earnings Contribution 33% 67%
Stock Distribution 57% 43%

b) J % K %
Total Stock Distribution P10,000,000 P8,000,000
Preferred Stock (net assets) 9,000,000 (60) 6,000,000 (40)
Common stock (GW) P 1,000,000 (33) P2,000,000 (67)

Preferred Common Preferred Common Total

6% x 9,000,000 540,000
6% x 6,000,000 P360,000 900,000
6% x 1,000,000 60,000
6% x 2,000,000 120,000 180,000
9/18 x 3,920,000 1,960,000
6/18 x 3,920,000 1,306,667 3,266,667
1 /18 x 3,920,000 2,17,778
2 /18 x 3,920,000 ________ ______ ________ 435,556 435,556
2,500,000 277,777 1,666,667 556,556 5,000,000

2,500,000 / 4,166,667
1,666,667/ 4,166,667 60% 40%
277,777 /834,333 33% 67%
556,556/834,333

7. Acquisition Cost (17,500 x 50) + 25,000 P900,000

Net Assets of Sharon 800,000
Goodwill P100,000
Entries: Investment in Sharon 875,000
Share Capital 87,500
Share Premium 787,500

Current Assets 600,000

Plant Assets 400,000
Goodwill 100,000
Liabilities 200,000
Investment in Sharon 900,000

8. Acquisition Cost P1,700,000

Net Assets of Leslie 1,875,000
Gain on Bargain Purchase P(175,000)
17
 Entries: Investment in Leslie 1,700,000
Cash 500,000
Liabilities 1,200,000
Plant Assets 2,000,000
Treasury Stock 25,000
Liabilities 750,000
Investment in Leslie 1,700,000
Gain on Bargain Purchase 175,000

9.1 a) Table for Determination and Allocation

of Excess (acquisition of R Co) Entries in S Books:
Acquisition Cost: :
Cash P400,000 Land 300,000
Land 400,000 Revaluation Surplus 300,000
Total P800,000
Net Assets of R: Investment in R Co 800,000
Current Assets P75,000 Business Combination Expenses 57,000
Land 500,000 Cash 457,000
Equipment 500,000 Land 400,000
Liabilities (350,000)
Total P725,000 Current Assets 75,000
Goodwill P75,000 Land 500,000
Equipment 500,000
Goodwill 75,000
Liabilities 350,000
Investment in R Co 800,000

Table for Determination and Allocation of Excess (acquisition of T Co)

Entries:
Acquisition Cost: Investment in T 600,000
Stocks (4,000 x 150) P600,000 Share Capital 400,000
Share Premium 200,000

Net Assets of R: Business Combination Expenses 50,000

Current Assets P250,000 Share Premium 10,000
Land 500,000 Cash 60,000
Equipment 300,000
Liabilities (350,000) Current Assets 250,000
Total 700,000 Land 500,000
Gain on Bargain Purch P100,000 Equipment 300,000
Liabilities 350,000
Investment in T 600,000
Gain on Bargain Purchase 100,000
e. Current Assets (75,000+250,000+750,000- 457,000 60,000) P 558,000

Non-Current Assets: (land of 500,000+400,000+500,000) 1,400,000

(Equipment 500,000+1,500,000+300,000)2,300,000
Goodwill 75,000 3,775,000
Total P4,333,000

Liabilities: (350,000 + 1,100,000 + 350,000) P1,800,000

Share Capital (1,000,000 +400,000 ) 1,400,000

Share Premium (200,000 + 200,000 10,000) 390,000
Revaluation Capital 300,000
Retained Earnings (450,000 107,000 +100,000) 443,000 2.533.000
Total P4,333,000

c) Outstanding shares 390,000/50= 7,800 shares

Cash on hand and received= 425,000/7,800= P54.48 x 500= P27,240
d) .5 ratio x 500 shares= 250 new shares

18
b) Entries in the books of T:
Stocks of S 600,000
Liabilities 350,000
Retained Earnings 50,000
Current Assets 250,000
Land 250,000
Equipment 500,000

Share Capital 400,000

Retained Earnings (250,000-50,000) 200,000
Stocks of S 600,000
e) Entries in the books of R:
Cash 400,000
Land 400,000
Liabilities 350,000
Current Assets 75,000
Land 100,000
Equipment 500,000
Goodwill 100,000
Retained Earnings 375,000

Share Capital 390,000

Share Premium 80,000
Retained Earnings 355,000
Cash 425,000
Land 400,000
2.
R S T
Expected Earnings 125,000 300,000 100,000
Normal Earnings (750,000 x 10%) 75,000
(2,650,000 x 10%) 265,000
(700,000 x 10%) 70,000
Excess Earnings 50,000 35,000 30,000
Goodwill (excess earnings x 3.5458) P117,293 P124,105 P106,376
Net Assets as revalued 750,000 2,650,000 700,000
Total Contributions P867,293 P2,774,105 P806,376 4,447,774
Share distribution:
(867,293/4,447,774) x 50,000 9,750
(2774,105/4,447,774) x 50,000 31,185
(806,376/4,447,774) x 50,000 9,065 50,000

a. 9,750/7800 x 500 shares= 625 new shares

b. Total net assets P4,100,000

Total consideration (50,000 x P100) 5,000,000
Goodwill P 900,000
3.a)
R T
Average Earnings 125,000 100,000
Total stocks (Ave Earnings/10%) 1,250,000 1,000,000
Preferred Stocks (Net Assets as revalued) 750,000 700,000
Common Stocks (Goodwill) 500,000 300,000
Preferred shares (750,000/100) (700,000/100 7,500 7,000 14,500
Common shares (500,000/50) (300,000/50) 100,000 6,000 16,000

b) P390,000/50= 7,800 shares

7,500/7,800 x 300= 288 new shares

c) P400,000/50= 8,000
6,000/8,000 x 200= 150 new shares

19
MULTIPLE CHOICE:
1) B 2) B 3) C 4) D 5) C
6) C 7) C 8) D 9) B 10) C

11. Plant & Equipment P 55,000

Answer: A
12. Net Assets of Food at fair value P 60,000
Acquisition price 55,000
Goodwill P( 5,000)

13. Acquisition price P800,000

Net assets at fair value:
Cash P 80,000
Inventories 190,000
Property & Equipment 560,000
Liabilities (180,000) 650,000
Goodwill P150,000
Answer: C
14. Acquisition Cost - Stocks (100,000 x 30) P3,000,000
1) *Legal Fees 20,000
*Accounting Fees 10,000
*Finders Fee 50,000
Answer: C P3,080,000
*fees are directly charged as expenses.
15. Answer B P1,000,000 x P10 = 1,000,000 17,000 = P983,000

16. Acquisition Price P2,050,000

Net tangible assets of Erika:
Current Assets P1,890,000
Plant Assets 2,900,000
Liabilities (1,140,000) 3,650,000
Negative Goodwill P1,600,000
Answer: B

20