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Problem 1 (Branch Was Billed at Cost)

1. The Home Office sent cash and inventory to a new branch. The branch recorded sales, expenses, and remitted some cash back to the Home Office. 2. At the end of the period, the Home Office prepared an adjusting entry to account for the branch's net income and updated its investment in the branch account. 3. The branch also prepared closing entries, closing revenue and expense accounts to retained earnings and revaluing its ending inventory.

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James Aguilar
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259 views

Problem 1 (Branch Was Billed at Cost)

1. The Home Office sent cash and inventory to a new branch. The branch recorded sales, expenses, and remitted some cash back to the Home Office. 2. At the end of the period, the Home Office prepared an adjusting entry to account for the branch's net income and updated its investment in the branch account. 3. The branch also prepared closing entries, closing revenue and expense accounts to retained earnings and revaluing its ending inventory.

Uploaded by

James Aguilar
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Problem 1 (Branch was billed at cost)

FAR EASTERN CORPORATION, which prepares financial reports at the end of the ca

1. The Home Office sent P35,840 cash to the branch to begin operations.
2. The Home Office shipped inventory to the branch. Intracompany billings totaled P76
3. The branch acquired merchandise display equipment which cost P15,360 on July 1, 2
4. The branch purchased inventory costing P55,040 from outside vendors on account.
5. The branch had credit sales of P108,800 and cash sales of P44,800.
6. The branch collected P56,320 of its accounts receivable.
7. The branch paid outside vendors P35,840.
8. The branch incurred selling expenses of P19,200 and general and administrative expe
9. The home office charged the branch P2,560 for its share of insurance.
10. Depreciation expense on the display equipment acquired by the branch, thru Decemb
11. The branch remitted P12,800 cash to the home office.
12. The branch's physical inventory on December 31, 2015 is P 42,240, of which P 32,0

Requirements:

1. Prepare journal entries in the books of the home office and in the books of the branch
2. Prepare closing entries in the books of the branch office to close its income statement
3. Prepare adjusting entry in the books of the home office to reflect the increase or decre

Problem 2 (Branch was billed at more than cost)


The following transactions pertain to a LA CONSOLACION COMPANY branch's first

1. The HOME OFFICE sent P18,000 cash to the BRANCH.


2. The HOME OFFICE shipped inventory costing P80,000 to the BRANCH; the intrac
3. BRANCH inventory purchased from outside vendors totaled P60,000.
4. BRANCH sales on account were P160,000.
5. The HOME OFFICE allocated P4,000 in advertising expense to the BRANCH.
6. BRANCH collections on accounts receivable were P90,000.
7. BRANCH operating expenses of P35,000 were incurred, none of which were paid at m
8. The BRANCH remitted P28,000 to the HOME OFFICE.
9.The BRANCH's ending inventory (as reported in its balance sheet) is composed of:
Acquired from outside vendors.... . 24,000
Acquired from HOME OFFICE (at billed price) 40,000
Total 64,000

Requirements:

1.   Prepare the home office and branch journal entries for these transactions, ass
2. Prepare the month-end closing entries for the branch.
3. Prepare the month-end adjusting entries for the home office
relating to the branch's operations for the month
h on April 1, 2015 in Tacloban City. The following transactions occurred during the formation o

ce's cost. (Both the Home Office and the Branch use a periodic inventory system.)
policy, branch fixed assets are carried on the home office books).

es were paid in cash when they were incurred and include the expense of leasing the branch's faci

office (there was no beginning inventory).

sulting from the branch operations.


tem is used
ed during the formation of the branch and its operations through December 31, 2015.

ory system.)

of leasing the branch's facilities.


mber 31, 2015.
PROBLEM 2 (BRANCH WAS BILLED AT MORE THAN COST)
BRANCH ACCOUNT (Home Office Books)
1 Investment in Branch 18,000
Cash 18,000

2 Investment in Branch 100,000


Shipments to Branch 80,000
AFOVOBI 20,000

3 No Entry

4 No Entry

5 Investment in Branch 4,000


Advertising Expense 4,000

6 No Entry

7 No Entry

8 Cash 28,000
Investment in Branch 28,000
CLOSING AND ADJUSTING ENTRY
Investment in Branch 25,000
Branch Income Summary 25,000

AFOVOBI 12,000
Branch Income Summary 12,000

Branch Income Summary 37,000


Retained Earnings 37,000

Merchandise Invty- beg (fr. HO) -


Shipments from HO 100,000
TGAS from HO (@Billed Price 100,000
Less: Ending Invty - from HO (@BP) 40,000
CGS from HO (@Billed Price 60,000
Multiply by GPR 20%
Realized Gross Profit 12,000
HOME OFFICE ACCOUNT (Branch Books)
Cash 18,000
Home Office 18,000

Shipment from Home Office 100,000


Home Office 100,000

Purchases 60,000
Accounts Payable 60,000

Accounts Receivable 160,000


Sales 160,000

Advertising Expense 4,000


Home Office 4,000

Cash 90,000
Accounts Receivable 90,000

OPEX 35,000
Accounts Payable 35,000

Home Office 28,000


Cash 28,000
CLOSING ENTRY
Sales 160,000
Merchandise Invty-end 64,000
Merchandise Inventory-beg -
Shipments from HO 100,000
Purchases 60,000
Advertising Expense 4,000
OPEX 35,000
Income Summary 25,000

Income Summary 25,000


Home Office 25,000
PROBLEM 1 - BRANCH BILLED AT COST
INVESTMENT IN BRANCH ACCOUNT (Home Office Book)
1 Investment in Branch 35,840
Cash 35,840

2 Investment in Branch 76,800


Shipments to Branch 76,800

3 Equipment 15,360
Investment in Branch 15,360

4 No Entry

5 No Entry

6 No Entry

7 No Entry

8 No Entry
9 Investment in Branch 2,560
Insurance Expense 2,560

10 Investment in Branch 1,280


Accumulated Deppreciation 1,280

11 Cash 12,800
Investment in Branch 12,800

ADJUSTING ENTRY
Investment in Branch 25,600
Branch Income Summary 25,600

Branch Income Summary 25,600


Retained Earnings 25,600
HOME OFFICE ACCOUNT (Branch Books)
Cash 35,840
Home Office 35,840

Shipments from HO 76,800


Home Office 76,800

Home Office 15,360


Cash 15,360

Purchases 55,040
Accounts Payable 55,040

Cash 44,800
Accounts Receivable 108,800
Sales 153,600

Cash 56,320
Accounts Recevable 56,320

Accounts Payable 35,840


Cash 35,840

Selling Expense 19,200


Gen & Admin Expense 15,360
Cash 34,560
Inurance Expense 2,560
Home Office 2,560

Depreciation Expense 1,280


Home Office 1,280

Home Office 12,800


Cash 12,800

CLOSING ENTRIES
Sales 153,600
Merchandise Inventory - end 42,240
Merchandise Inventory - beg -
Purchses 55,040
Shipments from HO 76,800
Selling Expense 19,200
Gen & Admin. Expenses 15,360
Insurance Expense 2,560
Depreciation Expense 1,280
Income Summary 25,600

Income Summary 25,600


Home Office 25,600

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