Solution Chapter 13 ADVAC2

Chapter 13 Problem I 1. Home Ofce Books Branch Current Shipments to Branch Unrealized Int Inv. ro!t

Branch Books

55,000 50,00 0 5,000

Shipm from Home Oce Home Oce Current

55,000 55,000

Billed price P55,000 / 110 Cost 50,000 !llo"ance #o #or o$er$al%ation o# o# br branch in$entor&/ ''''''' (nreali)ed Intercompan& In$entor& Pro*t/+e#erred Pro*t P 5,000 . Sales...................................................................................................................................... "#0,000 Cost of $oods sold% &erchandise inventor', Septem(er "............................... "............. ................................... .................  )5,*00 urchases.............................................................................................. *#,000 Shipments from home oce............................ oce........... ................................... ................................... ................. 55,000 &erchandise availa(le for sale..........................................................  ""#,*00 +ess% &erchandise Inventor', Inventor' , Septem(er )0.............................. )0............. ........................ ....... )0,000 Cost of $oods sold....................................................................................................... #,*00 -ross pro!t.......................... pro!t......... .................................... .................................... ................................... ................................... .................................. ........................... .......... 55,00 Operatin$ epenses% Sellin$ epenses///////////// epenses///// /////////................ /................................. .................. . ,000 -eneral epenses///////............... epenses///// //................................ ................................... ......................... ....... "*,000  otal  otal operatin$ epenses......... epenses................... ................... ................. .................. ................... .................. .................. ................... ................. ....... *0,000 Unad1usted (ranch net income.......................... income........ ................................... .................................. .................................... .......................... .......  "5,00 3. -es%lts o# Branch Operations a. Branch et Income/oss #rom its o"n operations Branch Current//////. Current//////................. ................................. ................................... ................................... ....................... ...... "5,00 Branch Branch Income Income Summar' Summar'.... ........ ........ ........ ....... ....... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... "5,00 b.  Adjustment:  O$er$al%ation o# C2/!llo"ance #or O$er$al%ation o# Branch In$entor&/ (nreali)ed Intercompan& In$entor& Pro*t Unrealized Intercompan' Inventor' ro!t............................... ro!t.............. .................................... ..................... .. #,200 Branch Branch Income Income Summar' Summar'.... ........ ........ ....... ....... ........ ........ ....... ....... ........ ........ ........ ........ ........ ........ ........ ........ .... #,200

7 "8,200 ::55,000  8*,200 77**,000

Cost 3Billin$4"."0   "2,000 ::50,000  22,000 ::*0,000

 50,200

 #2,000

Billin$ rice Inventor', 64" Shipments durin$ 9ecem(er ;vaila(le for Sale be#ore ad4%stment +ess% Inventor', 64)0 a#ter ad4%stment Reduction in unrealized proft account- adjustment to branch proft  or overstated o cost o goods sold (adjustment)

Unrealized ro!t 3Billin$ rice &inus Cost  ",200 :: 5,000  2,200 ::*,000 777 #,200

* P35,200 x 50% = P17,600 ** P30,000 – P8,000 9ecrease in Unrealized Unrealized Intercompan' Inventor' ***or,  50,200  "04""0 < #,"*5= 9ecrease

ro!t% 6here#ore, the 6r%e/-eal/!d4%sted 6r%e/-eal/!d4%sted Branch et Income or Branch et Income in so #ar as HO is concerned amo%nted to Unad1usted (ranch net income..............................................................................."5,00 ;dd% ;llo>ance for Overvaluation of C-S//////////// C-S/////////////////. /////. #,200 ;d1usted ;d1usted Branch ?et Income/////////// Income///////////////////////..*0,# ////////////..*0,#00 00 Problem II Books o# Home Ofce Correctin7 entries !. Sales............................. Sales........... ................................... .................................. .................................... .................................... ............................. ............ #*,000 Shipment Shipments s to Branch.. Branch...... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... .. //// )5,000 Unreal Unrealize ized d Inter Intercom compan pan' ' Invent Inventor' or' ro!t ro!t... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ..... .. 8,000 Cost of merchandise merchandise shipped t (ranch% #*,0004".*0< )5,000. 8ntr& 9ade Correct/2ho%ld be 8ntr& Branch Current///// Current///// #*,000 Branch Current///.. Current///.. #*,000 Sales//////// #*,000 Shipments to Branch )5,000 Unrealized Int. Inv r. r. 8,000 B. Shipments to Branch........................ Branch....... ................................... ................................... .................................... ........................... ........ 2*5 Unrealized Intercompan' Inventor' ro!t............................... ro!t.............. .................................... ..................... "*5 Sales @eturns...... @eturns............... ................... .................. .................. ................... .................. .................. .................. ................... ............ .. 850 Cost of merchandise merchandise returned (' (ranch% 8504".*0< 2*5. 8ntr& 9ade Correct/2ho%ld be 8ntr& Sales @eturns////// @eturns////// 850 Shipments to Branch///. 2*5 Branch Current/// Current/// 850 Unrealized Unrealized Int. Inv ro!t// "*5 Branch Current////. Current////. 850 -es%lts o# Branch Operations !. Branch et Income/oss #rom its o"n operations Branch Income Summar'.............. Summar'................................ ................................... .................................. .............................. ............. *,200 Branch Branch Current/ Current/.... ........ ........ ........ ........ ........ ........ ........ ....... ....... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... *,200 B.  Adjustment:  O$er$al%ation o# C2/!llo"ance #or O$er$al%ation o# Branch In$entor&/ (nreali)ed Intercompan& In$entor& Pro*t Unrealized Intercompan' Inventor' ro!t............................... ro!t.............. .................................... ..................... .. #,"*5 Branch Branch Income Income Summar' Summar'.... ........ ........ ....... ....... ........ ........ ....... ....... ........ ........ ........ ........ ........ ........ ........ ........ .... #,"*5

Billin$ rice Inventor', 9ecem(er " Shipments durin$ 9ecem(er +ess% @eturns ;vaila(le for Sale be#ore ad4%stment +ess% Inventor', 9ec. )" a#ter ad4%stment



0 #*,000 :::::850  #",*50 "2,500

Cost 3Billin$4".*0   0 )5,000 ::::2*5  )#,)85 "),850

Unrealized ro!t 3Billin$ rice &inus Cost 

0 8,000 ::::"*5  2,85 ::*,850

Reduction in unrealized proft account- adjustment to branch proft  or overstated o cost o goods sold (adjustment)

 *#,850

 *0,2*5

7 #,"*5

*or, *#,850  *04"*0 < #,"*5= 9ecrease in Unrealized Intercompan' Inventor' ro!t% Balance prior to ad1ustment, "*4)", 8,000 A "*5................... 2,85 Balance reuired in account, "*4)","2,500 A 3"2,5004".*0.. *,850 9ecrease in ;llo>ance................................................................. #,"*5

 

Branch Income Summar' 3#,"*5 A *,200....................................................",5*5 Income Summar'.................................................................................... ",5*5 6here#ore, the -eal/6r%e/!d4%sted Branch et Income/Branch et Income in so #ar as HO is concerned, amo%nted to P1,55, comp%ted as #ollo"s Branch net loss as reported4unad1usted////////////////////3*,200 ;dd% Overvaluation of (ranch inventor'4@ealized pro!t from (ranch sales///.. #,"*5 @eal4rue4;d1usted Branch ?et Income or Branch ?I in so far as HO is concerned ",5*5 Problem III a. Unrealized Intercompan' Inventor' ro!t has a credit (alance of 6,#50 beore adjustment  on 9ecem(er )", calculated as follo>s%

 "2,*00 ::*0,*50  )2,#50  ::",600

Cost 3Billin$4".)5   "*,000 : "5,000  )5,2*5 :"#,000

 "8,550

 *",2*5

Billin$ rice Inventor', 9ecem(er " Shipments durin$ 9ecem(er ;vaila(le for Sale (beore adjustment) +ess% Inventor', 9ec. )" (ater adjustment) Reduction in unrealized proft account- adjustment to branch proft  or overstated o cost o goods sold (adjustment)

Unrealized ro!t 3Billin$ rice &inus Cost  #,*00 :: 5,*50  6,#50 ::#,600

7 #,550

* or, "8,550  )54")5 < #,550

(.  Adjustment: O$er$al%ation o# C2/!llo"ance #or O$er$al%ation o# Branch In$entor&/ (nreali)ed Intercompan& In$entor& Pro*t re#er to :a; #or comp%tation Unrealized Intercompan' Inventor' ro!t.................................................... #,550 Branch Income Summar'.................................................................. #,550 c. Home Ofce Books Branch Books Shipments to Branch Unrealized Int Inv. r Branch Current

#00 "#0

Home Oce Current Shipments to Branch

5#0 5#0

5#0

Cost of merchandise returned% 5#04".)5, or #00. Problem I< ". he (ranch oce inventor' as of 9ecem(er " considered of%   Shipments rom ome !"ce   3see (elo>.............................................................  "*,00077

 

urchases rom outsiders 3(alance of inventor'.................................................. ),000 otal inventor'...........................................................................................................  "5,000 -oods acuired from home oce and included in (ranch inventor' at (illed price are calculated as follo>s%

"*,000 ::6,200  *",200  ::,#00

Cost 3Billin$4".*0  7 "0,000 : ,000  ",000 ::8,000

 "),*00

 "",000

Billin$ rice Inventor', 9ecem(er " Shipments durin$ 9ecem(er ;vaila(le for Sale (beore adjustment) +ess% Inventor', 9ec. )" (ater adjustment) Reduction in unrealized proft account- adjustment to branch proft  or overstated o cost o goods sold (adjustment)

77

Unrealized ro!t 3Billin$ rice &inus Cost  *,000 :: ",200  ),200 ::",#00

777 *,*00

7*,0004*0 < "0,000= 777"),*00  *04"*0 < *,*00 *.  Adjustment: O$er$al%ation o# C2/!llo"ance #or O$er$al%ation o# Branch In$entor&/ (nreali)ed Intercompan& In$entor& Pro*t re#er to :a; #or comp%tation Unrealized Intercompan' Inventor' ro!t......................................... *,*00 Branch Income Summar'.......................................................... *,*00 Problems < 1 Indi$id%al 2tatements SD?CD@ CO. Balance Sheet for Branch 9ecem(er )",*0#  

;ssets +ia(ilities:::::::::::::::::::: Cash.....................................................  *,250 pa'a(le...................................  #,*00 ;ccounts receiva(le........................ "*,50 epenses................................... "05 &erchandise inventor'..................... "#,200 oce............................................... *6,*)6 Store supplies...................................... )00 repaid epenses............................... "*0 Eurniture and !tures..............  ),200 +ess% ;ccumulated depreciation.............. 582 ),0*#  ::::::::  otal assets.......................................  )),5## lia(ilities............................................  )),5##

;ccounts ;ccrued Home

otal

SD?CD@ CO. Income Statement for Branch Eor &onth Dnded 9ecem(er )", *0# Sales...........................................................................................................................................  *0,000

Cost of $oods sold% &erchandise inventor', 9ecem(er "................................................  "#,#00 urchases.............................................................................................. #,"00 Shipments from home oce............................................................... "0,*00 &erchandise availa(le for sale..........................................................  *,800 +ess% &erchandise Inventor', 9ecem(er )"..................................... "#,200 Cost of $oods sold....................................................................................................... "#,"00 -ross pro!t.................................................................................................................................  5,600 Operatin$ epenses% ;dvertisin$ epense.............................................................................  *,00 Salaries and commissions epense..................................................... *,)50 Store supplies epense......................................................................... *0 &iscellaneous sellin$ epense............................................................ ",050 @ent epense........................................................................................ ",500 9epreciation epense A furniture and !tures.................................. )2 &iscellaneous $eneral epense......................................................... 605  otal operatin$ epenses.......................................................................................... ,6*" ?et loss......................................................................................................................................  ),0*" SD?CD@ CO. Balance Sheet for Home Oce 9ecem(er )", *0# +ia(ilities and StocFholderGs

;ssets Duit'::::::: Cash..................................................... "0,)50 Cash in transit..................................... ",500 ;ccounts receiva(le........................ *2,*00  )5,220 &erchandise inventor'..................... *#,*00 Store supplies...................................... )0 repaid epenses............................... )50 #,#82 20,5*# Eurniture and !tures..............  ,500 +ess% ;ccumulated depreciation.............. *, 55 5,6"5 Branch..................................... *6,*)6 +ess% Unrealized intercompan' inventor' pro!t............ ",650 *8,*6  ::::::::  otal assets........................................  62,"#  62,"#

+ia(ilities ;ccounts pa'a(le................  )5,#00 ;ccrued epenses............... *20 StocFholdersG Duit' Capital StocF.........................  25,000 +ess de!cit..............................

otal lia(ilities and stocFholderGs euit'...............................

SD?CD@ CO. Income Statement for Home Oce Eor &onth Dnded 9ecem(er )", *0# Sales...........................................................................................................................................  ##,50 Cost of $oods sold% &erchandise inventor', 9ecem(er "................................................  )",500

urchases.............................................................................................. *8,200 &erchandise availa(le for sale..........................................................  56,"00 +ess% Shipments to (ranch................................................................... ,500 &erchandise availa(le for o>n sales................................................  50,200 +ess% &erchandise Inventor', 9ecem(er )"..................................... *#,*00 Cost of $oods sold.......................................................................................... *2,#00 -ross pro!t.................................................................................................................................  ",#50 Operatin$ epenses% ;dvertisin$ epense.............................................................................  *,50 Salaries and commissions epense..................................................... #,*50 Store supplies epense......................................................................... 520 &iscellaneous sellin$ epense............................................................ ",50 @ent epense........................................................................................ *,800 9epreciation epense A furniture and !tures.................................. 5 &iscellaneous $eneral epense......................................................... *,5"0  otal operatin$ epenses............................................................................. "#,05 ?et income from o>n operations.........................................................................................  ),2#5 +ess% Branch net loss................................................................................................................ ",*8"  otal income............................................................................................................................  *,)8# . -e#er to =ord +oc%ment =orksheet 3, Combined 2tatements SD?CD@ CO. Com(ined Balance Sheet for Home Oce and Branch 9ecem(er )", *0# ;ssets

+ia(ilities and StocFholdersG Duit'

Cash ////////////.  "#,500 ;ccounts @eceiva(le //// )6,050 &erchandise Inv //////. )2,50 )6,625 Store Supplies ///////.. 20 repaid Dpenses /////.. Eurniture  Eitures /// "*,"00 20,5*# +ess accumulated 9epreciation /... ),"2" ,6)6  otal assets ///////// "00,#6

"00,#6

+ia(ilities ;ccounts a'a(le ///.. ;ccrued Dpenses ///.

)6,200 )25 

StocFholdersG Duit' #80 Capital StocF ////// 25,000 +ess de!cit ///////. #,#82

otal

lia(ilities

and

SD?CD@ CO. Com(ined Income Statement for Home Oce and Branch

SHDuit'

Eor &onth Dnded 9ecem(er )", *0# Sales //////////////////////////////////////// 2#,50 Cost of $oods sold% &erchandise Inventor', 9ecem(er " ////////////// #),600 urchases /////////////////////////// )",800 &erchandise availa(le for sale ///////////////// 85,200 +ess merchandise inventor', 9ecem(er )" ///////////. )2,50 Cost of $oods sold //////////////////////.. ),850 -ross pro!t ////////////////////////////// *2,"00 Operatin$ Dpenses% ;dvertisin$ Dpense //////////////////////  5,250 Salaries and Commissions epense /////////////// 2,200 Store supplies epense ////////////////////.. #0 &iscellaneous sellin$ epense ///////////////// *,600 @ent epense ///////////////////////// #,*00 9epreciation Dpense A EE //////////////////. "*" &iscellaneous $eneral epense ////////////////. ),#"5  otal operatin$ epense ///////////////////////////. *),8*2 ?et Income ///////////////////////////////////// *,)8# >. !d4%stin7 and Closin7 8ntries a Branch Books 9ec )" Income Summar' /////////////////.. &erchandise Inventor' ///////////.. )" )"

9ec.

)" )" )"

)"

&erchandise Inventor' /////////////// Income Summar' //////////////.

"#,#00 "#,#00 "#,200 "#,200

Store Supplies Dpense ///////////////. Store Supplies //////////////// Store supplies used% 50 A )00, or *0

*0

repaid Dpenses /////////////////// &iscellaneous -eneral Dpense ////////.

"*0

&iscellaneous -eneral Dpense //////////// ;ccrued Dpenses //////////////..

"05

9epreciation Dpense A EE /////////////.. ;ccumulated 9epreciation ////////// 9epreciation% " of ),200

)2

&iscellaneous -eneral Dpense ///////////.. Home Oce Current/////////////

**0

*0

"*0 "05 )2

**0

)"

Sales //////////////////////// *0,000 Income Summar' //////////////.

)"

Income Summar' ////////////////// urchases //////////////////

*0,000 **,**" #,"00

Shipments from Home Oce ///////// ;dvertisin$ Dpense /////////////. Salaries and Commissions Dpense //////. Store Supplies Dpense //////////// &iscellaneous Sellin$ Dpense ////////.. @ent Dpense ////////////////. 9epreciation Dpense A EE /////////. &iscellaneous -eneral Dpense ///////. )" b 9ec

),0*" ),0*"

Home Ofce Books )" )" )"

)" )" )"

31

)"

9ec

Home Oce Current////.////////////. Income Summar' //////////////..

"0,*00 *,00 *,)50 *0 ",050 ",500 )2 605

)"

)" )"

Income Summar' //////////////////. &erchandise Inventor' ////////////.

)",500

&erchandise Inventor' ///////////////... Income Summar' ///////////////

*#,*00

Store Supplies Dpense ////////////////. Store Supplies ///////////////// Store supplies used% 6#0 A )0, or % 520

)",500 *#,*00 520 520

repaid Dpense /////////////////// &iscellaneous -eneral Dpense ////////

)50

&iscellaneous -eneral Dpense ///////////.. ;ccrued Dpenses //////////////.

*20

9epreciation Dpense ////////////////.. ;ccumulated 9epreciation A EE ///////. 9epreciation% " of ,500, or 5

5

)50 *20 5

Cash in Transit …………………………………………………. Branch Current////////////////

1,500

Sales /////////////////////// Shipments to (ranch /////////....................... Income Summar' /////////////.

##,50 ,500

Income Summar' ////////////////// urchases ////////////////// ;dvertisin$ Dpense /////////////. Salaries and Commissions Dpense //////. Store Supplies Dpense //////////// &iscellaneous Sellin$ Dpense ////////.. @ent Dpense ////////////////. 9epreciation Dpense A EE /////////. &iscellaneous -eneral Dpense ///////.

#*,#05

Branch Income Summar'//////////////.. Branch Current////////////////

),0*"

Unrealized Intercompan' Inventor' ro!t //////.

",850

",500

5),)50 *8,200 *,50 #,*50 520 ",50 *,800 5 *,5"0 ),0*"

Branch Income Summar'////////// Calculation of unrealized pro!t ad1ustment% Balance of unrealized pro!t account, 9ecem(er )" /////////.. ),800 Inventor' merchandise received from Home oce at (illed price on 9ecem(er )", "",800 Inventor' at cost% "",8004 ".*0, or 6,850 Balance of unrealized pro!t account on 9ecem(er )", "",800 A 6,850 .... ",650 @euired decreased in unrealized pro!t ;d1ustment to (ranch income for Overstatement of cost of $oods Sold //////////////.. ",850 )" )"

",850

Income Summar' ///////////////// Branch Income Summar'////////.

",*8"

Income Summar' ///////////////// @etained Darnin$s /////////////.

*,)8#

",*8" *,)8#

Problem
 ##,000

. !"ce Current   6,000

3 "0,000

:::::::  )#,000

"0,000 "*,000 ),000 )#,000

. -e#er to P+? Cop& o# the =orsheet 3. Combined Income 2tatement Sales 3)50,000 A "05,000 J "50,000///....................................................... )65,000 +ess% Cost of $oods sold 3**0,000 A #,000 J 36),000 J ),200 A *",000 A ",*00K//////////////. *"0,#00 -ross pro!t................................................................................................................... "#,200 Operatin$ epenses 380,000 J #",000 J "*,000................................................ "*),000 ?et income...................................................................................................................  2",200 Problem
Cost of $oods sold% &erchandise inventor', Nanuar' ", *05...................................  ##,500 Shipments from home oce...................................................... *5*,000 &erchandise availa(le for sale................................................. *62,500 +ess% &erchandise Inventor', 9ecem(er )", *05.................. 5,500 *),000 -ross pro!t.................................................................................................................  88,000 Operatin$ epenses................................................................................................. "0",500 ?et loss.......................................................................................................................  *#,500 ;LO? CO. Income Statement for Cincinnati Home Oce Eor Mear Dnded 9ecem(er )", *05 Sales.............................................................................................................................. ",020,000 Cost of $oods sold% &erchandise inventor', Nanuar' ", *05................................... ""5,000 Shipments from home oce...................................................... *0,000 &erchandise availa(le for sale................................................. 6)5,000 +ess% Shipments to (ranch.......................................................... *"0,000 &erchandise availa(le for o>n sales....................................... 8*5,000 +ess% &erchandise Inventor', 9ecem(er )", *05.................. "#*,500 5*,500 -ross pro!t.................................................................................................................. #88,500 Dpenses...................................................................................................................... )*,000 ?et income from o>n operations............................................................................ ;dd (ranch net income...........................................................................................  otal income............................................................................................................... ""*,"50

 65,500 "2,250

3* ;LO? CO. Com(ined Income Statement for Home Oce and Branch Eor Mear Dnded 9ecem(er )", *05 Sales.............................................................................................................................. ",)85,000 Cost of $oods sold% &erchandise inventor', Nanuar' ", *05................................... "50,200 urchases...................................................................................... *0,000 &erchandise availa(le for sale................................................. 680,200 +ess% &erchandise Inventor', 9ecem(er )", *05.................. "6",*50 886,)50 -ross pro!t.................................................................................................................... 565,250 Operatin$ epenses.................................................................................................... #),500 ?et income................................................................................................................... ""*,"50 3) &erchandise Inventor', 9ecem(er )"................................................................ 5,500 Sales.......................................................................................................................... )"5,000

Income Summar'............................................................................................ )8),500 Income Summar'......................................................................................................... )6,000 &erchandise Inventor', Nanuar' "................................................................ ##,500 Shipments from Home Oce......................................................................... *5*,000 Operatin$ epenses........................................................................................ "0",500 Home Oce............................................................................................................... Income Summar'.......................................................................................... *#,500

*#,500

3# Branch Income Summar'........................................................................................ *#,500 Branch Current..................................................................................................... *#,500 Unrealized Intercompan' Inventor' ro!t............................................................... #","50 Branch Income Summar'.................................................................................... #","50 Calculation of unrealized pro!t ad1ustment% Branch inventor', Nanuar' ", acuired from home oce at (illed price......................................................................................  ##,500 +ess% Cost of inventor' 3##,5004".*5......................................................... )5,200 Unrealized Intercompan' Inventor' ro!t Nan. ".......................................  ,600 ;dd% Increase in unrealized pro!t for shipments made durin$ 'ear, (illed price of $oods, *5*,000, cost of $oods, *"0,000.................................................... #*,000  50,600 9educt (alance to remain in unrealized pro!t account% Branch inventor', 9ecem(er )", acuired from home oce.......................................  5,500 +ess% Cost of inventor' to home oce, 5,5004".*0................................................................ #,850 @eduction in unrealized pro!t account ad1ustment to (ranch income for overstatement of cost of  $oods sold..................................................................

6,850 #","50

Branch Income Summar'........................................................................................... "2,250 Income Summar'............................................................................................ "2,250 &erchandise Inventor', 9ecem(er )"...................................................................... "#*,500 Sales............................................................................................................................... ",020,000 Shipments to Branch.................................................................................................... *"0,000 Income Summar'............................................................................................. ",#"*,500 Income Summar'......................................................................................................... ",)"8,000

&erchandise Inventor', Nanuar' "................................................................ ""5,000 urchases......................................................................................................... *0,000 Dpenses........................................................................................................... )*,000 Income Summar'.......................................................................................................... ""*,"50 @etained Darnin$s............................................................................................ ""*,"50 Problem n sales.......................................  *20,000 +ess% &erchandise Inventor', 9ecem(er )", *0#.................. 55,000 Cost of $oods sold............................................................................. *05,000 -ross pro!t...................................................................................................................  5",000 Operatin$ Dpenses.................................................................................................... 20,000 ?et loss from o>n operations.....................................................................................  3 6,000 ;dd% ;d1usted (ranch net income............................................................................. "),500 Com(ine net income....................................................................................................  #,500

3* @U--+DS CO. Com(ined Income Statement for Home Oce and Branch Eor Mear Dnded 9ecem(er )", *0# Sales..............................................................................................................................  ))#,500 Cost of $oods sold% &erchandise inventor', Nanuar' ", *0#...................................  "08,500 urchases...................................................................................... *)0,000 &erchandise availa(le for sale..................................................  ))8,500 +ess% &erchandise Inventor', 9ecem(er )", *0#................... 0,000 Cost of $oods sold............................................................................. *58,500 -ross pro!t....................................................................................................................  88,000 Operatin$ epenses.................................................................................................... 8*,500 ?et income...................................................................................................................  #,500 3) &erchandise Inventor'......................................................................................... )",500   Sales.......................................................................................................................... 8,500 Income Summar'............................................................................................ ""0,000 Income Summar'......................................................................................................... "0#,500 &erchandise Inventor'................................................................................... )*,000 Shipments from Home Oce......................................................................... #0,000 urchases......................................................................................................... *0,000 Dpenses........................................................................................................... "*,500 Income Summar'......................................................................................................... Home Oce..................................................................................................... 5,500 3# Branch...................................................................................................................... Branch Income................................................................................................ 5,500 Unrealized Intercompan' Inventor' ro!t............................................................... Branch Income.............................................................................................. ,000 Calculation of unrealized pro!t ad1ustment% Branch inventor', Nanuar' ", acuired from home oce at (illed price....................................................................................  *#,500 +ess% Cost of inventor' 3*#,5004".**5.................................................... *0,000 Unrealized Intercompan' Inventor' ro!t Nan. "...................................  #,500 ;dd% Increase in unrealized pro!t for shipments

5,500

5,500

,000

made durin$ 'ear, (illed price of $oods, #0,000, cost of $oods, )0,000.................................................... "0,000  "#,500 9educt (alance to remain in unrealized pro!t account% Branch inventor', 9ecem(er )", acuired from home oce.......................................  *2,000 +ess% Cost of inventor' to home oce, *2,0004"."4)................................................................ "6,500 2,500 @eduction in unrealized pro!t account ad1ustment to (ranch income for overstatement of cost of $oods sold........................... ,000 Branch Income............................................................................................................. "),500 Income Summar'............................................................................................ "),500 &erchandise Inventor'................................................................................................ 55,000 Sales............................................................................................................................... *52,000 Shipments to Branch.................................................................................................... )0,000 Income Summar'............................................................................................. )#",000 Income Summar'......................................................................................................... )50,000 &erchandise Inventor'................................................................................... 0,000 urchases......................................................................................................... *"0,000 Dpenses........................................................................................................... 20,000 Income Summar'.......................................................................................................... @etained Darnin$s............................................................................................ #,500

#,500

Problem I@ 1. Branch Current Unad1usted (alance, "*4)"4*0# ;dd 39educt% ;d1ustments " @emittance *. Cash in transit ). Shipments in transit ;d1usted (alance, "*4)"4*0#

 20,000

H. Oce Current  5",500

I ",800

 58,)00

",00 5,00  58,)00

. Income 2tatement A Branch Sales................................................................................................................................ "#0,000 Cost of $oods sold% &erchandise inventor', Nanuar' ", *0# 3"",550 A ",000.......  "0,550 Shipments from home oce 3"05,000 J 5,000 A "0,000........ "00,000 Erei$htin 35,500 J *50/////////////////.. 5,850 &erchandise availa(le for sale.....................................................""2,)00 +ess% &erchandise Inventor', 9ecem(er )", *0#...................... "#,880



Cost of $oods sold............................................................................. "0",5)0   -ross pro!t.................................................................................................................... ),#80 Operatin$ epenses.................................................................................................... *#,)00   ?et income................................................................................................................... "#,"80





Income 2tatement  Home Ofce Sales..............................................................................................................................  "55,000 Cost of $oods sold% &erchandise inventor', Nanuar' ", *0#...................................  *),000 urchases...................................................................................... "60,000 &erchandise availa(le for sale.................................................  *"),000 +ess% Shipments to (ranch.......................................................... "00,000 &erchandise availa(le for o>n sales.......................................  ""),000 +ess% &erchandise Inventor', 9ecem(er )", *0#.................. )0,000 Cost of $oods sold........................................................................ ),000 -ross pro!t...................................................................................................................  8*,000 Operatin$ Dpenses.................................................................................................... #*,000 ?et loss from o>n operations.....................................................................................  )0,000 ;dd (ranch net income............................................................................................ "#,"80 Com(ined net income..............................................................................................  ##,"80 ). Com(ined Income Statement for Home Oce and Branch Eor Mear Dnded 9ecem(er )", *0# Sales..............................................................................................................................  *65,000 Cost of $oods sold% &erchandise inventor', Nanuar' ", *0#...................................  )),550 urchases...................................................................................... "60,000 Erei$htin//////////////////////// 5,850 &erchandise availa(le for sale..................................................  **6,)00 +ess% &erchandise Inventor', 9ecem(er )", *0#................... ##,880 Cost of $oods sold........................................................................ "#,5)0 -ross pro!t....................................................................................................................  ""0,#80 Operatin$ epenses.................................................................................................... 22,)00 ?et income...................................................................................................................  ##,"80 Problem @ a. he cost of the merchandise destro'ed >as )0,000.

otal merchandise acuired from home o!ice, at (illed price% Inventor', Nanuar' "...................................................................................... *2,#00 Shipments from home oce, Nan. ""8....................................................... *0,000   #2,#00 Cost of $oods sold, Nanuar' ""8, at (illed price% ?et sales, "),0004".*5...................................................................................... "0,#00 &erchandise on hand, Nanuar' "8, at (illed price....................................... )2,000 &erchandise on hand, Nanuar' "8, at cost, )2,0004".*0............................ )0,000 (. Branch BooFs% +oss from Eire 3or Home Oce............................................................ )2,000 &erchandise Inventor'............................................................ )2,000 Home Oce BooFs% ?o entr' needs to (e made on the (ooFs of the home oce until the end of the !scal period, >hen the (ranch earnin$s 3includin$ the loss from !re are reco$nized and >hen the (alance of the account Unrealized Intercompan' Inventor' ro!t is ad1usted to conform to the (ranch endin$ inventor'. If it is desired to reco$nize the loss from !re on the home oce (ooFs immediatel', the follo>in$ entr' ma' (e made% Branch +oss from Eire 3or @etained Darnin$s...................................... )0,000 Unrealized Intercompan' Inventor' ro!t........................................... 2,000 Branch......................................................................................... )2,000 Problem @I a. BooFs of Branch ;% Home Oce........................................................................................ ",500 Cash.........................................................................................

",500

(. BooFs of (ranch B% Cash...................................................................................................... ",500 Home Oce............................................................................

",500

c. BooFs of Home Oce% Branch B............................................................................................... ",500 Branch ;.................................................................................. Problem @II a. BooFs of Branch ?o. " % Home Oce ///////////////////////. Shipments from Home Oce//////////////..   Erei$ht In//////////////////////// (. BooFs of (ranch ?o. 5% Shipments from Home Oce//////////////// Erei$ht In////////////////////////// Home Oce//////////////////////. Cash////////////////////////// c. BooFs of the Home Oce Branch ?o. 5///////////////////////..

",650 ",200 )50

",200 #00 ",850 *50 ",850

",500

Dcess Erei$ht on Inter (ranch ransfer of &erchandise///.. Branch ?o. "////////////////////// Shipments to Branch ?o. "/////////////////.. Shipments to Branch ?o. 5////////////////

*00 ",650 ",200 ",200

9%ltiple Choice Problems  ". c  50,#00, (illed price  #04"#0 <  "#,#00  *. (  Dndin$ inventor' in the com(ined income statement%   Erom Home Oce% 350,0002,200  "004"#0 Erom Outsiders

 )",000 2,200  )8,200

). a  rue Branch ?et Income Branch ?et Income ;dd 3deduct% Overvaluation of cost of $oods sold4realized pro!t from sales made (' (ranch% Shipments from home oce.  *0,000 +ess% Dndin$ inventor', at (illed price 350,000 A 2,200 #),#00 Cost of $oods sold from home oce at (illed price  *)2,200 &ultiplied ('% &arFup #04"#0 Unrecorded (ranch epenses rue Branch ?et Income

 5,000

 28,200 3 *,500  80,"00

 #. a A )0,000  360,000 A 20,000460,000  5. a  2. d A 350,000 A #0,0004#0,000 < *5 marFup on cost 8. c A 3#0,000 A )20,000  30,0004#0,000 < *0,000  . c A 800,000, since the pro(lem stated that the Phome oce ad1usted the intracompan' ro!t 9eferred accountQ and the amount of 800,000 is the amount of net income in the ad1usted !nancial statements of the home oce, and therefore it is understood to (e com(ined net income.  6. ( @eported 3unad1usted (ranch net income 3per (ranch (ooFs //////.. )0,000 Branch Income in so far as home oce is concerned per home oce (ooFs. 50,000

Overvaluation of (ranch cost of $oods sold//////////////// *0,000 Cost of sales of Home Oce///////////////////////.500,000 Cost of sales of Branch////////////////////////// "00,000 Overvaluation of (ranch cost of sales///////////////////3 *0,000 Com(ined cost of sales/////////////////////////...50,000 "0. c A the amount of net income as reported (' Home oce is considered the com(ined net income. "". a  rue Branch ?et Income +ess% (ranch ?et Income as reported (' the (ranch Overvaluation of C-S +ess% Cost of $oods sold from home oce at B Inventor', 9ecem(er " Shipment from HO CO-;S +ess% Inventor', 9ecem(er )" C-S from home oce, at cost Billin$ rice% ))2,000 4 *#0,000 < "#0.

"52,000 20,000  62,000  80,000 )50,000  #*0,000 #,000

))2,000  *#0,000

"*. ( A ;llo>ance for overvaluation after ad1ustment 4 for 9ecem(er )" inventor'% #,000  #04"#0 < *#,000. "). ( ?et Income as reported (' the Branch +ess% @ental epense char$ed (' the home oce 3",000  2 months ;d1usted ?I as reported (' the Branch ;dd% Overvaluation of C-S &I, (e$innin$ SEHO CO-;S +ess% &I, endin$ C-S, at B L% &arFup ratio  rue4;d1usted4@eal Branch ?et Income    

 *0,000 2,000  "#,000 Billed rice 0 550,000 550,000 85,000 #85,000 *54"*5

65,000 "06,000

"#. d Sales 35)8,500 J )00,000//////////////////.///.  )8,500 +ess% Cost of $oods sold &erchandise inventor', (e$. 50,000 J 3#5,000 4 ".*0K 8,500 ;dd% urchases///////////////////. 500,000 Cost of -oods ;vaila(le for Sale//////////...  58,500 +ess% &I, endin$ 80,000 J 320,000 4 ".*0K//////. "*0,000 #28,500 -ross pro!t////////////////////////.  )80,000 +ess% Dpenses 3"*0,000 J 50,000..////////////. "80,000 ?et Income////////////////////////  *00,000 "5. d Overvaluation of Cost of -oods Sold% Unrealized ro!t in (ranch inventor'4 (efore ad1ustment//////. 8,*00

+ess% ;llo>ance of endin$ (ranch inventor' 3*0,000  # < "2,00  *04"*0//////////////////////. *,00 Overvaluation of Cost of -oods Sold//////////////. /. #,#00 ;d1usted (ranch net income% Sales/////////////////////////////////20,000 +ess% Cost of $oods sold% Inventor', Nanuar' ", *00)////////////. )0,000 ;dd% urchases////////////////..... "",000 Shipments from home oce////////.. "6,*00 Cost of -oods availa(le for sale/////////  20,*00 +ess% Inventor', 9ecem(er )", *00)///////. *0,000 #0,*00 -ross pro!t/////////////////////////////.. "6,*00 +ess% Dpenses////////////////////////////.. "*,000 Unad1usted (ranch net income///////////////////... 8,00 ;dd% Overvaluation of Cost of -oods Sold//////////////. #,#00 ;d1usted (ranch net income////////////////////... "*,000 "2. d Billed rice 7 )2,000 *,00

Cost

;llo>ance

&erchandise Inventor', "*4)"4*005  )0,000  2,000 Shipments *#,000 #,00 Cost of $oods sold "0,00 Erom Home at (illed price% 72,000 4 *0 < )0,000 J 2,000 < )2,000. Erom outsiders% #5,000 A )2,000 < 6,000 "8. d Billed rice 7"*,000 6,200

&erch. Inventor', "*4)"4*0# Shipments Cost of -oods Sold 7*,000 4 *0 < "0,000 J *,000 < "*,000.

Cost "0,000 ,000

;llo>ance  *,000 ",200  ),200

&erchandise inventor', 9ecem(er ", *0#///////////// "5,000 +ess% Shipments from home oce at (illed price7////////// "*,000 &erchandise from outsiders//////////////////// ),000 ". d Com(ined Cost of -oods Sold% &erchandise Inventor', "4"4*00)% Home Oce, cost//////////////////  ),500 Branch% Outsiders, ///////////........................... )00 Erom Home Oce 3*,500 A )004""0................. *,000 *,)00  5,00 ;dd urchases 3*#0,000 J "",000///////////.. *5",000 CO-;S///////////////////////// *52,00  +ess% &erchandise Inventor', "*4)"4*00) Home Oce, cost//////////////////.  ),000 Branch% Outsiders//////////////////.  "50 Erom Home Oce 3",00 A "504""0................ ",500 ",250 #,250

Cost of -oods Sold///////////////////

*5*,"50

"6. d "00 Billed rice

20 Cost

#0 ;llo>ance &erchandise inventor', "4"4# )*,000 Shipments 720,000 )2,000 7*#,000 Cost of $oods availa(le for sale 52,000 +ess% &I, )4)"4# 3*5,000  #0 "0,000 Overvaluation of C-S77 #2,000 7)2,000 cost 4 20 < 20,000  #0 < *#,000. 3?ote% &arFup is (ased on (illed price 77@ealized ro!t from Branch Sales *0. d Billed rice &erchandise inventor', 4"4# Shipments 3#00,000  *5 Cost of $oods availa(le for sale +ess% &I, 4)"4# 3"20,000  *5 Overvaluation of C-S4@BSales

#00,000 "20,000

Cost

;llo>ance 20,000 7"00,,000 "20,000 #0,000 "*0,000

*". ( 3" Sales  #0,000 +ess% Cost of $oods sold% Inventor', "4"4*00) 3#,650 4 ""0  #,500 ;dd% Shipments 3**,000 4 ""0 *0,000 CO-;S  *#,500 +ess% Inventor', "*4)"4*00) 32,050 4 ""0 5,500 "6,000 -ross pro!t  *",000 +ess% Dpenses : "),"00 ?et income from o>n operations  8,600 3* Com(ined Cost of -oods Sold% &erchandise Inventor', "4"4*00)% of Home Oce, cost/////////////////.. "8,000 of Branch, cost% #,650 4 ""0/////////////. #,500  *",500 ;dd urchases//////////////////////. 50,000 CO-;S/////////////////////////..  8",500  +ess% &erchandise Inventor', "*4)"4*00) of Home Oce, cost//////////////////  "#,000 of Branch, cost% 2,050 4"00/////////////.. 5,500 "6,500 Cost of -oods Sold////////////////////.  5*,000 **. a  #,000 4 "*0 < #0,000 *). a A #,000  *04"*0 < ,000 3note% ad1usted allo>ance refers to the allo>ance related to the endin$ inventor', so, the allo>ance related to the C-S, >hich is "0,00 in this case is considered to (e the ad1ustments in the (ooFs of Home Oce to determine the ad1usted (ranch net income "*0 "00 *0 Billed rice Cost ;llo>ance &erchandise inventor', "4"4# 0 Shipments "0,000 Cost of $oods availa(le for sale "0,000

+ess% &I, "*4)"4# 320,000  0 Overvaluation of C-S 320,000  *04"*0

#,000 20,000

"0,0007

*#. ( Sales 3"#,000 J ##,000 +ess% Cost of Sales Inventor', "4"4*0# urchases Shipments from home oce Cost of $oods availa(le for sale +ess% Inventor', "*4)"4*0# -ross pro!t +ess% Dpenses 382,000 J *#,000 ?et income, unad1usted ;dd% Overvaluation of C-S ;d1usted (ranch net income

"6*,000 

0 5*,000 "0,000  "20,000 20,000 "00,000  6*,000 "00,000 3 ,000 "0,000  *,000

*5. c

&erchandise inventor', "4"4# Shipments Cost of $oods availa(le for sale +ess% &I, "*4)"4# 320,000  0 Overvaluation of C-S3*)0,000 *54"*5

"*5 Billed rice #0,000 *50,000 *60,000 20,000 *)0,000

"00 Cost

*5 ;llo>ance

#2,0007

*2. ( A )*2,000 Sales 3200,000 J )00,000 ///////////////////..  600,000 +ess% Cost of $oods sold &erchandise inventor', (e$. "00,000 J 3#0,0004".*5K /////////. /  ")*,000 ;dd% urchases////////////// )50,000 Cost of $oods availa(le for sale///////  #*,000 +ess% &I, endin$ )0,000 J 320,0004".*5K ////////// 8,000 #0#,000 -ross pro!t/////////////////////  #62,000 +ess% Dpenses 3"*0,000 J 50,000/////////. : "80,000 ?et Income ///////////////////.  )*2,000 *8. ( Sales 35)8,500 J )00,000 /////////////////// +ess% Cost of $oods sold &erchandise inventor', (e$. 50,000 J 320,0004".*0K///////////..  8,500 ;dd% urchases //////////////. 500,000 Cost of $oods availa(le for sale/////// 58,500 +ess% &I, endin$ 80,000 J 320,0004".*0K //////////. "*0,000 -ross pro!t////////////////////..  )80,000 +ess% Dpenses 3"*0,000 J 50,000/////////. : "80,000 ?et Income ////////////////////  *00,000

 )8,500

#28,500

*. c Sales 3"*0,000 J 20,000///////////////  "0,000 +ess% Cost of $oods sold% &erchandise inventor', (e$. #0,000 J 2,000 J 3*#,000 4 ".*K////////////  22,000 ;dd% urchases 380,000 J "",000/////// ",000 Cost of -oods ;vaila(le for Sale//////// "#8,000 +ess% &I, endin$ #0,000 J ),*00 J 3"2,00 4 ".*0K 58,*00 6,00 -ross pro!t/////////////////////  60,*00 +ess% Dpenses 3*,000 J "*,000////////// #0,000 ?et Income////////////////////.  50,*00 *6. d Sales 3"00,000 A )),000 J 50,000//////////////  ""8,000 +ess% Cost of $oods sold% Inventor', (e$. "5,000 J 35,5004""0 or 35,500 A 500K *0,000 ;dd% urchases 350,000 J 8,000//////////// 58,000 CO-;S////////////////////////.. 88,000 +ess% Inventor', end "",000 J ",050 J 32,000 ",0504""0K/////////////// "2,550 20,#50 -ross pro!t//////////////////////////  52,550 +ess% Dpenses 3*0,000 J 2,000 J 5,000//////////// )",000   Com(ined ?et income////////////////////.  *5,550 )0. c Sales //////////////////////////... "55,000 +ess% Cost of Sales Inventor', "4"4"0/////////////////..  *),000 urchases ////////////////////.. "60,000 Cost of $oods availa(le for sale /////////.. *"),000 +ess% Shipment4Sales to Branch, at cost 3""0,0004""0//////////////// "00,000 Cost of $oods availa(le for HO Sale///////////////////.. ""),000 +ess% Inventor', "*4)"4"0 ////////////..... )0,000 ),000 -ross pro!t ////////////////////////... +ess% Dpenses ///////////////////////.

 8*,000

5*,000 ?et income A home oce /////////////////.

 *0,000

)". a Sales //////////////////////////.... "#0,000 +ess% Cost of Sales Inventor', "4"4#//////////////////  "",550 urchases ////////////////////. "05,000 Erei$htin ///////////////////// 5,500 Shipment in transit 35,000J*50 /////////. 5,*50 Cost of $oods availa(le for sale //////////. "*8,)00 +ess% Inventor', "*4)"4# 3"0,#00 J 5*0 J 5,*50 ///////////////. "2,"80 """,")0 -ross pro!t. ///////////////////////.  *,80

+ess% Dpenses

//////////////////////

*,000 ?et income per (ranch (ooFs4unad1usted ///////// ;dd% Overvaluation of C-S7 ///////////////.. ?et Income of 9avao Branch, ad1usted //////////. B &I. "4"4*0# Shipments ;vaila(le for sale % &I, "*4)"4# C-S 77""0,000  "04""0 777"0,#00 J 5,000, in transit 7777"5,#00  "04""0

""0,000 777"5,#00

Cost "00,000



80 6,200  "0,#80 ;llo>ance ",000 77"0,000 "",000 7777",#00 6,200

)*. a Inventor', "4" at (illed price//////////////.. "25,000 ;dd% Shipments at (illed price/////////////.. ""0,000 Cost of $oods availa(le for sale at (illed price ////// *85,000  +ess% C-S at B% Sales//////////////////////// "26,000 +ess% Sales returns and allo>ances ///////.. ),850 Sales price of merchandise acuired from outsiders   38,500 4 "*0/////////// 6,000 ?et Sales of merchandise acuired from home oce///////////////.. "52,*50 % Intercompan' cost ratio ////////////... "004"*5 "*5,000 Inventor', 4"4*00 at (illed price//////////// "50,000 % Cost ratio ///////////////////////.. "004"*5 &erchandise inventor' at cost destro'ed (' !re /////// "*0,000 )). d Erei$ht actuall' paid ('% Home Oce////////////////////////// 500 Branch //////////////////////////// 800  otal////////////////////////////// ",*00 +ess% Erei$ht that should (e recorded/////////////////.. 00 Dcess frei$ht///////////////////////////// #00 )#. d A in arrivin$ at the cost of merchandise inventor' at the end of the period, frei$ht char$es are properl' reco$nized as a part of the cost. But a (ranch should not (e char$ed >ith ecessive frei$ht char$es >hen, (ecause of indirect routin$, ecessive costs are incurred. Under such circumstances, the (ranch acuirin$ the $oods should (e char$ed for no more than the normal frei$ht from the usual shippin$ point. he oce directin$ the inter(ranch transfers are responsi(le for the ecessive cost should a(sor( the ecess as an epense (ecause it represents mana$ement mistaFes 3or ineciencies. )5. c Inventor' of the Branch% Shipments from home oce at (illed price......................................... )8,800 L% Dndin$ inventor' ................................................................................ 20

Dndin$ inventor' at (illed price//////////////...// **,2*0 ;dd% Erei$ht 3",)00  20//////////////////...... 80  *),#00 Or, )6,000  20 < *),#00  )2. ( Inventor' in the pu(lished (alance sheet, at cost Shipments at cost/////////////.......................................... )*,500 L% Dndin$ inventor' .................................................................................... 20 Dndin$ inventor' at (illed price//////////////////."6,500 ;dd% Erei$ht 3",)00  20////////////////.......//.. 80  *0,*0  )8. c Home Ofce Books 9avao Branch/)6,000 SB, cost//. )*,500 Unrealized pro!t 5,*00 Cash 3frei$ht/. ",)00 BC – Ba#ui$……1,630 &xcess 'rei#ht… 520   BC()aa$……. 20,150

+a$ao Branch SEHO/////.)8,800 Erei$htin///. ",)00   HOC////.. )6,000

HOC//////.*0,"50   SEHO350/ ",50 Erei$htin 350 250   Cash////...... 250

Ba7%io Branch

SEHO///",50 Erei$htin.. 80   HOC//... "6,2)0

). c A 3)00,000  R < 85,000, endin$ inventor'  3)00,000 A *50,0004)00,000 < "*,500 )6. d #0. d #". ( A refer to ?o. *" #*. ( A refer to ?o. *" #). c A refer to ?o. *" ##. c #5. d 6heories "  rue . * Ealse . )  rue . #  rue . 5 Ealse .

2.

Ealse

"".

Ealse

"2.

rue

*".

9

8.

Ealse

"*.

rue

"8.

rue

**.

;

.

Ealse

").

Ealse

".

rue

*).

d

6.

rue

"#.

rue

"6.

Ealse

*#.

d

"0.

rue

"5.

Ealse

*0.

d

*5.

a

*2.

c