Problem V

SPENCER CO.
Work Sheet for Combined Statements for Home Office and Branch
December 31, 20x5

Adjustments Income Balance

Home and Eliminations Statement Sheet
Office Branch Dr. Cr. Dr. Cr. Dr. Cr.

Debits
Cash …………………………………….. 10,350 2,650 ……….. ……….. ……….. ……….. 13,100 ………..
Cash in Transit …………………………. 1,500 …….. ……….. ……….. ……….. ……….. 1,500 ………..
Accounts Receivable ………………. 26,200 12,850 ……….. ……….. ……….. ……….. 39,050 ………..
Merchandise Inv. Dec 1 ……………. 31,500 14,400 (c) 2,000 43,900 ……….. ……….. ……….. ………..
Store Supplies …………………………. 380 300 ……….. ……….. ……….. ……….. 580 ………..
Prepaid Expenses ……………………. 350 120 ……….. ……….. ……….. ……….. 470 ………..
Furniture & Fixtures …………………… 8,500 3,600 ……….. ……….. ……….. ……….. 12,700 ………..
Branch…………………………………… 32,260 ……… (a) ……….. 32,260 ……….. ……….. ……….. ………..
Retained Earnings ……………………. 6,850 ……… ……….. ……….. ……….. ……….. 6,850 ………..
Purchases ………………………………. 27,600 4,100 ……….. ……….. ……….. ……….. ……….. ………..
Shipments from Home Office ………………… 10,200 (b) 10,200 ……….. ……….. ……….. ……….. ………..
Advertising Expense …………………. 2,850 2,800 ……….. 5,650 ……….. ……….. ……….. ………..
Salaries and Commissions Expense . 4,250 2,350 ……….. 6,600 ……….. ……….. ……….. ………..
Store Supplies Expense ………………. 560 280 ……….. 840 ……….. ……….. ……….. ………..
Miscellaneous Selling Expense …….. 1,850 1,050 ……….. 2,900 ……….. ……….. ……….. ………..
Rent Expense ………………………….. 2,700 1,500 ……….. 4,200 ……….. ……….. ……….. ………..
Depreciation Expense – F&F ……….. 85 36 ……….. 121 ……….. ……….. ……….. ………..
Miscellaneous General Expense ….. 2,510 95 ……….. 3,415 ……….. ……….. ……….. ………..
160,295 57,141 ……….. ……….. ……….. ……….. ……….. ………..
Merchandise Inv, Dec 31 …………… 24,900 14,600 ……….. (d) 1,950 ……….. ……….. 36,850 ………..
Problem V continued

Credits
Accumulated Depreciation – Furniture
And Fixtures ……………………… 2,585 576 ……….. ……….. ……….. ……….. ……….. 3,161
Unrealized Intercompany Inventory ……….. ……….. (b) 1,700 ……….. ……….. ……….. ……….. ………..
Profit ………………………………. 3,700 ……….. (c) 2,000 ……….. ……….. ……….. ……….. ………..
Accounts Payable ……………… 36,400 4,200 ……….. ……….. ……….. ……….. ……….. 39,000
Accrued Expenses ……………... 260 105 ……….. ……….. ……….. ……….. ……….. 365
Home Office …………………….. ……….. 32,250 (a) 32,260 ……….. ……….. ……….. ……….. ………..
Capital Stock …………………… 65,000 ……….. ……….. ……….. ……….. ……….. ……….. 65,000
Sales ……………………………… 44,850 20,000 ……….. ……….. ……….. 64,850 ……….. ………..
Shipments to Branch …………... 8,500 ……….. (b) 8,500 ……….. ……….. ……….. ……….. ………..
P160,295 57,141 ……….. ……….. ……….. ……….. ……….. ………..
Merchandise Inv, Dec 31 …….. 24,200 14,600 (d) 1,950 ……….. ……….. 36,850 ……….. ………..
46,410 46,410 99,326 101,700 110,500 108,126
Net Income to Balance ………. 2,374 ……….. ……….. 2,374
101,700 101,700 ……….. ………..
……….. ………..
110,500 110,500
Explanation of adjustments and eliminations:

(a) To eliminate reciprocal accounts, Home Office and Branch.

(b) To eliminate shipments to Branch and Shipments to Home Office. Difference between the two balances is debited to Unrealized Intercompany Inventory profit
(20% of P8,500, or P1,700).
(c) To eliminate unrealized profit in beginning inventory balances : P3,700 balance per trial balance, less P1,700 adjustment per entry (b) or P2,000
(d) To reduce ending inventory cost: Branch inventory form home office at billed price ………………. P11,700
Branch inventory from home office at cost, P11,700/1.20 ……… 9,750
Inventory reduction …………………………………………………….. P 1,950
Problem VI

Trial Balance Alignments and Branch Income Home Office

Balance Sheet
Accounts December 31, 20x4 Eliminations Statement Income Statement
Home
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Office Branch
Debits
Cash 15,000 2,000 (f) 10,000
(g) 3,000 30,000
Accounts Receivable 20,000 17,000 37,000
Inventory, December 31,20x4 30,000 8,000 (a) 10,000 (d) 3,600 44,400
Plant Assets (net) 150,000 150,000
Branch 44,000 (f) 10,000
(h) 34,000
Cost of goods sold - Home
office 220,000 (b) 84,000 136,000
Expenses - Home Office 70,000 70,000
Cost of goods sold - Branch 93,000 (d) 3,600 (b) 21,000 74,400
(c) 1,200
Expenses - Branch _______ __41000 (e) 12,000 53,000
549,000 161,000
Credits
Accounts Payable 23,000 23,000
Mortgage Payable 50,000 50,000
Capital Stock 100,000 100,000
Retained Earnings - January 1,
20x4 26,000 (c) 1,200 24,800
Sales - Home Office 350,000 (b) 105,000 245,000
Sales - Branch 150,000 150,000
Accrued Expenses 2,000 2,000
Home Office 9,000 (h) 34,000 (a) 10,000
(e) 12,000

________ _______ _______ (g) ___3000 _______ _______ _______ _______ _______ _______
549,000 161,000 178,800 178,800 127,400 150,000 206,000 245,000 261,400 199,800
 Problem VI continued
Branch Net Income 22,600 22,600

Home Office Net Income _______ _______ __39,000 _______ _______ __39,000
150,000 150,000 245,000 245,000 261,400 261,400

Explanation of adjustments and eliminations:

(a) To record merchandise in transit from home office, determined as follows:
Billings from home office plus beginning inventory – amount available for sale P105,000 + P6,000 ……………….P111,000
Less cost of goods sold and ending inventory per branch records: P93,000 + P8,000 ………………………………. 101,000
Balance representing shipments from home office not yet recorded by the branch………………………….P 10,000

(b) To eliminate shipments of merchandise to branch recorded as sales. Reduction in home office cost of goods sold: P105,000 ÷ 1.25 or P84,000.

(c) To adjust branch cost of goods sold for unrealized profit on beginning inventory: P6,000 – (P6,000 ÷ 1.25), or P1,200.

(d) ) To adjust branch cost of goods sold for unrealized profit on ending inventory: P18,000 – (P18,000 ÷ 1.25) or P3,600.

(e) To record branch expenses paid by home office.

(f) To record cash deposited by branch on December 29 and 30 for account of the home office and not recorded by home office in 20x4.

(g) To record cash in transit from home office.

(h) To eliminate inter office accounts.