PROB.

3-27

a. Suggested answer (a) 93,560

Allow. for
Billed Over.
Price Cos
t Valuation
Shipments 201,950 125% 161,560 40,390
Less inventory end 8 125%
5,000 68,000 17,000
The amountCost of goods sold 116,950 93
of ,560 23,390

merchandise sold b y office the branch recorded in the the shipment home office to
branchbooks
should be at cost, because the home
at cost.

b. Suggested answer (b) 17, 190

Branch reported net loss (6,200)
Realized profit in branch inventory (a) 23,390
Branch net income in the home office books 17,190
The difference between the branch reported net income and the branch net
income in so far as the home office is concerned is the realized profit in
branch inventory.

PROB. 3-28 Suggestedanswer (a) 175,000

Allowance for overvaluation 370,000

 Less overvaluation in branch ending inventory
195,000
Realized amount of allowance for overvaluation 175,000
The allowance for overvaluation represents the excess of billedprice over
cost of merchandise shipped by the home office to its branch. Any amount
of allowance for overvaluation that pertains to the inventories sold is
considered as realized. Accordingly, any amount of overvaluation that
pertains to inventories unsold at the end ofa period is unrealized.

PROB. 3-29 Suggested answer (d) Yes Yes

Chapter 3 --- Home Office and Branch 147

combined financial statements may be used (1.) when one individual owns a
controlling interest in several entities with related operations, (2.) to present
financial position and results of operations of a group of unconsolidated
subsidiaries, (3.) to combine the statements of entities under common
management

PROB. 3-30 Suggested answer (c) 0

Combined financial statements are appropriately issued when two or more entities
have a common relationship, such as common ownership interest or common
management. When combined financial statements are issued, interentity loans
andprofits should be eliminated in their entirety.

Total net sales (169,000 - 3,750) 165,250

Less total sales of merchandise acquired from outsiders
(7,500/800/0) 9,375
PROB. 3-31 Suggested answer (b) 120,240

Total net sales of merchandise acquired from home office 155,875

Total goods available for sale from home office at billed price
(165,000 + 110,000) 275,000
Less cost of goods sold (at billed price) (155,875 x 80%) 124,700
Inventory end (at billed price) 150,300

Inventory end (at cost) destroyed by fire (150,300/125 0/0) 120,240

Note that the amount ofP 7,500 is the purchases from outsiders at cost,
which were eventually sold at markup of 20%. Since the problem is silent
as to markup on cost or on sales, it is safe to assume that this 20%
markup is on sales.

PROB. 3-32 Suggested answer (c) P9, 000 loss

Accounts receivable, end 100,000
Add receipts from sales 350,000
Sales on account 450,000
 Ac
Ad
Tot

Dis
Less
Adv

Sale
Less
Pu
ranch

Less inventory end 90,000 360,00

0
Gross profit 90,000
Less expenses:
Rent 20,000
Advertising supplies 4,000
Salaries and commissions 70,000
Other expenses 5,000 99,000
Net loss 9,000

Un
der
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is,
the
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ou
nt
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d is
not
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ess
aril
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pe
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ord
ed.