PROBLEM 1:

During the first part of the current year, KAFTIN INC. begins a branch operation Davao City. Equipment
costing P50,000.00 is immediately sent to this site. In addition, inventory costing P40,000.00 is
transferred but at a price of P60,000.00. Cash of P10,000.00 also is conveyed to the branch.

The following events occurred thereafter.

1. The branch buys inventory from an outside party, DAISY CORP., at a cost of P30,000.00. A periodic
inventory system is in use.
2. the home office pays P10,000.00 rent on a building for the next eight months. The branch is notified of
this payment.
3. Sales of P90,000.00 are made.
4. The branch pays P8,000.00 for advertising and other P5,000.00 for salaires.

5. The branch transfers P10,000.00 in cash to the home office. The money is received and recorded.
6. A P3,000.00 receivable is collected by the home office for the branch. The branch is notified of this
collection.
7. The building rented by the branch is occupied for four months.

REQUIREMENTS:
a. Prepare all necessary journal entries for both the branch and the home office.
b. Assume that one-third of the transferred merchandise and one-fourth of the inventory bought from
outsiders remains at the year's end. What is the actual net income of the branch operation?