CAWUAO AUREL CCE ReSA The Review School of Accountancy ®. Popa Cor. $. H. Loyola Sts., Sampatee, Manila &f Tel Nos. 734-39-89 & 735-98-07 Advanced Financial Accounting & Reporting Home Office & Branch Accounting General Procedures I — General Procedures - Inter-office Transactions Prepare the entries that are required on the books of the Hone Office - Parker Company and the separate book of its Manila branch to record (nome office carries all depreciable assots in its own ledge 12 Inter-ottica (selected) transactions: Jo, tees ‘Seth *'ed- Transfer of cash by hone office to branch, 73,000 “wo “Gao mings WEzg- Transter of merchandise by home office to the branch, P6,000."y4"eg seine. 2egd. At the beginning of the period, the branch office acquires branch furniture mes MoT oh account, P2,500, terms 2/10, 0/30 an? ey ‘wi Game Tidy The bone office makes payment on the invélce (Fefer to No. 3, transaction) Peter “"re within the discount periad. mmingr 12m. The home office analyzes the balance of its genezal and adninistracive BE Te . the branch. 7 ere US” re 6. Depreciation on tné“eqlipment is recorded at the end of the year at 10% 7, Determination of a loss from branch operations, P1,000 II - General Procedures: Coat of Goods Sold and Net Income expenses account and found out that Pl,250 of this balance is chargeable to On January 1, 2019, the Barton Company opened a new branch in a neighboring city. A sunmary of transaction for the howe office and the branch for 2019 are as follows: Branch transactions: a. Cash received from home office, P42, 500 b. Merchandise received from home office, P50,200~ & Sales on account, 766,000 ~ d. Purchases on account, P22,5007 €. Collections on account deposited to the credit of the home office, P53,400. f. Payments on account, P12,250 we en 9 Purchases of furniture and fixtures! for cash, P8,000, 7 sem cu.eeo h, Expenses paid, P18, 000 @ cengn) ae i. Adjusting data on December 31: oye ee (AE) frncee) Depreciation, P6350 ~ sree 178 ene Give) (ae) Merehand: Prepaid expenses, P750 Accrued expenses, P300 Home office transactions: (Merchandise Snventory, January 1, [P40,IZ0] a. Transfer of cash to branch, P42,500 ». Transfer of merchandise to branch (billed at cost), P50,200 7 ©. Sales on account, P105,000 + 4. Purchases on account, P122,500~ « ne ar =. Collections on account, P113, 600 5 Gee Se £. Bayments on account, P124,000 wre froze) eae a. Expenses pata, P26, 600. b > b. Cash received from branch, P53,400. ef Gg Sete ees 41. Dividends paid, P10,000 € agrees. eure 31 Adjusting data’ on Décenber 31: Depreciation, P1,160 ~ Merchandise inventory, P48, 500 ~ mea)otwo Propaid expenses, P2,050 Accrued expenses, P1,350 * le Determine the: C4400) 1, Branch (books) net income from its own operations. Meco 2. Hone office net income tron its own operstions 2.000 31 Conbined net income. © inventory, P23,500- 9 sas ae aS ce accent oe mot cam on tn po "hil thew te romds of tv prec tae cd svar preset rcity ind prey te bert ie wil happen ke te fatere.* "ie delnlaly roach mew behets be Comcrarins corte faa ta hietrt oy frent become bette teckel tmchdocts, (cant fo sare enw of Bl.” AFAR-07Advanced Financial Accounting & Reporting Page 2 III - General Procedures Manila Corporation has been operating a branch in Pampanga for a year. Shipments bre billed to the branch at’ cost, The branch carries its own accounts receivable, makes its own cagh collections, and pays its own expenses. The transactions of the branch for the year 2019 are given effect in the trial balance below: aa [Babies Gedite Cash P20, 000 Hone Office Current 7400, 005 ‘Shipnents from fone Office T, 600, 000 Recounts Receivable 300, 000 Sales na 1, 340, 000 Expenses 240, 000 Totals ~ Pz, 340,000 | Pa, 340, 000 ‘The branch inventory on December 31, 703% is F260, 000. Doternine: A}: On Ganuary 1, 2012, the Shipment to Branch Account on the Hone Office books should have an opening balance o} a. P oO cc. P 360,000 b. 1,360,000 4. 2,000, 000 B 2+ On December 33, 2019, compute the net income of the branch: ¢ r9ys,ce0, a. 1,700,000 ce. P 1,400,000 2 lusears b. "360,000 2. "100, 000 . Fee A 3. on Jenvary 1, 2020, the Branch Current account on the books of the Home Office should have a balance of: no wees 4 7u0.000 a. P 760,000 e. P 2,160,000 wae 4s b. 1,000,000 a. "400,000 yous, poi wheel = IV — General Procedures Gn December 31, 2019, the branch manager of Rachelle Company in Marikina City submitted the following data to che home office Petty Cash Fund Eis, 000 Sales 564,000 Sales TeTurns 4,000 Accounts written-off 10,000 Shipments from hone office "ig 300,000, ‘Accounts receivable, January 1; 2019 90,000 Recounts Feccivable, Decerber 31, 2019 Too, 000 inventory, January 1, 2019 60,000 . Inventory, December 31, 2019 : 70,000 Expenses (charged by Home Office! "fy 120,000 ALL cash collected on accounts receivable ure renittéd to the hone office. Determine: ceet (ois) Rrerti™tne balance of the Hlone Office Current Account on January 1, 2019. isfar Sesto a P -O= c. P 180,000 por =e ee b. 160,000 d.- 300,000 - #& 2%] 40 2 aco A 2. the net income of the Marikina Branch for the year ending Decenber 31, 2019 is: a. PL40,000 c. P 150,000 N, b. 144,000 d. 270,000 A a. the total remittance for the year 2019 i! a. P540,000 cc. P 550,000 b, 544,000 a. 560,000 = C4. on December 31, 2019, the Branch Current Account oh the Home Office books| iss A ite 508 aR =o fe. B 180,000 2 b. 160,000 d. 300,000 i nem ts may dain hye get he ath acronrncn of pent.* “Fath ota fac toon roomn™ ! Tie sack of Be hot fst ts Eve, bud te herve fom wore bo ‘Aattunde is more enpertont then the pest thon sducation Uno money, Una dumtonces, Uren wnat people de or say. Rs more pertant then eppecrenen, gitar or ilL* § ‘in sw cut secret of ceca to wp ste epost of hms. * ‘Atething great we over ecidoved without determination.” ‘Dew be dismuregedy everpous wie get where et, arted era ba wor. AFAR-07Advanced Financial Accounting & Reporting Reconciliation of Reciprocal Accounts V - Adjusted Balance Method Page 3 The following entrios are reflected in the intra-company accounts of a home office and ita lone branch for dune 2018: Investwent. An Branch W751 Balance 750,000] 6702 Reni Canc 76, B87 f/1z Inventory shipnent 12,0094 5/06 Collecticn of branch 6/25 Advertising allocation to receivable s00— Branch (30) of advertising seco] 627 © pucchase by incurred) 7 t00 7,090 6/28 raventory shipment 14,000) ieee "2 6/30 Depreciation atlecation 2,000 C730 Balance essa e5e0 none Office Current Tat wentteanee TOC @/8t Balance Bed 6/24 Purchase of equipsent (carried on heme 60 Cortection of none oftice office books} coo receivable 2,000 6/29 Renittance 200 5/16 roventory shipment fo08 = 6/30 Inventory returned to ee joce = hone office 1,000 7 6/28 Advertising ellocetion ae 409 6/30 Depreciation allocation _-2fsee eco © 373 Batance Tae Except for the error by the branch in recording its share of iineared advertising expense and depreciation allocation, all differences are timing Gifferoncos. Compute the adjusted belance of the reciprocal account on Juno 30, 2019; a. P46,900 c. 50,300 bo 48,500 a. 51,000 VI ~ Unadjusted/Adjusted Balance Method and Adjusting Entries ow we On December 31, 2019, the Branch Current ledger account in the accounting records cnc ge. of the home office of Graco Company shows o debit balance cf P5520, toa ascertained the following facts in analyzing his accoun a. On Decenber 31, 2019, merchandise billed at 5,000 was in transit from the home office to the branch. The periodic inventory system is used by both the i home offie0 and the branch b. The branch had collected home gttice teade accounts receivable of P5960; the vee ; age hone office waa not notified. ae ap + On December 23, 2019, the hone office had nailed a check for £2,000 to the branch, but the accountant fer the Nome office had recorded che check ase 2 debit to the Charitable Contribution Expense ledger account; the breech had not received the check as of Decenber 31, 2014. 4. Breach net ncone for December 2018, as recordés erroneously by the howe éau) office at PEA0 instead of P480. The credit was recorded by the home cftice ta the Brancn Income Summary Ledger account. On Decenber 28, 2013, the branch had return supplies costing P20 to the hone office; the home office had not recorded the receipt of rhe supplics. The home **) Office records acquisitions of supplies in the Office Supplies ledger accoume, £. Requisition of equipment. by the branch, P1,500. The equipaont account is to be je) Maintained in the home office books. The hone office had not been notified of the acquisition. Pati oe ES. 3. A branch customer erroneously rem(tisi #1,000 to the howe office. The hone a Office recorded this cash collection on Decenber 23, 2013. Meanwhile, back at the branch, no entry has been made yet Tee Required: : CF. The unadjusted balance of the Howe Office Current account on the books of the branch a8 of Decerber 31, 2019: .P53,180 c. Pts, 180 . b. 51,180 4. 48,620 The adjusted balance of the reciprocal account on December 31, 2019: a-P50,180 c. P55, 980 b. 54,980 d. 56,980 cS AFAR-07Advanced Financial Accounting & Reporting Page 4 vir Lakers Trading Company operates o branch in Dagupan City. At clese of business on Decenber 31, 2019. Dagupan Branch account: in the home office books showed a debit m — #< balance of 223,770. The interoffice accounts were in agreement at the beginning 227s ling the interoffice accounts, the following — of the year. For purposes of recon fects were ascertained: 1, An office equipment costing the hone office P3,500 wag picked up by the branch as P350.- maiteion’ ty brow mor vy so. 5/0 2. Insurance premium of P675 charged by thé hoe office nas token up twice dea by the branch. es 3. Freight charge on merchandise made by the home office for P1,125 was (0) recorded in the branch books as P1,215.% 4. Home office credit mome representing a discount on merchandise for P800 tee was not recorded by the branch. S. The branch failed to take up a P700 debit memo from the home office ie representing the share of the branch in advertising. The hone office inadvertently recorded a remittance for P3,000 from its 2.0? Cebu branch as a remittance from its Dagupan branch. — Compute the balance as of December 31, 2019: : wen Unadjusted Balance Adjusted Balance of the Hone Office Current of the Reciprocal Account ac 226,485 F225, 770 be 228, 485 228,770 c. 225,770 226, 985 a. 226, 485 228,770 Solutions: Problems V to VII - Reconciliation of Reciprocal Accounts Probles V: Branch] H, Office s gure: | oucrear TaaGuaeed Beane TOTO Snr] Pee dd DenICLY 7 A aSESERES 3300 ae ie ee Tr oe re eee 4506 ‘. Shipments returned to home office 7, 0007 | Set eettoh oe pee ES t= = Tausied bat snes @/30/2009 can} pam Probes Uf Beanch | GeFice . Gurrent | “Current Tea asad balance, ESTE Fes, S00[ Pas Bo Raa. paectT AaeSTROS a guibeere tn eeeaaTe Sa f eaerion ot es So AE oo Ga G aad sees Saee 7,000 Te [esos fer ee oe ser So bupptien setusned te bane office (a2) fo Achutaition oF equipeert Sythe Branch ti-a00! eee aii eed ee Cae 7050 Majusted balance OD SE eee] || Problem VII: — temas OFFI Sure | “sucess - [naiiastae patenseSSOTERTS SS ne far findacet + aaqeseemses | fe ee ions a] | F—esatance-prontuy fossrdsd tole ares eee 7 tpinseat or sevshande (an3} hi as 2 aan eee ob fear Wy tes Bo a seoeed readtennee Gr ae 3508 Tiiusted batares, €7307201 eye Soa + tna BEZETRS Te Compared wnply by worElng belie TARE, 770 wdjaseea- walanes—as the atacting point. AFAR-07Advanced Financial Accounting & Reporting Page 5 VITI~ Special Procedures: Shipments with Unrealized Intercompany Inventory Profit / Deferred Profit jope Company operates a main store at its hone office and a branch store in ap mon angtngr city. The branch purchases most of its merchandise from the home etties 2 f 10% above hone office cout. All merchandise acquired trom other supplices is ee Sunted for by the branch at original cost, At September 30, 2019, the records of the branch indicated the following: Septonber Sales, see P140, 000 Fe0ca owt Inventory, September 1 35,2008 (503 from outside suppliers) Ci ean - Wo shipsent trom hone office $1000" (at bilivd prion) sqacy 83 Purchases from outsiders... 24,000 Selling expenses.. 8,000 General expanses. 32, 000 foes eit Inventory, September 30.. 30,000 (P8,000 from outside suppliers) ¢ 2°” ot “Merchandise acquired fron the hone office ia inventoried at billed pricer BER Required: 1, Give the journal entries on tho hone office and branch, books to seqged the wos} eyo, sPipmente, J fhe} ot} Fee Sti? Jaco 2. Prepare the income statoment for the branch. ce bese ae 3. Prepare all necessary entries on the home office boGkS’at Septenber 30, Mea tue 2019 to adjust the hone office records for the branch operations for September. IK Computation of Beg. Inventory and True Branch Net Income The following information ceme from the books and recors of Davao Corporation and its branch. The balances are as of Decenber 31, 2019, the fourth year of the corporation's oxistence. a — ee oe OF Bice Branch Sass ae | ce. (ce | pe. (cx.y _|8 iow arom sete Sales (2, 700, ODT HP IEEE Steam o Shipments to branch F480, 000) eae aa Shipments from hone office — 756, 055 oageo0 Surchasos 360,000) igpeao wsaeee Expenses 320, 600, Inventory, January 1, 7019 144,000 Unrealized profit in Branch inventory (272, 0005 There are no shipmente in traneit between Uhe hone office Gnd the EFaNGh. Both shipments accounts are properly recorded. ‘The closing inventory ot bilind pree incluces mochandise acquired fron the hone offlee in the amouat af SioR Usb es P60, 000 acquired from the vendors for a setal sf” F162, 090. seeds zy rad jo 1. The billing price based on cost imposed by the home office to the branch? 420 1% LQ BRS 2. tow much of the peginning inventory was acquired fio hee oltiee we roe outeiders? wr apeee, ves. imac is the true branch net income. 2 “Ses Unrealized Towentory Profit, Morchandiae RESIN to Hone Office and soa 7 Branch Net Income # oor The Aronia Company bills its branch at (403) markup on the BALM price. on Decombor 31 the balance in the unrealized profit acccunt 1s to becslsubsted fron the following information reported by the branch: ‘Morchandisa | Nerehandiae from H. 0. Pucchased @Biiied | oucsiders — E ice) lat cost) rotar_| - 4 Werchandise inventory, 127i 232,400 P_,000 P40, 400) ] P Merchandise inte stock, 12/I-12731 0, 500 24,006 64, 500, goo Nerchandisa inventory, 12/31 37,600 10, 008 47,800) JU0 2. Whar se the balance of the unsealized profit account on the hone office [£62 books before any adjustment: ic made for branch sales for December? we foguning kage the Branch ned 2 get insane of 220,000 pet uxanct-books and had returned to the home office merchandise originally acquired et a billed | a price of Pi,040. Also, branch expenses incurred and paid by the hone office set 2 amounted to 2,500 were not yet recorded by the branch. What Is the real branch net incose? 29/40 2.000 conn (aaa) Yareor! (aah (seer) coy) AR AR-O7 Tene nw& Advanced Financial Accounting & Reporting KI — Branch Inventory at cont and Combined Not Income ‘Tagum Supply Company is engaged in merchandising both at Wome office in Makati, Metro Manila and a branch in Davac. Selected accounts in the the Home Office and the branch at Uecomber 31, 2019 follow: trial balances of fraud pat ad Debita Nome Office — Branc) Inventory, January 1, 2019.0... sesse P 23,000 P 11,550 Davao Branch 58,300 Purchares asin ccrsssss+ 190,000 3205, 000 Freight=in from hone offi n ff 31500 Sundry expenses.+.+.++++ 52,000 ¢/ 28,000 Credits & F Home office.... : ©} v 53,300 Salos.....---- a 155,000 / 140,000 Sales to Bra ott cearenneenenes 110, 000/ sep.c05 Allowance for branch inventory, January 1, 2019. 1,000 Additional information: 1.Davao branch receives @ll-its merchandise from the home office. The Home ‘# wo + Office bills the goods at cost plus_10é mark-up. At December 31, 2019, aC set shipment with a billing value of (5,000 was in transit to the branch. ”” Freight on this shipment was (P250''which is to be treated as part of inventory. ef 2. December 31, 2019 inventories oxcluding the shipment in transit , are Home office, at cost......-2-..-- ate + ss+++-B 30,000 Davao branch, at billed value(excluding fxeight of P§2R).. 10,4007 mew Required: 1. ‘The net income of the Hone Office from own operations: $ sr,000 a. 10,000 c. P20,000 g frs.c0) b. P15,000 4. P30, 000 2. The net ‘income (oss) of Davao branch in 90 far as hone office is concerned: + 1c > a BC 870) e: P12, 470 e cucnate) b. P10,470 d. P13,470 E (ero02) 3. The combined net incone: T8sr7O a. P19, 130 es P39,470 b. 729,950 a. P40,470 xan Sharron Company operates a branch in Legazpi City. There are shipments in transit hone office to the branch. The hone office ship merchandise to the branch at gp sry SSP of enat: in tha yaur) 2019), oparaking distal cor‘epa nowelsetice ana the eae BOE Is_as follow: ‘ ore E Se Wess Office | Bx Sales £250,000} P75, 000 Purchases fron outesars Shipments to branch: é Cost to home office Billing price to beanch cee Expenses ‘ Snventories, Yanuary 12019 = eee Hone office acquired from outsiders, at cost 80,001 le, Bese Brench errors Required from outsiders, at cost . 7,300 Required fron fice, at billed price, 2” 2, which average(20) above cose ay 24,000 Taventories, December 31, 2015 pe Hone office, acquired from eutsiders, at cost 55,000, | Branch: ‘Required from outsiders, at cost 5,500 Required from hone office, at 2019 billed price (ghysical-count! 23, 000 } #0 Required ow a. P3, 500 2.2 7,860, fp jeow meee oo b. P5,000 ds P10,500° gh guiero 3000 teen | 2, The combined cost of goods sold: 40.200 # [4 000 7 a. P240,000 ©. 242,500 uz) b. P241,200 d. F245, 200 a a 3. The combined not ineone: Pree oe a. 730,000 ce. 32,500 b. 32,400 d. P33,800 “¢ jac.co0 ¢ Paws200) AFAR-07 . (eeewe eae 9.800 Advanced Financial Accounting & Reporting Page 7 Se ee XIII ~ Tnterbranch Cash Transfer Branch AA is authorized by its Hone Office to send to Branch BB P10,000 cash., jfow is this transfer best recorded on the backs of: Cy) min eS 20” (2) We a alae (1) Home O£fico; 2) Branch AA, and (3) Branch BD." (a) open 10.009, ‘XIV - Interbranch Merchandise Transfer. Ladin ee ‘The Manila Company maintains branches that’ market the products that it produces. Merchandise is pilled to the branchos at manufacturing costs, with the branches Paying the freight ‘charges from the home office to the branch. On November 13, Branch No. 1 ships 9 portion of its merchandise to Branch No. S upon authorization by the homo gffice. Originally, Branch No. 1 had been billed for this merchandise at 16,000 and paid freight chargos of P3,500. on the shipment from the home office. Branch No. 5, upon receiving the mefchandise, pays freight charges of P2,500 on the shipment from Branch No. i. if the shipment had been nado tron the home office directly to Branch No. 5; the freight cost to Branch No. 9 would have been Pt,.000. How should the merchandise transfers be recorded on the books of: - (Q) Home Office, 2) Beanch No. 1, and (3) Branch No. 5 XV~Interbranch Merchandise Transfer WXCorporation has two branches to which merchandise is transferred at cost plus Gos; plus freight charges. On Noverber 10, 2014, YY Corporation shipped merchandise that cost 5,500 to its CC Branch, and the F200 shipping charges were Paic by YY Corporation. On December 15, 2014, the DD Branch encountered an inventory shortage, and the CC Branch shipped the merchandise to the DD Branch at a freight cost of P160. paid py the CC Branch. Shipping charges from the hore Stfice to the Db Branch would nave beds GIR C 1+ ¥¥ Corporation will record the P5,§00 shipment. to the”Cé Branch, together with the £200 shipping charge, in a journal entry’ that. includes the following : > a. Shipments from home office, P5, 600 b. Shipments to CC Branch, 75,700 ©. Unrealized profit - branch’ inventory, P1,100. Ice Gwe wee tee ae d. Investment in CC Branch, P5,700- cd C- 2. €c Branch should record the transfer of merchandise to the 0D Branch by Githe: « debit or credit entry that includes the fglloningzgre a.,Shipments fron home office, £5,500. ‘Ship Ft Ho, 608 b. 0p Branch, P65, 975. Frege 38 +6, Hone Office, B6, 960 sath 4. Inventory, 25, 660 ID 3. If the merchandise is unsold at year-ond, the DD Branch will inventory the morchandice at: rs a. PE,000 c. P6,760 fie b. P6975 a. 6,775, ane (C4, Te the merchandise is unsold at year-end, YY Corporation will include it as an asset_in its annual Report to Stockholders in the amount of: a. P5r500 e. 25,673 Cree b. 25,960 a. 25,875 rae D5, The 1058 on excessive freight chargee ch the inter-branch trov2for aounted tor 33, a. 8200, = ono bs 2160 iia ‘a lerger garden, bur for e finer seader™ [777Ask not for a lighter burden, but for ¢ broader shoulder*** "There ore divine things mere beautiful than words ean tele “The onty thing that stands between a man and what he wants from life és often merely the wil to try it ond the falth 40 believe that it is possible” “Never the direction from a crowd for your personal life. And never cheese to quit lust because somebody disagrees with yeu ~The secret of life is not Just to live, but fo have something worthwhile t lve for. =. Great achievements are not done by strength but by perseverance. ‘The caly way to find the lintts of the possible ix by going beyond them fo the impossiie, “Nothing great will ever be achieved without great mean, and men are great only if they are determined to be 30," *No one lewows whet he can do until he tries™ “Not Inowing when the dewn wil come, I open every deor* “The great thing in the world is pet s0 much where you are but in what direction you ere going! "There are only two things in the world to worry over: the things you ean control, and the things you can't control. Fi the first forget the second.” AFAR-07Advanced Financial Accounting & Reporting Page 8 Solutions: Problems Xilt to XU Problem XIN: a; - on 1 “Branch AA [_____ Branch BB Home Office Home Office Current..10,000 | Corb. 40,000 | Branch Current-BB..10,000 Cash 70,000 | Honve Gifice Currert.10,000 | Branch Current-AA..10,000 Problem XIV: Lt ise =I Branch No.1 |___ Branch Now Branch Current-#1... 16,000 | Shipments from HO. 16,000 | Shipments to Branch. 16,000 HOC. 16,000 | Freight 3,500 1 [oa Cashes: 3,500 Branch Current-#5.17,500 | Home Office Current-19,500 Excess Freight..... 2,000 | Freight-in 3,500 : Branch Cur.-#1..... 19,500°] SFHO. . 16,000°} \CaSP. nee 2,500 - 2 HOC. 37,500 Computation of Excess Freight chargeable to Home Office: Freight actually paid by: BANC NO. Le son 3,500 Branch No. 5... sever 2,500 6,000 Less: Freight that should be recorded in Branch NO. 5.4000, Excess Freight... annie sen -B2,000 Problem XV: —__ = = { YY Corp. —H.0.. __€C Branch _ DD Branch Branch Current-CC..6,600 Ship. from HO. i | ship. to branch... 5,500 | Freight: |All for Overval.... 1,100 |- HO Current. 6,800 | Branch Current-CC... 200 | Chincsnene 200 fe Branch Current-DD...6,775 | HO Current... 6,960 Excess Freight... 185 SFHO. 6,800 Branch Current-CC. 6,960 | _Freight-in.. 200 | HO Current... 6,775 Gash 160 i Answers: 1. () : 20 3. (d) — P6,600, at billed price in books of Branch DD + P175 = 76,775 4. (c) —P5,500, at cost in the combined statements + P175 = P5,675 5. (d) — (P200 + P160) ~ P175 = P185 ‘Computation of Exicess Freight chargeable to Home Office: Freight actually paid by: Home Office,