Advance Financial Accounting group Assig.

By Gurmu Ephrem

Group 11

Q#1. X of Calcutta sent on 15th January, 2006, a consignment of 500 toys bicycles costing Br.
100 each. Expenses of Br.700 met by the consignor. Y of Bombay spent Br. 1,500 for clearance
and the selling expenses were Br. 10 per bicycle. Y sold, on 4th April 2006, 300 pieces @ Br.
160 per piece and again on 20th June 1999, 150 pieces @ Br. 172.Y was entitled to a
commission of Br. 25 per piece sold plus one fourth of the amount by which the gross proceeds
less total commission thereon exceeded a sum calculated at the rate of Br. 125 per piece sold. Y
sent the amount due to X on 30th June 2006.You are required to show the Consignment Account
and Y’s Account in the books of X.
Q£2 the following information is available for Empire Corporation's home office and its Dire
branch at December 2008:

1. Balances on December 31, 2008: Home Office account (branch books), Br.452,300;
Investment in Branch: Dire account (home office books), Br.492,000.
2. The Dire branch sent a check for Br.12,000 cash to the home office on December 31, 2008.
The home office did not receive the check until January 4, 2009.
3. The home office shipped merchandise costing Br.20,000 to its Dire branch on December
28, 2008 at a transfer price of Br.25,000. The merchandise was not received by the Dire
branch until January 8, 2009.
4. Advertising expenses of Br.8,500 were allocated by the home office to the Dire branch.
The expenses were recorded at Br.5,800 by the branch.

The schedule for Reconciliation of Home Office and Branch Accounts:

Q#3. Briefly describe about the difference and similarities of Head office and branch office

Q£4 . Indicate whether each of the statements below is true or false.

__1.
__2. The Home Office account on the books of the branch may be interpreted as an owners'
equity account, where the home office is the owner.
__3. The transfer of assets from the home office to the branch does not change the company's
total assets.
__4. When both the home office and branch employ perpetual inventory systems, the
Shipments to Branch and Shipments from Home Office accounts are unnecessary
Group 12.

Exercise 1

During the past year, the following transactions took place between the home office and branch
of the Klein Company:
1. Cash of $25,000 was transferred to the branch.
2. Merchandise costing $60,000 was shipped to the branch at a billed price of $86,000. The
branch paid the freight-in of $1,500.
3. Home office expenses charged to the branch: depreciation, $4,000; amortization of prepaid
expenses, $800.

1 Advance Accounting Group Assignment from group 11 to 15

 Advance Financial Accounting group Assig. By Gurmu Ephrem

4. Cash of $60,000 was remitted to the home office.

Prepare journal entries to record the following transactions in the books of both the home office
and the branch.

Exercise 2
B. Millennium Company’s home office bills shipments of merchandise to its Meskel Branch at
140% of home office cost. During the first year after the branch was opened, the following were
among the transactions and events completed:
1. The home office shipped merchandise with a home office cost of Br110,000 to Meskel
Branch.
2. Meskel Branch sold for Br80,000 cash merchandise that was billed by the home office at
Br70,000, and incurred operating expenses of Br16,500 (all paid in cash).
3. The physical inventories taken by Meskel Branch at the end of the first year were Br 82,460 as
billed prices from the home office.

Instructions

A. Assuming that the perpetual inventory system is used both by the home office and by Meskel
Branch, prepare for the fiscal year:
1. All journal entries, including closing entries, in the accounting records of Meskel Branch
of Millennium Company.
2. All journal entries, including the adjustments of the Inventories Overvaluation account, in
the accounting records of the home office of Millennium Company.
B. Assuming that the periodic inventory system is used both by the home office and by Meskel
Branch, prepare for the fiscal year:
1. All journal entries, including closing entries, in the accounting records of Meskel Branch of
Millennium Company.
2. All journal entries, including the adjustment of the Inventories Overvaluation account, in
the accounting records of the home office of Millennium Company.
Execise 3

Indicate whether each of the statements below is true or false.

__1. Transfers of merchandise from the home office to the branch are typically charged to the
branch at the cost of the merchandise to the home office.

__2. If transfers of merchandise are charged to the branch at cost to the home office, this has the
effect of attributing the entire gross profit on merchandise sales to the home office.

__3. If the home office pays the freight associated with an inventory transfer to the branch, no
entry on the branch books is required.

2 Advance Accounting Group Assignment from group 11 to 15

 Advance Financial Accounting group Assig. By Gurmu Ephrem

0912283193

Group 13
The home office bills merchandise shipped to the branch at 25 percent over home office cost.
Suppose the branch's beginning inventory, shipments from home, and ending inventory are
$50,000, $200,000, and $80,000 respectively, at billed prices.
__1. Branch cost of goods sold on the branch's books and in the combined statements is:
A. Branch: ______________; Combined: ___________________
__2. Now, assume that freight costs incurred by the branch (not included in the inventory
balances presented above) amount to 2 percent of billed prices. Branch cost of goods
sold on the branch's books and in the combined statements is:
A. Branch:_________________; Combined: _________________
__3. Carmen Corp. establishes a branch in a nearby town. Transfers to the branch include cash
$65,000, Office supplies $2,000, and Furniture $23,000. The entry to record this transfer
on the books of the branch would include: Journal entry will be
__4. The home office marks up merchandise shipped to the branch at 25 percent of billed price.
If merchandise costing $30,000 is shipped to the branch, which of the following set of
account balances will result?
A. Shipments from Home: _________; Shipments to Branch: ________; Overvaluation
of Branch Inventory: __________
__5. The home office marks up merchandise shipped to the branch by 40 percent of billed prices.
Assume the overvaluation account on the home office books had beginning and ending
balances of $4,400 and $6,000, respectively. If the branch was billed $180,000 for
merchandise shipped from home during the year, the branch books will show cost of
goods sold of:
__6. The home office accounts for shipments of merchandise to the branch as sales. The billed
price reflects a markup equal to 40 percent of billed price. The branch reported
beginning and ending inventories at billed prices of $80,000 and $60,000, respectively.
Which of the following statements is false?
A. Home office beginning retained earnings is overstated by $32,000.
B. Unrealized intra firm profit at the end of the year is $24,000.
C. The Overvaluation of Branch Inventory account balance at the end of the year is $8,000.
D. Working paper elimination entries will reduce combined cost of goods sold by $8,000.

7. Indicate whether each of the statements below is true or false.

A. Periodic inventory accounting requires the use of offsetting reciprocal accounts to record
shipments to the branch and shipments from the home office.

B. Even though the branch uses periodic inventory accounting, if shipments from the home
office are billed at retail prices, this has the effect of creating a perpetual inventory system at the
branch.

3 Advance Accounting Group Assignment from group 11 to 15

 Advance Financial Accounting group Assig. By Gurmu Ephrem

C. If shipments from the home office are billed at retail prices, the amount of branch inventory
that should be on hand equals the amount of shipments to the branch reported by the home office
plus the sales reported by the branch.

8. Lunar Corporation is a public enterprise that started its operation on January 31, 2003. The
enterprise earned net profit of Birr 300,000 and it has got authorization to retain Birr 100,000
from the profit of the year ending December 31, 2003. Which of the end-of-period journal
entries is appropriate?

Group 14
1. To illustrate the application of the Installment & Cost Recovery Methods assume that on June
1, 1997, Booker productions sell a large amount of merchandise to a retailer on installment basis.
The buyer agrees to pay every year beginning 1997. The demand for the merchandise is
unknown, the retailer is of questionable financial strength, and thus it is highly uncertain as to
whether Booker will ever be paid the full sales price. The facts regarding the transaction and
subsequent events are:
Sales price for merchandise Br.140,000 100%
Cost of merchandise sold 84,000 60%
Gross margin Br. 56,000
Cash collections in 1997 40,000
Cash collections in 1998 55,000
Cash collections in 1999 15,000
Total cash collections Br.110,000

Based on the foregoing information the journal entries to record the installment sales transactions
using the three alternative accounting methods are under .
A. Accrual Method
B. Installment Method
C. Cost Recovery Method
2. Dalol Company, which began operations on January 2, Year 4, appropriately uses the
installment method of accounting. The following information is available for the year ended
December 31, Year 4.
Gross profit on sales……………………………….……….40%
Deferred gross profit, Dec. 31, Year 4………………….Br. 240,000
Cash collected, including down payments…………………450,000
What is the total amount of Dalol’s installment sales for the year ended December 31, Year 4?

3. Freight costs of Br840 were paid by consignee company on April 30, Year 4, on a shipment
of merchandise on consignment from Consignor Company. Consignee company’s
appropriate journal entry on April 30, Year 4, is:

Group 15

4 Advance Accounting Group Assignment from group 11 to 15

 Advance Financial Accounting group Assig. By Gurmu Ephrem

1. The ABC Publishing Company ships 4-volume sets of Medical Encyclopedia to book dealers
on consignment. The sets are to be sold at an advertised price of Br 99.00. The estimated cost
per set is Br 50. Consignees are allowed a commission of 30% of the sales price and are to be
reimbursed for freight relating to consigned goods.
On December 8, 100 sets were sent to the Mega Book Store on consignment. The consignor
estimated that packing charges of Br 170 were related to the books shipped. The shipment
cost paid by the consignor was Br 400. The consignee paid br60 for freight on sets received.
Sixty sets were sold in December for cash. Remittance of the amount owed to the consignor
was made on December 31. Both consignee and consignor take physical inventories and
adjust and close their books at year-end.
Instructions
Prepare the journal entries for December on the books of the consignor, assuming that;
A. Gross profits on consignment sales are determined separately, and
B. Gross profits on consignment sales are not determined separately.
2. Suppose that the Mekele branch received Br.10,000 of merchandise at cost from its home
office in Addis; the home office paid the freight of Br.2,000. Subsequently, Mekele is
instructed to ship these items to the Desse branch at an additional shipping cost of
Br.1,200, also paid by the home office. Had the items been shipped direct to Desse from
the home office, the freight cost would have been Br.1,800 and the journal entries made
are :

5 Advance Accounting Group Assignment from group 11 to 15