AFAR 2- Quiz 9

Problem 4: At December 31, 2018, the following information

Problem 1: Summary adjusted trial balances for the home has been collected by M Company’s interoffice and branch for
office and branch of T Company at December 31, 2019 are as reconciling the branch and the home office accounts.
follows:  The branch home office account has a balance at
Debits Home Office Branch December 31, 2018 of 501,700.
Other assets 530,000 165,000  On December 30, 2018, the branch sent a check for
Inventories 50,000 45,000 40,000 to the home office to settle its account. The
Branch 200,000 check was not delivered to the home office until
Purchases 500,000 January 3, 2019.
 On December 27, 2018, the branch returned 20,000 of
Shipments from Home office 240,000
seasonal merchandise to the home office for the
Expenses 120,000 50,000
January clearance sale. The merchandise was not
Dividends 100,000 received by the home office until January 6.
Total 1,500,000 500,000  The home office allocated general expenses of 28,000
Credits to the branch. The branch had not entered the
Other liabilities 90,000 25,000 allocation as of year-end.
Capital stock 500,000  Branch store insurance premium of 900 were paid by
Retained earnings 100,000 home office. The branch recorded this at 600.
Home office 175,000 The unadjusted balance of the branch account of the home
Unrealized profit in branch 10,000 office book at December 31, 2018 is?
inventory
Sales 537,500 300,000 Problem 5: The following data were taken from the records of
SM and its Ortigas branch for 2018:
Shipment to branch 200,000
SM Ortigas
Branch profit 62,500
Sales 5,565,000 1,653,750
Total 1,500,000 500,000
Inventory, 12/31/17 603,750 233,625
Additional information:
Purchases 4,305,000
 The home office ships merchandise to its branch at
120% of the home office cost. Shipments to branch 1,102,500
 Inventories at December 31, 2019 are 70,000 for the Shipments from home office 1,323,000
home office and 60,000 for the branch. The branch Inventory. 1/1/19 748,125 308,125
inventory is at transfer price. Expenses 2,005,500 532,875
Compute for the combined net income The current year’s mark-up above cost was lower by 5% than
last year’s.
Problem 2: B Company has two branches to which a. What is the net income presented in the statement of
merchandise is transferred at cost plus 20%, plus freight comprehensive income of SM for the year ended
charges. On February 18, 2018, B Company shipped December 31, 2018?
merchandise that cost 5,500 to its A Branch, and the 200 b. What is the amount credited in the income summary-
shipping charges were paid by B. on March 1, 2018, C Branch branch account in the separate books of the home
encountered an inventory shortage and the A shipped the office at the end of the year?
merchandise to C at a freight cost of 160 paid by A Branch. c. What is the amount debited in the allowance for
Shipping charges from home office to C would have been 175. overvaluation account in the working paper?
A. Compute the value of the merchandise at C Branch if
unsold at year-end. Problem 6: The trial balances before the adjustment for the
B. The amount at which B will show it as an asset in the home office and branch of the ABD Company show the
report to stockholders if unsold at year-end. following items on December 31. Differences in the shipments
account balances result from the home office policy of billing
Problem 3: D opened it’s a branch a year ago. At the year’s the branch at 20% above cost.
end, the branch summarized operating data as follows: HO Branch
Sales 264,000 Allowance for overvaluation of 126,000
Shipments from home office 148,500 Branch merchandise
Purchases 137,500 Shipments to branch ?
Expenses 71,500 Purchases (outsiders) 87,500
Ending inventory (16,500 from purchases 82,500 Shipments from HO 336,000
The branch remitted 151,250 to the home office. If shipments
Merchandise inventory, 1/1 525,000
from the home office are billed at cost plus 20%, how much is
the branch ending inventory at cost? SALES 1,050,000
Expenses 63,000
The ending inventory as per branch books amounted to
350,000, composed of merchandise from the home office, with
a cost of 245,000 and the remaining amount from outsiders.
The beginning inventory of the branch consist of merchandise
from outsiders in the amount of 280,000.
A. What is the increase in the allowance for overvaluation
before adjustment during the year?
B. In the books of the home office, what is the
adjustment to income summary-branch account at the
year-end?
C. In the working paper prepared at the year-end, what
is the amount credited to merchandise inventory,
January 1?
D. Before closing, what is the understatement in the
home office current account in the separate books of
the branch?

Problem 6: The following transactions were entered in the

investment in branch account of T head office for the year
2018:
Investment in B
Beg. Bal. 76,643 Collection of A/R 5,550
Shipment to Branch, 35,400
Fund transfer, 6/1/18 2,500
Expenses charged 480

 Shipments to the branch during the year were billed at

120% of cost.
 The beginning balance of the loading in branch
inventory account was 3,550. At the end of the year,
the required balance of the said account was 2,450.
 On December 10, 2018, the home office purchased a
piece of equipment amounting to 6,000 for its branch.
The said equipment has a useful life of five years and
will be carried in the books of the branch, but the
home office recorded the purchase by debiting
equipment. The branch recorded the depreciation of
the equipment by debiting the home office current
account and crediting accumulated depreciation.
 Debit memo regarding the allocation of expenses to
the branch was received by the branch on January 2,
2019. It also remitted cash to the home office on
December 29, 2018 amounting to 5,500, which the
home office received and recorded on January 3,
2019.
 The branch reported net income of 32,955. The
interoffice accounts were in agreement at the
beginning of the year.
a. What is the adjusted balance of the investment in
branch account on December 31, 2018 before the
necessary closing entries were made?
b. What is the net income of branch in the separate
statement of comprehensive income of the home
office?
c. What is the amount of the home office current
account that will be reported in the books of the
branch after closing entries are made?