Illustration: Combined Financial Statements

The trial balance of ABC Co.'s home office and branch are shown below:
ABC Co.
Trial Balance
December 31, 20x1
Home Office Branch
DR (CR) DR (CR)
Cash 1,100,000.00 417,000.00
Accounts Receivable 180,000.00 100,000.00
Inventory, beg. 650,000.00 -
Shipments from home office - 230,000.00
Purchases 72,000.00 40,000.00
Freight In 22,000.00 18,000.00
Shipments to branch (230,000.00) -
Investment in branch 827,000.00 -
Equipment 720,000.00 400,000.00
Accumulated Depreciation - equipment (72,000.00) (40,000.00)
Furniture 90,000.00 50,000.00
Accumulated Depreciation - furniture (9,000.00) (5,000.00)
Accounts payable (72,000.00) (40,000.00)
Accrued expenses (45,000.00) (25,000.00)
Share Capital (2,000,000.00) -
Share Premium (500,000.00) -
Retained Earnings - beg. (206,200.00) -
Home Office - (827,000.00)
Sales (900,000.00) (500,000.00)
Depreciation expense 168,000.00 68,000.00
Utilities expense 18,000.00 10,000.00
General Overhead expense 7,200.00 4,000.00
Various operating expenses 180,000.00 100,000.00
Totals - -

The home office and the branch have ending inventories of P270,000 and P150,000, respectively.

Requirement: Prepare the combined

a. Statement of profit or loss
b. Statement of financial position

Solutions:

ABC Co.
Working paper for combined financial statements
December 31, 20x1
Home Office Branch
DR (CR) DR (CR)
Cash 1,100,000.00 417,000.00
Accounts Receivable 180,000.00 100,000.00
Inventory, beg. 650,000.00 -
Shipments from home office - 230,000.00
Purchases 72,000.00 40,000.00
Freight In 22,000.00 18,000.00
Shipments to branch (230,000.00) -
Investment in branch 827,000.00 -
Equipment 720,000.00 400,000.00
Accumulated Depreciation - equipment (72,000.00) (40,000.00)
Furniture 90,000.00 50,000.00
Accumulated Depreciation - furniture (9,000.00) (5,000.00)
Accounts payable (72,000.00) (40,000.00)
Accrued expenses (45,000.00) (25,000.00)
Share Capital (2,000,000.00) -
Share Premium (500,000.00) -
Retained Earnings - beg. (206,200.00) -
Home Office - (827,000.00)
Sales (900,000.00) (500,000.00)
Depreciation expense 168,000.00 68,000.00
Utilities expense 18,000.00 10,000.00
General Overhead expense 7,200.00 4,000.00
Various operating expenses 180,000.00 100,000.00
Totals - -

Elimination entries

Home Office 827,000.00

Investment in branch 827,000.00

Shipment to branch 230,000.00

Shipment from home office 230,000.00

Requirement (A)

ABC Co.
Statement of profit or loss
For the year ended December 31, 20x1

Sales 1,400,000.00
Cost of Goods Sold:
Inventory, beg. 650,000.00
Puchases 112,000.00
Freight In 40,000.00
Total Goods Available for Sale 802,000.00
Inventory, end (420,000.00) (382,000.00)
Gross Profit 1,018,000.00
Depreciation expense (236,000.00)
Utilities expense (28,000.00)
General overhead costs (11,200.00)
Various operating expenses (280,000.00)
Profit for the period 462,800.00

Entry for the profit

Income Summary 462,800.00
Retained Earnings 462,800.00

Requirement (B)

ABC Co.
Statement of financial position
As of December 31, 20x1

ASSETS
Cash 1,517,000.00
Accounts Receivable 280,000.00
Inventory 420,000.00
Equipment 1,120,000.00
Accumulated depreciation - equipment (112,000.00)
Furniture 140,000.00
Accumulated depreciation - furniture (14,000.00)
Total Assets 3,351,000.00
0 and P150,000, respectively.

financial statements
20x1
Elimination Combined
DR (CR) DR (CR)
1,517,000.00
280,000.00
 650,000.00
(230,000.00) -
112,000.00
40,000.00
230,000.00 -
(827,000.00) -
1,120,000.00
(112,000.00)
140,000.00
(14,000.00)
(112,000.00)
(70,000.00)
(2,000,000.00)
(500,000.00)
(206,200.00)
827,000.00 -
(1,400,000.00)
236,000.00
28,000.00
11,200.00
280,000.00
-
ial position
31, 20x1

LIABILITIES AND EQUITY

Accounts Payable 112,000.00
Accrued expenses 70,000.00

Share Capital 2,000,000.00

Share premium 500,000.00
Retained earnings 669,000.00

Total Liabilities and Equity 3,351,000.00