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Advanced Accounting - Dayag 2015 - Chapter 13 - Problem II

The document provides corrections to entries related to sales and shipments between a home office and branch. It also summarizes the results of the branch's operations and adjustments needed to determine the true branch net income. The key corrections are: (1) properly recording the cost of goods shipped to the branch by reducing the unrealized intercompany inventory profit, and (2) properly recording returns to the branch by reducing shipments and the unrealized profit. To determine the true branch net income, the reported branch income needs to be adjusted for the overvaluation of the branch's ending inventory and related unrealized intercompany profit. After making this adjustment, the real branch net income is positive ₱1

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84 views2 pages

Advanced Accounting - Dayag 2015 - Chapter 13 - Problem II

The document provides corrections to entries related to sales and shipments between a home office and branch. It also summarizes the results of the branch's operations and adjustments needed to determine the true branch net income. The key corrections are: (1) properly recording the cost of goods shipped to the branch by reducing the unrealized intercompany inventory profit, and (2) properly recording returns to the branch by reducing shipments and the unrealized profit. To determine the true branch net income, the reported branch income needs to be adjusted for the overvaluation of the branch's ending inventory and related unrealized intercompany profit. After making this adjustment, the real branch net income is positive ₱1

Uploaded by

John Carlos Doringo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Chapter 13

Problem II
Books of Home Office
Correcting entries:
A. Sales............................................................................................................... 42,000
Shipments to Branch................................................................ …………
35,000
Unrealized Intercompany Inventory Profit........................................... 7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Entry Made Correct/Should be Entry
Branch Current…………… 42,000 Branch Current……….. 42,000
Sales…………………… 42,000 Shipments to Branch 35,000
Unrealized Int. Inv Pr. 7,000
B. Shipments to Branch...................................................................................... 625
Unrealized Intercompany Inventory Profit................................................... 125
Sales Returns........................................................................................... 750
Cost of merchandise returned by branch: P750/1.20= P625.
Entry Made Correct/Should be Entry
Sales Returns……………… 750 Shipments to Branch………. 625
Branch Current……… 750 Unrealized Int. Inv Profit…… 125
Branch Current…………. 750
Results of Branch Operations:
A. Branch Net Income/Loss from its own operations:
Branch Income Summary............................................................................... 2,600
Branch Current…................................................................................
2,600
B. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/
Unrealized Intercompany Inventory Profit:
Unrealized Intercompany Inventory Profit.................................................... 4,125
Branch Income Summary..................................................................
4,125
Unrealized Profit
Cost (Billing Price Minus
Billing Price (Billing/1.20) Cost)
Inventory, December 1 P 0 P 0 P 0
Shipments during December 42,000 35,000 7,000
Less: Returns _____750 ____625 ____125
Available for Sale (before adjustment) P 41,250 P 34,375 P 6,875
Less: Inventory, Dec. 31 (after adjustment) 16,500 13,750 __2,750
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment) P 24,750 P 20,625 *P 4,125
*or, P24,750 x 20/120 = P4,125;
Decrease in Unrealized Intercompany Inventory Profit:
Balance prior to adjustment, 12/31, P7,000 – P125................... P6,875
Balance required in account, 12/31,P16,500 – (P16,500/1.20).. 2,750
Decrease in Allowance................................................................. P4,125
Branch Income Summary (P4,125 – P2,600)....................................................1,525
Income Summary....................................................................................
1,525
Therefore, the Real/True/Adjusted Branch Net Income/Branch Net Income in so far as HO is concerned,
amounted to P1,525, computed as follows:
Branch net loss as reported/unadjusted……………………………………………………(P2,600)
Add: Overvaluation of branch inventory/Realized profit from branch sales……….. 4,125
Real/True/Adjusted Branch Net Income or Branch NI in so far as HO is concerned P1,525

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