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    Advanced Accounting - Dayag 2015 - Chapter 13 - Problem I

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    John Carlos Doringo
    The document summarizes the financial transactions between a home office and its branch for the period. It provides the branch's unadjusted net income of $15,800 from its operations. It then adjusts the branch's results to account for an overvaluation of the branch's inventory that was shipped from the home office. The overvaluation results in an unrealized intercompany inventory profit of $5,000. After factoring in this adjustment, the branch's true net income reported to the home office is $20,400.

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    Advanced Accounting - Dayag 2015 - Chapter 13 - Problem I

    Uploaded by

    John Carlos Doringo
    90 views2 pages
    The document summarizes the financial transactions between a home office and its branch for the period. It provides the branch's unadjusted net income of $15,800 from its operations. It then adjusts the branch's results to account for an overvaluation of the branch's inventory that was shipped from the home office. The overvaluation results in an unrealized intercompany inventory profit of $5,000. After factoring in this adjustment, the branch's true net income reported to the home office is $20,400.

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    Advanced Accounting_Dayag 2015_Chapter 13_Problem I

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    The document summarizes the financial transactions between a home office and its branch for the period. It provides the branch's unadjusted net income of $15,800 from its operations. It then adjusts the branch's results to account for an overvaluation of the branch's inventory that was shipped from the home office. The overvaluation results in an unrealized intercompany inventory profit of $5,000. After factoring in this adjustment, the branch's true net income reported to the home office is $20,400.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    90 views2 pages

    Advanced Accounting - Dayag 2015 - Chapter 13 - Problem I

    Uploaded by

    John Carlos Doringo
    The document summarizes the financial transactions between a home office and its branch for the period. It provides the branch's unadjusted net income of $15,800 from its operations. It then adjusts the branch's results to account for an overvaluation of the branch's inventory that was shipped from the home office. The overvaluation results in an unrealized intercompany inventory profit of $5,000. After factoring in this adjustment, the branch's true net income reported to the home office is $20,400.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 2

    Chapter 13

    Problem I
    1.
    Home Office Books Branch Books
    Branch Current 55,000 Shipm from Home Office 55,000
    Shipments to Branch 50,000 Home Office Current 55,000
    Unrealized Int Inv. Profit 5,000

    Billed price P55,000 / 110%


    Cost 50,000
    Allowance for overvaluation of branch inventory/ _______
    Unrealized Intercompany Inventory Profit/Deferred Profit P 5,000
    2.
    Sales......................................................................................................................................
    P140,000
    Cost of goods sold:
    Merchandise inventory, September 1................................................ P 35,200
    Purchases.............................................................................................. 24,000
    Shipments from home office............................................................... 55,000
    Merchandise available for sale.......................................................... P 114,200
    Less: Merchandise Inventory, September 30..................................... 30,000
    Cost of goods sold.......................................................................................................
    84,200
    Gross profit............................................................................................................................P
    55,800
    Operating expenses:
    Selling expenses……………………………………..................................P 8,000
    General expenses…………………......................................................... 12,000
    Total operating expenses.......................................................................................... 20,000
    Unadjusted branch net income...................................................................................... P 15,800
    3. Results of Branch Operations:
    a. Branch Net Income/Loss from its own operations:
    Branch Current………………........................................................................... 15,800
    Branch Income Summary...................................................................
    15,800
    b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/
    Unrealized Intercompany Inventory Profit:
    Unrealized Intercompany Inventory Profit.................................................... 4,600
    Branch Income Summary..................................................................
    4,600
    Unrealized Profit
    Cost (Billing Price Minus
    Billing Price (Billing/1.10) Cost)
    Inventory, 9/1 *P 17,600 P 16,000 P 1,600
    Shipments during December __55,000 __50,000 __ 5,000
    Available for Sale (before adjustment) P 72,600 P 66,000 P 6,600
    Less: Inventory, 9/30 (after adjustment) **22,000 __20,000 __2,000
    Reduction in unrealized profit account- adjustment
    to branch profit for overstated of cost of goods sold
    (adjustment) P 50,600 P 46,000 ***P 4,600
    * P35,200 x 50% = P17,600
    ** P30,000 – P8,000
    ***or, P50,600 x 10/110 = P4,125; Decrease in Unrealized Intercompany Inventory Profit:
    Therefore, the True/Real/Adjusted Branch Net Income or Branch Net Income in so far as
    HO is concerned amounted to:
    Unadjusted branch net income...............................................................................P15,800
    Add: Allowance for Overvaluation of CGS…………………………………………….
    4,600
    Adjusted Branch Net
    Income……………………………………………………………..P20,400

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