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HOME OFFICE - SPECIAL PROCEDURES

Fast-Stop three all-night grocery stores located in western Virginia. Each store has a branch manager with authority to accept inventory items
at home office or to purchase from outside wholesalers, at his or her discretion.
Pre-closing summary information for Fast-stop and its branches at December 31, 2015 includes the following accounts and amounts.
Home
Office
Debits
Cash
Other current assets
Inventories
Plant assets
Dublin branch current
Radford branch current
Blacksburg branch current
Cost of sales
Expenses
Total debits
Credits
Liabilities
Ordinary share
Retained earnings
Home office
Unrealized profit in Dublin
Unrealized profit in Radford
Unrealized profit in Blacksburg
Sales
Total credits

Dublin
Branch

Radford
Branch

Blacksburg
Branch

20,000.00
5,500.00
14,000.00
150,000.00
28,534.00
15,393.50
11,409.00
17,000.00
62,500.00
324,336.50

6,000.00
4,400.00
7,400.00
20,000.00

4,800.00
3,520.00
5,450.00
16,000.00

3,840.00
2,816.00
4,650.00
12,800.00

24,137.00
35,000.00
96,937.00

20,690.50
40,000.00
90,460.50

15,643.00
30,000.00
69,749.00

12,500.00
100,000.00
81,310.00

10,000.00

8,000.00

6,400.00

19,368.00

11,887.50

4,409.00

67,569.00
96,937.00

70,573.00
90,460.50

58,940.00
69,749.00

3,204.00
1,273.50
1,049.00
125,000.00
324,336.50

1.) Cost of merchandise shipped from home office to Dublin and Radford amounted to $100 and $400, respectively. Freight-in of $10 for
every $100 billed price of merchandise shipments is paid by the home office. These shipments were still in transit and no communication
has yet been made.
2.) Cash remittance of $5,000 and $2,500 by Blacksburg and Dublin, respectively, were still not recorded by the home office as of end of the
month.
3.) Merchandise are shipped at the following mark up on cost:
20%
Dublin
Radford
15%
Blacksburg
10%
4.) At end of the month, the following inter branch cash transfer transactions were only recorded by the transferring party.
From
To
Amount
Radford
Blacksburg
3,000.00
Dublin
Blacksburg
1,500.00
5.) Communication as to the following inter office transactions were not yet made by the paying party.
Total
Amount of expense charged to
Amount
Paid by
Home office
Dublin
Radford
Blacksburg
2,000.00 Blacksburg
1,000.00
500.00 ###
4,000.00 Dublin
1,750.00
250.00
1,500.00
500.00
6.) The branches have no stocks of merchandise at the beginning, except for Radford, amounting to 6,000, all coming from outside sources.
The home office has a beginning inventories of 15,000.
7.) The home office has not yet recorded a receipt of purchase of merchandise from a supplier costing 2,000, freight collect of 40. The
purchase has a term of n/30, FOB shipping point. This batch of merchandise were subsequently shipped to Dublin branch with a freight of
50 (paid by home office), in which both the home office and Dublin branch properly recorded. Subsequently, Dublin shipped equally, half
of these merchandise to Blacksburg and Radford with a freight paid by Dublin for 20 and 15, respectively. Shipments of this type would
have a freight cost of 30 and 20 to Blacksburg and Radford, respectively, if directly shipped from home office.This interbranch transfer of
merchandise was only recorded by Dublin branch and was still in transit.

8.) Details of merchandise ending, purchases, and freight in, before the above adjustments, are as follows:
Ending inventory
Outside
Home office
Freight in
Purchases
1,000.00
Home office
14,000.00
50,000.00
1,157.00
Dublin
5,000.00
2,400.00
12,500.00
837.00
Radford
2,000.00
3,450.00
10,000.00
754.00
Blacksburg
3,000.00
1,650.00
8,000.00
Required:
1.) Prepare a schedule reconciling the home office and branches' reciprocal accounts.
2.) Prepare the necessary adjusting entries in each books.
3.) Compute for the net income of the home office and each of the three branches in their separate books.
4.) Prepare a worksheet consolidating all balances, with proper eliminating entries under perpetual inventory system.

SELECT THE INVENTORY SYSTEM


HOME OFFICE BOOKS

PERPETUAL

Debit

Credit

Inventories
Inventories
Home office

2 Cash
2 points/.5
Dublin branch current
Blacksburg branch current

7,500.00

3 Blacksburg branch current


Dublin branch current
Radford branch current

4,500.00

2,500.00
5,000.00

2 points/.5

1,500.00
3,000.00

Dublin branch current


Radford branch current
Blacksburg branch current

1,000.00 2 points/.5
500.00
Home office
500.00
2,000.00

Radford branch current


Blacksburg branch current
Dublin branch current

1,750.00
1,500.00 2 points/.5
500.00
3,750.00

5 Inventories
Inventories
Liabilities
Cash

2 points/.5

2,000.00
40.00
2,000.00
40.00

Dublin branch current


Inventory
Unrealized profit
Dublin branch
Cash

2,448.00
2,040.00
408.00
50.00
50.00

Radford branch current


Blacksburg branch current
Unrealized profit in Dublin
Excess freight
Unrealized profit in Radford
Unrealized profit in Blacksburg
Dublin branch current

606.50
591.00
204.00
10.00
1 point
1 point
1 point

Inventories
Inventories
Inventories

1
1
1
1

point
point
point
point
76.50
51.00
1,284.00

1,020.00
510.00
510.00

COMPUTATION OF EXCESS FREIGHT


Home office to Dublin
Dublin to fellow branches
Actual freight
Home office to branches
Excess freight

1
Cash
Other current assets
Inventories
Plant assets
Dublin branch current
Radford branch current
Blacksburg branch current
Cost of sales
Expenses
Excess freight
Liabilities
Ordinary share
Retained earnings
Home office
Unrealized profit in Dublin
Unrealized profit in Radford
Unrealized profit in Blacksburg
Sales

2
Cash
Other current assets
Inventories

Blacksburg
12.50
20.00
32.50
30.00
2.50

Radford
###
15.00
27.50
20.00
7.50

HOME OFFICE BOOKS


Unadjusted
Debit
20,000.00
7,500.00
5,500.00
14,000.00
3,060.00
150,000.00
28,534.00
500.00
15,393.50
2,606.50
11,409.00
5,591.00
17,000.00
62,500.00
10.00
(12,500.00)
(100,000.00)
(81,310.00)
(3,204.00)
204.00
(1,273.50)
(1,049.00)
(125,000.00)
19,471.50

2,000.00
76.50
51.00
22,221.50

DUBLIN BOOKS
Unadjusted
Debit
6,000.00
4,400.00
7,400.00
132.00

Credit
-

Credit
40.00
1,020.00
9,034.00
3,000.00
7,000.00

Plant assets
Dublin branch current
Radford branch current
Blacksburg branch current
Cost of sales
Expenses
Excess freight
Liabilities
Ordinary share
Retained earnings
Home office
Unrealized profit in Dublin
Unrealized profit in Radford
Unrealized profit in Blacksburg
Sales

3
Cash
Other current assets
Inventories
Plant assets
Dublin branch current
Radford branch current
Blacksburg branch current
Cost of sales
Expenses
Excess freight
Liabilities
Ordinary share
Retained earnings
Home office
Unrealized profit in Dublin
Unrealized profit in Radford
Unrealized profit in Blacksburg
Sales

4
Cash
Other current assets
Inventories
Plant assets
Dublin branch current
Radford branch current
Blacksburg branch current
Cost of sales
Expenses

20,000.00
24,137.00
35,000.00
(10,000.00)
(19,368.00)
(67,569.00)
-

132.00

RADFORD BOOKS
Unadjusted
Debit
4,800.00
3,520.00
5,450.00
1,112.50
16,000.00
20,690.50
40,000.00
(8,000.00)
(11,887.50)
(70,573.00)
1,112.50
BLACKSBURG BOOKS
Unadjusted
Debit
3,840.00
4,500.00
2,816.00
4,650.00
591.00
12,800.00
15,643.00
30,000.00
-

632.00
632.00

Credit
3,112.50
3,112.50

Credit
-

Excess freight
Liabilities
Ordinary share
Retained earnings
Home office
Unrealized profit in Dublin
Unrealized profit in Radford
Unrealized profit in Blacksburg
Sales

(6,400.00)
(4,409.00)
(58,940.00)
-

Cash
Other current assets
Inventories, ending
Plant assets
Dublin branch current
Radford branch current
Blacksburg branch current
Inventories, beginning
Purchases
Shipments from home office
Freight-in
Shipments to Dublin branch
Shipments to Radford branch
Shipments to Blacksburg branch
Cost of sales
Expenses
Excess freight
Liabilities
Ordinary share
Retained earnings
Home office
Unrealized profit in Dublin
Unrealized profit in Radford
Unrealized profit in Blacksburg
Sales
Net income per books
Realized profits
Actual net income

Home
Office
27,460.00
5,500.00
16,040.00
150,000.00
20,000.00
15,000.00
10,000.00
17,000.00
62,500.00
10.00
(14,500.00)
(100,000.00)
(81,310.00)
(3,000.00)
(1,350.00)
(1,100.00)
(125,000.00)
(2,750.00)
(45,490.00)
(45,490.00)
2 points

RECONCILIATION OF INTER-SHIPMENTS ACCOUNTS


Shipments to branch, adjusted
Unrealized profits, preclosing
Total
Shipments from home office, adjusted

5,091.00

5,591.00
5,591.00

PRE-CLOSING TRIAL BALANCE


Dublin
Radford
Branch
Branch
6,000.00
4,800.00
4,400.00
3,520.00
7,532.00
6,562.50
20,000.00
16,000.00
24,137.00
20,690.50
35,000.00
40,000.00
(10,000.00)
(8,000.00)
(20,000.00)
(15,000.00)
(67,569.00)
(70,573.00)
(500.00)
(2,000.00)
(8,432.00)
(9,882.50)
(2,580.00)
(763.50)
(11,012.00)
(10,646.00)
2 points
2 points

15,000.00
3,000.00
18,000.00
18,000.00

9,000.00
1,350.00
10,350.00
10,350.00

Difference

ANALYSIS OF ENDING INVENTORIES


Inventories, per adjusted TB
Outside
Home (at billed price)
Unadjusted
Adjustment
Freight
Total ending inventory (billed)

16,040.00

7,532.00

6,562.50

14,000.00

5,000.00

2,000.00

2,400.00
120.00
12.00
7,532.00
-

3,450.00
1,046.50
66.00
6,562.50
-

3,000.00

1,350.00

2,040.00
16,040.00

COMPUTATION OF REALIZED PROFITS


Unrealized profits, preclosing
Unrealized profits on branch's ending inventory
Before adjustment
Adjustment
Realized profits

400.00
20.00
420.00
2,580.00
-

Elimination entries under perpetual inventory system


420.00
586.50 2 points /.5
201.00
1,207.50

Unrealized profit in Dublin


Unrealized profit in Radford
Unrealized profit in Blacksburg
Cost of sales

2,580.00
763.50 2 points /.5
899.00
4,242.50

45,000.00
2 points /.5

450.00
136.50
586.50
763.50
(0.00)

Elimination entries under perio

Unrealized profit in Dublin


Unrealized profit in Radford
Unrealized profit in Blacksburg
Inventories, ending

Home office
Dublin branch current
Radford branch current
Blacksburg branch current

Shipments
Shipments
Shipments
Unrealized
Unrealized
Unrealized
Shipments

to Dublin branch
to Radford branch
to Blacksburg branc
profit in Dublin
profit in Radford
profit in Blacksburg
from home office

Home office
20,000.00 Dublin branch current
15,000.00 Radford branch current
10,000.00 Blacksburg branch current

DUBLIN BOOKS

RADFOR
Debit

2 points/.5

1 point

120
12

Credit

Inventories
Inventories
132 Home office

500.00
500.00 Home office

Expenses
Home office
Cash

250.00
3,750.00

Home office
4,000.00

Inventories
Inventories
Home office
Inventory
Home office

2,448.00

Inventory
Home office

50.00

Home office
Inventory

2,448.00 Total cost from home office


Cost of merchandise shipped from Du
50.00

1,249.00
1,249.00

Cost from home office


Mark-up
Freight from home to dublin
Home office
Cash
Payment of freight (interbranch)

Cost of merchandise shipped from Du


Mark-up
Total billed price

1,020.00
204.00
25.00
35.00
35.00

R
Home to dublin
Dublin to branch
Total actual
Direct shipment
Excess freight

Adjusted
27,460.00
5,500.00
16,040.00
150,000.00
20,000.00
15,000.00
10,000.00
17,000.00
62,500.00
10.00
(14,500.00)
(100,000.00)
(81,310.00)
(3,000.00)
(1,350.00)
(1,100.00)
(125,000.00)
(2,750.00)

Adjusted
6,000.00
4,400.00
7,532.00

B
12.50
15.00
27.50
20.00
7.50

12.50
20.00
32.50
30.00
2.50

20,000.00
24,137.00
35,000.00
(10,000.00)
(20,000.00)
(67,569.00)
(500.00)

Adjusted
4,800.00
3,520.00
6,562.50
16,000.00
20,690.50
40,000.00
(8,000.00)
(15,000.00)
(70,573.00)
(2,000.00)

Adjusted
8,340.00
2,816.00
5,241.00
12,800.00
15,643.00
30,000.00

(6,400.00)
(10,000.00)
(58,940.00)
(500.00)

G TRIAL BALANCE
Blacksburg
Branch
8,340.00
2,816.00
5,241.00
12,800.00
15,643.00
30,000.00
(6,400.00)
(10,000.00)
(58,940.00)
(500.00)
(13,297.00)
(899.00)
(14,196.00)
2 points

11,000.00
1,100.00
12,100.00
12,100.00

TOTAL
46,600.00
16,236.00
35,375.50
198,800.00
20,000.00
15,000.00
10,000.00
77,470.50
167,500.00
10.00
(38,900.00)
(100,000.00)
(81,310.00)
(45,000.00)
(3,000.00)
(1,350.00)
(1,100.00)
(322,082.00)
(5,750.00)
(77,101.50)
(4,242.50)
(81,344.00)

Elimination
Debit
45,000.00
3,000.00
1,350.00
1,100.00
50,450.00

entries
Credit
1,207.50
20,000.00
15,000.00
10,000.00
4,242.50
50,450.00

Total
46,600.00
16,236.00
34,168.00
198,800.00
73,228.00
167,500.00
10.00
(38,900.00)
(100,000.00)
(81,310.00)
(322,082.00)
(5,750.00)

5,241.00

35,375.50

3,000.00

24,000.00

1,650.00
561.00
30.00
5,241.00
-

7,500.00
3,767.50
108.00
35,375.50

1,100.00

5,450.00

150.00
51.00
201.00
899.00
0.00

1,000.00
207.50
1,207.50
4,242.50

Checking
Ending inventories @ billed price
Unrealized profit, ending
Ending inventories, @ cost

ation entries under periodic inventory system

ments
ments
ments
lized
lized
lized
ments

to Dublin branch
to Radford branch
to Blacksburg branch
profit in Dublin
profit in Radford
profit in Blacksburg
from home office

n branch current
rd branch current
sburg branch current

3,000.00
1,350.00
1,100.00
45,000.00
20,000.00
15,000.00
10,000.00

RADFORD BOOKS

BLACKSBURG BOOKS
Debit

2 points/.5

Credit

460.00
46.00
506

Cash
Home office

1 point

500.00
500.00

1 point

1,500.00
1,500.00 Home office

2 points/.5

586.50
20.00
-

Inventories
- Inventories
606.50 Home office

st from home office


merchandise shipped from Dublin to R and B

merchandise shipped from Dublin to R an

2,040.00
510.00

B
510.00
76.50
586.50

510.00
51.00
561.00

Income
Statement

Balance
Sheet
46,600.00
16,236.00
34,168.00
198,800.00
-

73,228.00
167,500.00
10.00
(38,900.00)
(100,000.00)
(81,310.00)
(322,082.00)
(81,344.00)
(5,750.00)

75,594.00

billed price

35,375.50
(1,207.50)
34,168.00

BLACKSBURG BOOKS
Debit

Credit

4,500.00
1 point

1 point

4,500.00

500.00
500.00

2 points/.5

561.00
30.00
-

591.00

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