Department of Accounting and

Finance
Advanced Financial Accounting
Individual Assignment

1. Abaynesh Abate RAD/0001/2010 C (ADD)

Submitted to: Mr. Hassen Mustefa

June, 2020
 1. Required (Disregard income tax)
Prepare a worksheet showing Adjustments and Eliminations, Home office
income statement, Branch income statement, and Combined Balance sheet.
Home office Accounting Record Branch Accounting Record

1. Equipment...........4000 None
Inv't in Branch ........................4000

2. None Home office ................ 2000

Cash ............................ 2000
3. Cash ..................................5000 None
Inv't in Branch ........................5000
4. None Expense .................1000
Home office........... 1000
5. None Inventory ....................3000
Home office ...............3000
6. Not relevant Not relevant

Home office accounting record Branch accounting record

1) Investment in branch 2) Home office

2,000 9,000
20,000 4,000
7,000
16,000

3) Investment in branch 4) Home office

16,000 5,000 7,000

1,000
11,000 8,000

5) Home office
 8,000
3,000
11,000
After adjusting entries the amount of Investment in branch and Home
office accounts are equal (11,000=11,000)

For the purpose of preparing worksheet calculate CGS

CGS= beginning inventory +net purchase-ending inventory

CGS home office=net purchase-ending inventory assume there is no

beginning inventory

CGS h.o=290,000-70,000=220,000

CGS branch=net purchase –ending inventory

CGS b. = (24,000+45,000)-(15,000) =69,000-15,000=54,000

Baltimore Company
Working paper for combined Financial Statements of Home office and Atlanta Branch
For Year Ended Dec 31, 2019
(Perpetual Inventory System: Billing at cost)
 Adjusted Trial Balances

Home office Atlanta Branch Eliminations combined

Dr (Cr) Dr (Cr) Dr (Cr)

Income Statement
Sales (440,000) (95,000) (535,000)

Cost of goods sold 220,000 54,000 274,000

Operating expense 44,000 16,000 60,000
Net income 176,000 25,000 201,000
Statement of Retained Earnings
Retained earnings at (45,000)
Dec.312019
Balance sheet
Cash 36,000 8,000 44,000
A/R 35,000 12,000 47,000
Inventory 70,000 15,000 85,000
Investment in Atlanta 11,000 (11,000)
Branch
Fixed asset 90,000 90,000
Total 266,000
Account payable (36,000) (13,500) 49,500
Accrued expense payable (14,000) (2,500) 16,500
Home office (11,000) 11,000 0
Capital stock (50,000) 50,000
Retained earnings (from (45,000)
statement of RE above )
Common stock par 10 (105,000) (105,000)
Total 266,000

Baltimore Company
Income statement
For the year ended Dec 31, 2019

Sales 440,000
Cost of Goods Sold (220,000)
Gross Margin on Sales 220,000
Operating Expenses (44,000)
Net Income 176,000
Atlanta Branch
Income statement
For the year ended Dec 31, 2019

Sales 95,000
Cost of goods sold (54,000)
Gross Margin on Sales 41,000
Operating Expenses (16,000)
Net Income 25,000

Baltimore Company
Combined Balance sheet
For the year ended Dec 31, 2019
Assets
Cash 44,000
Accounts Receivable 47,000
Inventories 85,000
Fixed asset 90,000
Total Assets 266,000
Liabilities & Stockholders’ Equity
Liabilities:
Accounts Payable 49,500
Accrued expense payable 16,500
Common Stock, Br. 10 Par 105,000
Retained Earnings 45,000
Capital stock 50,000
Total Liabilities & Stockholders’ Equity 266,000
2. Journal entries
Solution
a) Journal entries in accounting records of home office:
2015
Sept. 1 Investment in San Marino Branch 10,000
Cash 10,000
2 Investments in San Marino Branch 72,000
Inventories 60,000
 Allowance for Overvaluation of Inventories:
San Marino Branch ($60,000 x 0.2) 12,000
3 Equipment: San Marino Branch 3,000
Investment in San Marino Branch 3,000
b) Journal entries in accounting records of San Marino Branch:
2015
Sept. 1 Cash 10,000
Home Office 10,000
2 Inventories 72,000
Home Office 72,000
3 Home Office 3,000
Cash 3,000
3. Prepare journal entries
Solution
a) Journal entries in accounting records of home office:
2005
Sept. 1 Investment in Eastern Branch 50,000
Cash 50,000
4 Investments in Eastern Branch 125,000
Shipments to Eastern Branch 95,000
Allowance for Overvaluation of
Inventories: Eastern Branch 30,000
11 Equipment: Eastern Branch 34,200
Investment in Eastern Branch 34,200
b) Journal entries in accounting records of Eastern Branch:
2005
Sept. 1Cash 50,000
Home Office 50,000
4 Shipments from Home Office 125,000
Home Office 125,000
 11 Home Office 34,200
Cash 34,200
4. Prepare related journal entries for the Whilshire Branch of Watt
Corporation: the branch uses the perpetual inventory system.
Solution
Journal entries for Wilshire Branch of Watt Corporation:
2005
Jan. 2 Inventories 100,000
Home Office 100,000
To record merchandise shipped by home office.
18 Home Office 5,000
Cash 5,000
To records acquisition of equipment to be carried in home office
accounting records.
31 Operating Expenses 8,000
Home Office 8,000
To record operating expenses allocated by home office.
5. If a home office bills merchandise shipments to the branch at a markup
of 20% on cost, the markup on billed price is:

Solution
A. 16 2/3%