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ACCT 501
Deddy K.S.,S.E.,M.A.,Ak.,CA.,CPAi
Objectives of this Chapter
SMALDNO COMPANY
Working paper for combined Financial
Statements of Home office and Mason
Branch
For Year Ended December 31,1999
(Perpetual Inventory System: Billing
above Cost)
Sales 80,000
Income Summary 10,500
Cost of Goods Sold 67,500
Operating Expenses 23,000
To reduce allowance to
amount by which ending
inventories of branch exceed
cost.
Accounting for Branches 74
Branch Closing Entries and Home office
Adjusting and Closing Entries (when billing at
above the cost) (contd.)
Home Office Adjusting and Closing Entries
(contd.)
Realize Gross Profit: Mason 22,500
Branch Sales
Income: Mason Branch 10,500
Income Summary 12,000
To close branch net loss and
realized gross profit to Income
Summary ledger account
(Income tax effects are
disregarded.)
Accounting for Branches 75
Branch Closing Entries and Home office
Adjusting and Closing Entries (when billing at
above the cost) (contd.)
After posting the above entries, the account
balance for the following accounts is:
Investment in Mason Branch =45,500(debit)*
Allowance for Overvaluation of =7,500(credit)**
Inventories: Mason Branch
Realized Gross Profit: Mason =0
Branch
Income: Mason Branch =0
* Balance prior to the above entries equals $56,000. $56,000- 10,500
(net loss of the branch reduces the debit balance of the Investment
account) = $45,500.
** $30,000-22,500 = $7,500. Accounting for Branches 76
Branch Closing Entries and Home office
Adjusting and Closing Entries (when billing at
above the cost) (contd.)
Similar working paper eliminations as
on page 66-69 will be prepared for the
following year (i.e., year 2000) when
continuing with the perpetual inventory
system with a price markup.
merchandise
shipped to branch
during 2000 (50% of
cost) 40,000 47,500 cr
receivable from
home office 120,000 165,500 cr
Cash sent to home
office 113,000 52,500 cr
Operating expenses
CGS=22,500+120,000-30,000
Accounting for Branches 92
Branch Closing Entries and Home Office Adjusting
and Closing entries for the home office (with billing at
above the cost and using a periodic inventory system):(contd.)
(2)Sales 150,000
CGS 112,500
Operating expenses 27,500
Income Summary 10,000
2.Inventory 8,000
Home Office 8,000
$ 49,500 (dr.)
- 3,000 (cr.)
+ 2,000 (dr.)
$ 48,500 (dr.)
$ 41,500 (cr.)
- 1,000 (dr.)
+ 8,000 (cr.)
$ 48,500 (cr.)
Accounting for Branches 107
Transactions between Branches
When it is necessary to transfer
merchandise or assets from one branch
to another branch, Home Office Ledger
account is used by the branches.
The home office will transfer the
inventory (or assets) from investment in
one branch to another branch.
Any excess freight costs incurred for
the transfer between branches should
be expensed.
Accounting for Branches 108
Transactions between Branches
(contd.)
Example: (textbook p146-148)
The home office shipped merchandise
costing $8,000 to Katti Branch and paid
freight costs of $500.
A week later, the home office instructed Katti
Branch to transfer this merchandise to
Danddi Branch. Katti paid $400 for the
transfer.
If the merchandise had been shipped directly
from the home office to Danddi, the freight
costs would have been $600.
Accounting for Branches 109
Transactions between Branches
(contd.)
Journal entries for these transactions are:
In Accounting Records of Home Office:
Branch:
Inventories 8,000
Freight-in (or Inventories) 600
Home Office 8,600