Home Office and Branch HOBA Special Procedures (Problems with solutions) PDF

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Problems - HOBA Special Procedure (DAYAG)Requirement #1: Journal entriesInvestment in Branch 55,000 Shipment from HO 55, Shipments to Branch 50,000 Home Office 55, AFOBI (55K / 110% x 10%) 5,Requirement #2: Income Statement - Branch Sales 140, less: Cost of Goods Sold: Inventory, September 1 (if Br ...

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Problems - HOBA Special Procedure (DAYAG)

Requirement #1: Journal entries Home Office Books Investment in Branch 55,000 Shipments to Branch AFOBI (55K / 110% x 10%) Requirement #2: Income Statement - Branch Sales less: Cost of Goods Sold: Inventory, September 1 add: Purchases Shipments from Home Office Total Goods Available for Sale less: Inventory, Sept. 31 Gross Profit less: Operating expenses Selling expenses General expenses Unadjusted Branch Net Income

Branch Books Shipment from HO 50,000 Home Office 5,000

55,000 55,000

140,000

-

35,200 24,000 55,000 114,200 30,000 -

-

8,000 32,000 -

(if Br Inc Statement, at billed price)

Requirement #3: Adjusting entries - Home Office Books Investment in Branch Income Summary - Branch

84,200 55,800

40,000 15,800

15,800 15,800

Allowance for Overvaluation of Branch Inventory Income Summary - Branch

4,600 4,600 Billing Price Cost

Unrealized Profit

Inventory, September 1 17,600 16,000 1,600 add: Shipments from Home Office 55,000 50,000 5,000 Goods Available for Sales 72,600 66,000 6,600 less: Ending inventory from Home Office - 22,000 - 20,000 2,000 Cost of Goods Sold 50,600 46,000 4,600 Branch True Net Income…......................................................................................................

20,400

Requirement #1: Journal Entries - Home Office Books B. Correcting Entries: Entry Made: Should be Entry Investment in Branch 42,000 Investment in Branch 42,000 (30K + 12K) 42,000 Shipments to Branch Sales AFOBI (30K / 120%) + (12K / 120%) Sales Shipments to Branch Allowance for Overvaluation of Branch Inventory Entry Made: Sales Returns Investment in Branch

750

Shipments to Branch Allowance for Overvaluation of Branch Inventory Sales Returns A. Results of Branch Operations Income summary - Branch Investment in Branch

42,000 35,000 7,000

Should Be Entry: Shipments to Branch 750 AFOBI (625 x 20%) Investment in Branch

625 125 750 625 125 750

(to record branch loss)

2,600 2,600

Allowance for Overvaluation of Branch Inventory Income Summary - Branch

4,125 4,125 Billed Price Cost

Beginning inventory add: Shipments from Home Office less: Returns Ending inventory from Home Office Cost of Goods Sold Requirement #2: Branch True Net Income

35,000 7,000

42,000 750 - 16,500 24,750

35,000 625 13,750 20,625

Overvaluation

7,000 125 2,750 4,125 (-2,600 + 4,125)

!!!!

1,525

Requirement #1 Billed Price Cost

Beginning inventory add: Shipments from Home Office Goods Available for sales (before adjustments) less: Ending inventory from Home Office Cost of Goods Sold Requirement #2: Adjusting entry Allowance for Overvaluation of Branch Inventory Income Summary - Branch Requirement #3: Home Office Books Shipments to Branch AFOBI Investment in Branch

16,200 20,250 36,450 - 18,900 17,550

Overvaluation

12,000 15,000 27,000 14,000 13,000

4,200 5,250 9,450 UNREALIZED 4,900 ADJUSTED 4,550 REALIZED 4,550 4,550

Branch Books

400 140

Home Office 540 Shipments from Home Office 540

540

Requirement #1 Billed Price Cost

Beginning inventory add: Shipments from Home Office Goods Available for Sale Ending inventory from Home Office Cost of Goods Sold Branch Inventory, December 1 from Outsiders from Intercompany total inventory Requirement #2 refer to requirement no. 1 for computation Allowance for Overvaluation of Branch Inventory Income Summary - Branch

-

12,000 9,600 21,600 8,400 13,200

Overvaluation

10,000 8,000 18,000 7,000 11,000 (bal)

2,000 1,600 3,600 1,400 2,200

UNREALIZED

3,000 12,000 15,000

2,200 2,200

Refer to illustration 14-3, page 1069 or PDF Problem 5 (SPENCER CO.) SPENCER CO. Worksheet for Combined Statements for Home Office and Branch

SPENCER CO. Worksheet for Combined Statements for Home Office and Branch

Cash Accounts Receivable Merchandise Inventory, Dec. 1 Furnitures and Fixtures Accumulated Depreciation - F&F Allowance for Overvaluation of Branch Inventory Store Supplies Investment in Branch Account Payable Home Office Capital Stock Retained Earnings (deficit) Sales Shipment to Branch Purchases Shipment from Home Office Advertising Expense Salaries and Commission Expense Miscellaneous Selling Expense Rent Expense Miscellaneous General Expense (taxes & insurance) Adjustments: Store Supplies Expense Prepaid expense Accrued Expense Depreciation Expense Cash in transit Merchandise inventory, Dec. 31 (to Balance Sheet) Merchandise inventory, Dec. 31 (to Income Statement)

Home Office Debits Credits 10,350 26,200 31,500 8,500 2,500 3,700 940 33,760 35,400

Branch Debits Credits 2,650 12,850 14,400 3,600 540 d.

Adjustments Debits Credits

Eliminations Debits Credits

4

4,200 32,040

Combined Balance She Debits Cre 13,000 39,050

43,900 12,100

121

3 2/4

580

2,000

Combined Income Statement Debits Credits

a. e.

840 1,500

1

e.

220

1

3,700 680 32,260 39 32,260

65,000

65

6,850

6,850 44,850 8,500

27,600

20,000 4,100 10,200 2,800 2,350 1,050 1,500 700

2,850 4,250 1,850 2,700 2,600

64,850 2

31,700 2

c/e/b

a. b. c. d. e. 24,200 184,150

585

71,380

14,600 71,380

10,200 5,650 6,600 2,900 4,200 3,415

470

840 470

840 470 365

121 1,500

121

14,600 24,200 184,150

8,500

3 3 3,516

3,516

1,500 36,850

1,950 1,950 46,410

46,410

Net Income to Balance (Retained Earnings)

36,850 99,326 101,700 110,500 108,1 2,374 2, 101,700 101,700 110,500 110

Requirement #4: Adjusting and Closing Entries Adjusting Entries Home Office Books a.

Store Supplies Expense Store Supplies

Branch Books 560 560

Store Supplies Expense Store Supplies

120

350

Prepaid Expense Miscellaneous General Expense Miscellaneous General Expense Accrued Expenses

105

260

# Store supplies used: 940 - 380 = 560

b. c. d.

# Store supplies used: 580 - 300 = 280

Prepaid Expense Miscellaneous General Expense

350

Miscellaneous General Expense Accrued Expenses

260

Depreciation expense Accumulated Dept'n - F&F

85 85

# 1% of P8,500

e.

Cash in Transit Investment in Branch

Dec. 31 Sales Shipments to Branch Merchandise Inventory, Dec. 31 Merchandise Inventory, Dec. 1 Purchases Advertising Expense Salaries and Commissions Expense Miscellaneous Selling Expense Rent Expense Miscellaneous General Expense Store Supplies Expense Depreciation Expense Income Summary Income Summary - Branch Investment in Branch

280

Depreciation expense Accumulated Dept'n - F&F

36

# 1% of P3,600

1,500 1,500 44,850 8,500 24,200

(t-account)

Miscellaneous General Expense Home Office

Closing Entries Sales Merchandise Inventory, Dec. 31 Income Summary - Branch 31,500 Merchandise Inventory, Dec. 1 27,600 Shipments from Home Office 2,850 Purchases 4,250 Advertising Expense 1,850 Salaries and Commissions Expense 2,700 Miscellaneous Selling Expense 2,510 Rent Expense 560 Miscellaneous General Expense 85 Store Supplies Expense 3,645 Depreciation Expense

3,021 3,021

Home Office Income Summary - Branch

220

20,000 14,600 3,021

14, 10 4 2, 2, 1, 1,

3,021

3

Allowance for Overvaluation of Branch Inventory Income Summary - Branch

1,750 1,750 Billed Price Cost

Beginning inventory add: Shipments from Home Office Goods Available for Sale less: Ending inventory from Home Office Cost of Goods Sold

Overvaluation

12,000 10,000 10,200 8,500 22,200 18,500 - 11,700 - 9,750 10,500 8,750

Income Summary Retained Earnings Income Summary - Branch

2,000 1,700 3,700 1,950 1,750 3,645 2,374 1,271

Branch True Net Income / (Loss)

-

1,271

Eliminating Entries (for internal purposes only) 1

Home Office Investment in Branch

32,260

2

Shipments to Branch, at cost Allowance for Overvaluation of Branch Inventory Shipments from Home Office

8,500

3

Merchandise inventory, Dec. 31, 20x4 (Income Statement) Merchandise Inventory, Dec. 31, 20x4 (Balance Sheet)

1,950

4

Allowance for Overvaluation of Branch Inventory Merchandise Inventory, Dec. 1, 20x4 (Income statement)

2,000

32

1,700

10

1 2

Requirement #1: Individual Statements

SPENCER CO. Income Statement for Home Office For the Month Ended December 31, 20x4 Sales Cost of Goods Sold: Merchandise Inventory, December 1 add: Purchases less: Shipments to Branch Merchandise available for own sale less: Merchandise Inventory, December 31 Gross Profit Operating expenses: Advertising expense Salaries and Commission expense Store Supplies expense Miscellaneous selling expense Rent expense Depreciation expense - furniture and fixtures Miscellaneous general expense Net Income from own operations less: Branch True Net income / (loss) Branch net loss add: Overvaluation of COGS / Understatement of Branch Net income Home Office Net income

SPENCER CO. Income Statement for Branch For the Month Ended December 31, 20x4 44,850 31,500 27,600 - 8,500 50,600 - 24,200 - 26,400 18,450 2,850 4,250 560 1,850 2,700 85 2,510 - 14,805 3,645 -

3,021 1,750 -

1,271 2,374

Sales Cost of Goods Sold: Merchandise Inventory, December 1 add: Purchases Shipments from Home Office Merchandise available for sale less: Merchandise Inventory, December 31 Gross Profit Operating expenses: Advertising expense Salaries and Commission expense Store Supplies expense Miscellaneous selling expense Rent expense Depreciation expense - furniture and fixtures Miscellaneous general expense Branch Net Income / (Loss)

20

14,400 4,100 10,200 28,700 - 14,600 - 14,1 5 2,800 2,350 280 1,050 1,500 36 905 (unadjusted) -

8,9 3,

SPENCER CO. Balance Sheet for Branch December 31, 20x4 Assets: Cash Accounts receivable Merchandise Inventory Store Supplies Prepaid expenses Furniture and fixtures less: Accumulated Depreciation Total Assets

Liabilities and Capital

-

3,600 576

2,650 12,850 14,600 300 120

Accounts payable Accrued Expenses

3,024 33,544

Home Office Total Liabilities and Capital

4,200 105

(32,040 + 220 - 3,021)

4,

29 33

SPENCER CO. Balance Sheet for Home Office December 31, 20x4 Assets:

Liabilities

Cash Cash in transit Accounts receivable Merchandise Inventory, December 31 Store Supplies Prepaid expenses Furniture and fixtures 8,500 less: Accumulated Depreciation - 2,585 Investment in Branch (33,760 - 1,500 - 3,021) 29,239 less: Allowance for Overvaluation of Branch Ending Inventory - 1,950 Total Assets

10,350 1,500 26,200 24,200 380 350 5,915 27,289 96,184

Accounts payable Accrued Expenses Shareholders' Equity Capital Stock Deficit: Deficit, Dec. 1 add: Combined Net Income / (Loss) total less: Dividends paid Total Liabilities and Shareholder's Equity

35,400 260

35,

65 -

6,850 2,374 4,476 -

4,4 96,

Requirement #3: Combined Statements SPENCER CO. Combined Balance Sheet for Home Office and Branch December 31, 20x4

SPENCER CO. Combined Income Statement for Home Office and Branch For the Month Ended December 31, 20x4

Assets: Cash Accounts receivable Merchandise inventory Store Supplies Prepaid expenses Furniture and Fixtures less: Accumulated Depreciation Total Assets

14,500 39,050 36,850 680 470 -

Liabilities Accounts payable Accrued Expenses Shareholders' Equity Capital Stock Deficit: Deficit, Dec. 1 add: Combined Net Income / (Loss) total less: Dividends paid Total Liabilities and Shareholder's Equity

12,100 3,161

39,600 365

8,939 100,489

39,965

65,000 -

6,850 2,374 4,476 -

4,476 100,489

Sales Cost of Goods Sold: Merchandise Inventory, Dec. 1 (31.5K + 14.4K - 2K Overv of Beg) add: Purchases Total Goods Available for Sale less: Merchandise Inventory, Dec. 31 Gross Profit Operating expenses: Advertising expense Salaries and Commission expense Store Supplies expense Miscellaneous selling expense Rent expense Depreciation expense - furniture and fixtures Miscellaneous general expense Net Income

64

43,900 31,700 75,600 - 36,850 - 38 26

5,650 6,600 840 2,900 4,200 121 3,415 - 23, 2

Closing Entries Home Office Books Sales 1,060,000 Inventory, Dec. 31 142,500 Shipments to Branch 210,000 Inventory, Jan. 1 Purchases Operating Expenses Income Summary Income Summary - Br 24,500 Investment in Pampanga Branch

Pampanga Branch Books Sales 315,000 Inventory, Dec. 31 58,500 Income Summary - Br 24,500 115,000 Inventory, Jan. 1 820,000 Shipments from Home Office 382,000 Operating expenses 95,500

24,500

AFOBI 41,150 Income Summary - Branch

Home Office 24,500 Income Summary - Branch

41,150 Billed Price Cost Overvaluation Beginning Inventory 25% 44,500 35,600 8,900 add: Shipments from Home Office 252,000 210,000 42,000 Goods Available for Sale 296,500 245,600 50,900 less: Ending Inventory 58,500 - 48,750 9,750 Cost of Goods Sold 238,000 196,850 41,150 Income Summary 95,500 Income Summary - Branch Retained Earnings

16,650 78,850

44,500 252,000 101,500

24,500

Requirement #1: Individual Income Statement Paxton Co. Income Statement for Manila Home Office For the Year Ended December 31, 20x5 Sales Cost of Goods Sold: Inventory, Jan. 1 add: Purchases less: Shipments to Br Goods available for sale less: Inventory, Dec. 31 Gross Profit Operating Expenses Net Income from own operations Add/Deduct: Branch True Net income Branch net loss Overvaluation of COGS Total Income

Paxton Co. Income Statement for Pampanga Branch For the Year Ended December 31, 20x5

115,000 820,000 210,000 725,000 142,500 -

24,500 41,150

1,060,000 Sales Cost of Goods Sold: Inventory, Jan. 1 add: Purchases

315,000 44,500 252,000 296,500 58,500 -

Shipments from HO

TGAS

less: Inventory, Dec. 31582,500 477,500 Gross Profit 382,000 Operating Expenses 95,500 Net Loss (unadjusted) -

16,650 112,150

Requirement #2: Combined Income Statement Paxton Co. Combined Income Statement for Manila Home Office and Pampanga Branch For the Year Ended December 31, 20x5 Sales Cost of Goods Sold: (HO cost + Br billed - Overv) Inventory, Jan. 1 add: Purchases Goods Available for Sales less: Inventory, Dec. 31 (HO cost + Br billed - Overv) Gross Profit Operating Expenses Net Income

1,375,000 150,600 820,000 970,600 191,250 -

779,350 595,650 483,500 112,150

238,000 77,000 101,500 24,500

Closing Entries Home Office Books Sales 256,000 Shipments to Branch 30,000 Inventories, Dec. 31 55,000 Income Summary 9,000 Inventories, Jan. 1 Expenses Purchases Investment in Branch Income Summary - Branch

5,500

AFOBI Income Summary - Branch

8,000

Cleveland Branch Books Sales 78,500 Inventory, Dec. 31 31,500 Inventory, Jan. 1 Shipments from Home Office 80,000 Purchases 60,000 Expenses 210,000 Income Summary - Branch

5,500

Income Summary - Br Home Office

8,000 Billed Price Beginning Inventory (less Outsiders) 24,500 add: Shipments from Home Office 40,000 Goods Available for Sale 64,500 less: Ending Inventory 26,000 Cost of Goods Sold 38,500 Income Summary - Br Retained Earnings Income Summary

13,500 4,500 9,000

Cost Overvaluation 20,000 4,500 30,000 10,000 50,000 14,500 19,500 6,500 30,500 8,000

32,000 40,000 20,000 12,500 5,500

5,500 5,500

33%

Requirement #1: Individual Income Statement Ruggles Co. Income Statement for Home Office Sales Cost of Goods Sold Inventory, Jan. 1 add: Purchases less: Ship. To Branch TGAS less: Inventory, Dec. 31 Gross Profit Operating Expenses Net loss from own operations add: Branch True Net income: Branch Net Income add: Overvaluation of COGS Combined Net income

Ruggles Co. Income Statement for Home Office

80,000 210,000 30,000 260,000 55,000 5,500 8,000

256,000 Sales Cost of Goods Sold Inventory, Jan. 1 32,000 add: Purchases 20,000 Ship from HO 40,000 TGAS 92,000 205,000 31,500 less: Inventory, Dec. 31 51,000 Gross Profit 60,000 Operating Expenses 9,000 Net Income (unadjusted)

13,500 4,500

Requirement #2: Combined Net income Ruggles Co. Income Statement for Home Office Sales Cost of Goods Sold Inventory, Jan. 1 add: Purchases TGAS less: Inventory, Dec. 31 Gross Profit Operating Expenses Net Income

334,500 107,500 230,000 337,500 - 80,000 -

257,500 77,000 72,500 4,500

78,500

60,500 18,000 12,500 5,500

sales return only

Requirement #1: Cost of Machine destroyed Total merchandise acquired from Home Office, at billed price: Inventory, Jan. 1 add: Shipments from Home Office, Jan. 1-17 Total Cost of Goods sold, Jan. 1-17, at billed price Sales less: sales returns Net Sales Inventory, Jan. 17, at billed price Inventory, Jan. 17, at cost

26,400 20,000 46,400 15000 -2000 13000 125% (36K / 120%)

10,400 36,000 30,000

Requirement #2: Entries to record the loss HOME OFFICE BOOKS: No entry needs to be made on the books of the home office until the end of the fiscal period, when the branch earnings (including the loss from fire) are recognized and when the balance of the account Unrealized Intercompany Inventory Profit is adjusted to conform to the branch ending inventory. If it is desired to recognize the loss from fire on the home office books immediately, the following entry may be made: Branch Loss from Fire (or Retained Earnings) 30,000 Allowance for Overvaluation of Branch Inventory (bal) 6,000 Investment in Branch 36,000 BRANCH BOOKS Loss from Fire (or Home Office) Merchandise Inventory

36,000 (take note: at billed price)

36,000

1. Branch A Home Office Cash

1,500

2. Branch B Cash Home Office

1,500

3. Home Office Branch B Branch A

1,500

1,500

1,500

1,500

freight from Home Office to Branch 1 freight from Branch 1 to Branch 5 total...