Solution Manual and Test Bank Advanced Accounting by Guerrero & Peralta 2 CHAPTER 12

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(1)CHAPTER 12 MULTIPLE CHOICE 12-1: d. This is recorded when the working fund is replenished. 12-2: c. Sales Cost of goods sold: Purchases Merchandise inventory, end Gross profit Expenses Net income (loss) 12-3: P800,000 180,000 620,000 P 80,000 198,000 P (118,000) b Sales Cost of goods sold (P70,000 / 140%) Gross profit Less: Samples (P8,000 – P6,000) Expenses Net income 12-4: P 700,000 P 70,000 50,000 P 20,000 P 2,000 2,800 4,800 P 15,200 a Sales Cost of goods sold Gross profit Expenses (P9,000 + P4,500) Net income 12-5: a 12-6: a 12-7: c 12-8 a Shipment of merchandise to home office Equipment sent to home office Expenses assigned to branch by the home office Cash remittance to home office Home office account balance P 100,000 72,000 P 28,000 13,500 P 14,500 P 80,000 50,000 8,000 (40,000) P 98,000 1

(2) 12-9: d 12-10: a Home Office account balance before closing, Dec. 32, 1008 P 35,000 Net income (loss) Sales P147,000 Cost of cost goods sold Shipment to branch P135,000 Inventory, 12/31 18,500 116,500 Gross profit P 30,500 Expenses 13,500 17,000 Home Office account balance (Investment in Branch account balance) P 52,000 Shipment to Branch account has no beginning balance, because this was closed at the end of 2008. 12-11: b Jan. 1, 2008 P 6,000 86,000 74,000 P166,000 Petty cash fund Accounts receivable Inventory Home Office account balance Jan. 1, 2009 P 6,000 98,000 82,000 P186,000 12-12: d Unadjusted balances, Dec. 31 Remittance in transit Shipment in transit Cash collections of home office Adjusted balances, Dec. 31 (Branch Books) Home Office P 21,320 7,280 400) P 28,200 (Home Office Books) Investment in Branch P 38,600 (10,400) ( P 28,200 12-13: a Unadjusted balance – Investment in Branch account, 12/31 Charge for advances by president Erroneous entry for merchandise allowance Share in advertising expense Unadjusted balance – Home Office account, 12/31 P430,000 (5,500) ( 600) (9,000) P414,900 2

(3) 12-14: a Unadjusted balances, 12/31 Shipment in transit Collection of HO A/R by branch Error in recording of branch profit Returns of merchandise in transit Adjusted balances, 12/31 (Branch Books) Home Office P 97,350 6,150 P103,500 (Home Office Books) Investment in Branch P 84,000 25,000 900 ( 6,400) P103,500 12-15: a (Branch Books) Home Office Unadjusted balances P25,550 Error in recording shipment to Cavity branch (12,000) Error in recording shipment to Tagaytay branch 15,000 Branch AR collected by home office Merchandise returns in transit ( 1,200) Error in recording branch profit ( 3,600) Adjusted balances P23,750 12-16: c Unadjusted balance- Investment in Branch account Remittance in transit Shipment in transit Expenses allocated Error in recording remittance Error in recording shipments Unadjusted balance – Home Office account Unadjusted balances, Remittance in transit Shipment in transit Expenses allocated Unrecorded HO collection of AR Error in recording shipments Adjusted balances ( Branch Books) Home Office P 44,000 20,000 5,000 (3,000) 9,000 P 75,000 (Home Office Books) Investment in Branch P27,350 (3,000) P23,750 P 85,000 (10,000) (20,000) ( 5,000) 3,000 ( 9,000) P 44,000 (HomeOffice Books) Investment in Branch P 85,000 (10,000) P 75,000 12-17 a Unadjusted balances Branch AR collected by Home Office Shipments in transit Acquisition of furniture Merchandise returns Cash remittance in transit Adjusted balances (Branch Books) Home Office P 440,000 ( 8,000) 32,000 P 464,000 (Home Office Books) Investment in Branch P 496,000 (12,000) (15,000) ( 5,000) P 464,000 3

(4) PROBLEMS Problem 12-1 Home Office Books 1. Investment in branch Cash 30,000 2. Investment in branch Shipment to branch 75,000 Branch Books Cash 30,000 75,000 3. No entry 4. No entry 5. Shipment to branch Investment in branch 30,000 Home office Shipment from home office Home office 75,000 Purchases Accounts payable 10,000 Accounts receivable Sales 2,000 2,000 6. No entry 30,000 75,000 10,000 125,000 125,000 Home office 2,000 Shipment from home office Cash 105,000 Accounts receivable 7. No entry Accounts payable Cash 8. No entry 9. Investment in branch Accumulated dep’n 10. Cash Investment in branch 11. Cash Salaries Rent Utilities Other operating expenses Cash 7,500 7,500 65,000 65,000 3,000 Investment in branch 12. Investment in branch Branch income 3,000 10,000 10,000 2,000 Depreciation Rent Insurance Home office Home office Cash Home office Accounts receivable 105,000 7,000 7,000 10,000 5,000 2,000 12,000 29,500 1,500 5,000 1,000 7,500 65,000 65,000 3,000 Sales 125,000 Inventory, end 5,000 Shipment from HO Purchases Salaries Rent Utilities Other operating expenses Home office 3,000 73,000 10,000 10,000 10,000 2,000 12,500 10,000 4

(5) Problem 12-2 a. Books of the Branch 1. 2. 3. Cash Merchandise inventory Home office 200,000 350,000 Merchandise inventory Accounts payable 400,000 Accounts receivable Sales 650,000 Cost of goods sold Merchandise inventory 425,000 Cash 600,000 550,000 400,000 650,000 425,000 Accounts receivable 4. 5. b. Advertising expense Sales commission Other expense Cash 40,000 65,000 45,000 150,000 Accounts payable Home office Cash 370,000 120,000 490,000 Manila Sales – Naga Branch Income Statement Year Ended December 31, 2008 Sales Cost of goods sold Gross profit Expenses: Advertising expense Sales commissions Other expenses Net income c. 600,000 P650,000 425,000 225,000 P40,000 65,000 45,000 150,000 P 75,000 Manila Sales – Naga Branch Balance Sheet December 31, 2008 Cash Accounts receivable Merchandise inventory Total assets P160,000 50,000 325,000 P535,000 Accounts payable Home office P Total liabilities and capital 30,000 505,000 P535,000 5

(6) Problem 12-3 Home Office Books Branch Books (1) Adjusting Entries a. Investment in branch Cash 63,750 b. Investment in branch Shipment to branch 75,300 c. Accounts receivable Sales 157,500 d. Purchases Accounts payable 183,750 e. Cash 170,400 Cash f. Accounts payable Cash g. Expenses Cash Furniture & fixtures – branch Investment in branch h. Cash Home office Shipment from HO Home office 75,300 73,300 Accounts receivable Sales 99,000 157,500 183,750 Purchases 33,750 Accounts payable 33,750 Cash Accounts receivable 63,750 63,750 170,400 186,000 186,000 39,900 75,300 99,000 80,100 Accounts receivable Home office Cash 80,100 Accounts payable Cash 18,375 80,100 80,100 18,375 39,900 12,000 12,000 80,100 Investment in branch Home office Cash 12,000 12,000 80,100 Expenses Cash i. Retained earnings Cash 63,750 27,000 27,000 15,000 15.000 (2) Adjusting Entries j. Expenses Acc. Depreciation 1,750 1,750 k. Investment in branch Acc. Dep’n – Br. F & F 975 l. Prepaid expenses Expenses 375 m. Expenses Accrued expenses 150 975 Expenses Home office 375 Prepaid expenses Expenses 150 Expenses Accrued expenses 975 975 1,125 1,125 450 450 6

(7) Closing Entries Home Office Books n. Sales Shipments to branch Merchandise inv., 12/31 Merchandise inv. 1/1 Purchases Expenses Income summary 157,500 75,300 72,750 o. Branch loss Investment in branch 2,100 p. Income summary Branch loss 2,100 q. Income summary Retained earnings 3. Branch Books 60,180 183,750 41,445 20,175 2,100 Sales 99,000 Merchandise inv., 12/31 35,250 Income summary 2,100 Purchases 33,750 Shipment from HO 75,300 Expenses 27,300 Home office 2,100 Income summary 2,100 2,100 18,075 18,075 Individual Financial Statements Cebu Company – Home Office Income Statement Year Ended December 31, 2008 Sales Cost of sales Merchandise inventory, 1/1 Purchases Goods available for sale Shipment to branch Goods available for own sale Merchandise inventory, 12/31 Gross profit Expenses Net operating income Branch income (loss) Net income P157,500 P 60,180 183,750 P243,930 ( 75,300) P168,630 ( 72,750) 95,880 P 61,620 41,445 P 20,175 ( 2,100) P 18,075 Cebu Company – Branch Income Statement Year Ended December 31, 2008 Sales Cost of sales Purchases Shipments from home office Goods available for sale Merchandise inventory, 12/31 Gross profit Expenses Net income (loss) P 99,000 P 33,750 75,300 P109,050 35,250 73,800 P 25,200 27,300 P( 2,100) 7

(8) Cebu Company – Home Office Balance Sheet December 31, 2008 Assets Cash Accounts receivable Merchandise inventory, 12/31 Prepaid expenses Furniture and fixtures Less: Accumulated depreciation Branch furniture and fixtures Less: Accumulated depreciation Investment in branch Total assets Liabilities and Stockholders’ Equity Liabilities Accrued expenses Accounts payable Total liabilities Stockholders’ Equity Capital stock Retained earnings Total liabilities and stockholders’ equity P 34,800 28,575 72,750 3,075 P30,000 8,370 P12,000 975 21,630 11,025 45,825 P217,680 P 2,025 31,950 P 33,975 P 75,000 108,705 183,705 P217,680 Cebu Company – Branch Balance Sheet December 31, 2008 Assets Cash Accounts receivable Merchandise inventory, 12/31 Prepaid expenses Total assets P 6,375 18,000 35,250 1,125 P61,650 Liabilities and Capital Accounts payable Home office Total liabilities and capital P 450 15,375 P61,650 8

(9) 4. Combined Financial Statements Cebu Company Combined Income Statement Year Ended December 31, 2008 Sales Cost of sales Merchandise inventory, 1/1 Purchases Goods available for sale Merchandise inventory, 12/31 Gross profit Expenses Combined net income P256,500 P 60,180 217,500 P277,680 108,000 169,680 P 86,820 68,745 P 18,075 Cebu Company Balance Sheet December 31, 2008 Assets Cash Accounts receivable Merchandise inventory Prepaid expenses Furniture and fixtures Less: accumulated depreciation Total assets P 41,175 47,475 108,000 4,200 P42,000 9,345 32,655 P233,505 Liabilities and Stockholders’ Equity Accrued expenses Accounts payable Capital stock Retained earnings Total liabilities and stockholders’ equity P 2,475 47,325 75,000 108,705 P233,505 Problem 12-4 Branch Books Home Office Books (a) and (b) Closing Entries Sales 145,000 Inventory, 12/31 60,000 Inventory, 1/1 Shipments from HO Expenses Income summary Income summary Home office 18,000 145,000 20,000 23,000 22,000 22,000 Sales 560,000 Inventory, 12/31 90,000 Shipments to branch 145,000 Inventory, 1/1 Purchases Expenses Income summary Investment in branch Branch income 45,000 540,000 90,000 120,000 22,000 22,000 Branch income 22,000 Income summary 22,000 Income summary 142,000 Retained earnings 142,000 9

(10) © CG Corporation Combined Statement Working Paper Year Ended December 31, 2008 Eliminations Home Office Debits Cash Accounts receivable Inventory, 1/1 Investment in branch Equipment (net) Purchases Shipments from HO Expenses Total debits 36,000 54,000 45,000 70,000 95,000 540,000 90,000 930,000 Branch Debit Credit 7,000 29,000 18,000 Income Statement Dr (Cr) 43,000 83,000 63,000 (2) 70,000 95,000 540,000 145,000 20,000 219,000 (1)145,000 110,000 Inventory 12/31 (BS) Total assets 150,000 371,000 Credits Accounts payable Home Office Capital stock Retained earnings, 1/1 Sales Shipments to branch Total credits 54,000 144,000 560,000 145,000 930,000 145,000 Inventory, 12/31 (IS) 90,000 60,000 27,000 4,000 70,000 31,000 (2) 70,000 54,000 144,000 (705,000) (1)145,000 219,000 (150,000) 215,000 Net income Total liabilities & equity 1. 2. Balance Sheet 215,000 142,000 142,000 371,000 To eliminate shipments to branch and shipments from HO To eliminate reciprocal accounts. 10

(11) Problem 12-5 (1) Oro Company Working Paper for Combined Statements Year Ended December 31, 2008 Home Office Branch Debits Cash Notes receivable Accounts receivable (net) Inventories Furniture & fixtures (net) Investment in Branch Cost of goods sold Operating expenses 63,000 10,500 120,600 143,700 72,150 124,050 300,750 104,250 128,700 32,850 Totals 939,000 275,700 Credits Accounts payable Common stock Retained earnings Home Office Sales Totals Eliminations Debit Credit Income Statements Dr (CR) 21,900 55,950 36,300 84,900 10,500 176,550 45,000 72,150 (2)135,000 (1)124,050 (2)135,000 564,050 137,100 389,100 61,500 300,000 37,500 61,500 300,000 37,500 124,050 151,650 540,000 939,000 Balance Sheet 275,700 (1)124,050 (691,650) 289,050 289,050 Net Income 9,900 (9,900) 389,100 (1) To eliminate shipments (2) To eliminate reciprocal accounts. Closing Entries 2. Branch Books Sales Income Summary Cost of goods sold Operating expenses Home Office Income summary 3. Home Office Books 151,650 9,900 128,700 32,850 9,900 9,900 Branch loss 9,900 Investment in Branch 9,900 Income summary Branch loss 9,900 9,900 11

(12) Problem 12-6 a. b. Investment in Branch account (Home Office Books) Unadjusted balance Error in recording cash transfer, April 8 Cash transfer recorded in subsequent year, Dec. 31 Error in recording allocated depreciation, Dec. 31 Adjusted balance P138,200 ( 45,000) ( 15,000) 6,000 P 84,200 Home Office account (Branch Books) Unadjusted balance Error in recording salary allocation, April 5 Error in recording inventory transfer, July 6 Unrecorded allocated depreciation, Dec. 31 Adjusted balance P(93,000) ( 200) 12,000 ( 3,000) P(84,200) Adjusting Entries Home Office Books Branch Books Other income Investment in branch – Rizal 45,000 Cash 15,000 200 200 45,000 Investment in branchRizal Investment in branch Accumulated dep’n Salary expense Home office Home office 12,000 Shipments from HO 12,000 Depreciation expense Home office 3,000 15,000 6,000 6,000 3,000 Problem 12-7 a. b. Investment in Branch account (Home Office Books) Unadjusted balance, Dec. 31 Cash remittance in transit Merchandise returns in transit Adjusted balance, Dec. 31 P166,400 (30,000) (12,000) P124,400 Home Office account (Branch Books) Unadjusted balance, Dec. 31 Error in recording expense Shipment in transit Supplies charged to branch Collection of branch receivable Adjusted balance, Dec. 31 P103,200 7,200 24,000 8,000 ( 18,000) P124,400 Adjusting Entries Home Office Books Cash 30,000 Shipment to branch 12,000 Investment in branch 42,000 Branch Books Shipment from HO 24,000 Supplies 8,000 Expenses 7,200 Accounts receivable 18,000 Home office 21,200 12

(13) Problem 12-8 (1) Reconciliation Statement (Home Office Books) (Branch Books) Investment in Branch Home Office Unadjusted balances, 1/31 Advertising charged to branch Home office AR collected by branch Shipment in transit Error in recording receipt of merchandise Understatement of depreciation Remittance in transit, 1/31 (2) P59,720 P 43,268 480 600 ( ( 432) (12,800) P47,088 180) P 47,088 Adjusting Entries Home Office Books Retained earnings Cash Accounts receivable Investment in branch Branch Books 432 12,800 Advertising 480 Shipments from HO 3,520 600 Shipment from HO 12,632 Home office 180 3,820 Problem 12-9 (1) Branch Books Adjusting Entries Shipment from home office Operating expenses (P4,200 + P3,900) Home office 57,600 8,100 65,700 Closing Entries Sales Inventory, 12/31 (P64,580 + P57,600) Inventory, 1/1 Shipment from HO (P623,200 + P57,600) Operating expenses Income summary 778,200 122,180 Income summary Home office 116,990 47,800 680,800 54,790 116,990 116,900 13

(14) (2) Home Office Books Accounts receivable Investment in branch Cash (P20,000 + P19,200) 470 330 800 Investment in branch Branch income (3) 116,990 116,900 Reconciliation Statement Unadjusted balances, 12/31 Error in recording remittance to branch Shipment in transit Expenses charged to branch Branch net income Freight erroneously charged to branch Cash remittance in transit to HO Adjusted balances, 12/31 Home Office Books Branch Books (Investment in Branch) (Home Office) P 206,344 P 140,974 20,000 57,600 8,100 116,990 116,990 ( 470) ( 19,200) P 323,664 P 323,664 Problem 12-1111 a. P 2,000 Sales (P 27,000 + P 33,000 + P 26,000) …………………. Cost of Goods Sold (P 36,000 + P 18,000) ………………. Gross Profit ……………………………………………… Rent Expense …………………………………………….. Property Tax Expense …………………………………… Depreciation Expense …………………………………… Miscellaneous Expense …………………………………. General Corporate Expense ……………………………… Net Income ……………………………………………… b. P 86,000 (54,000) P 32,000 P 4,000 5,000 4,000 11,000 6,000 (30,000) P 2,000 P 180,000 Initial Transfers …………………………………………. June Inventory Shipment ……………………………….. Property Tax Payment ………………………………….. September Inventory Shipment ………………………… Expense Allocation …………………………………….. Cash Transfer …………………………………………... Balance in Home Office/Branch Accounts (correct) ….. P 188,000 18,000 5,000 26,000 6,000 (63,000) P 180,000 14

(15) c. Journal Entries – Tarlac Branch 1/10/08 1/20/08 2/1/08 4/1/08 5/1/08 6/5/08 7/6/08 9/9/08 10/1/08 Cash …………………………………. Inventory ……………………………. Equipment …………………………… Home Office …………………… Rent Expense ………………………… Cash ……………………………. Cash ………………………………….. Sales …………………………… Cost of Goods Sold ………………….. Inventory ………………………. Cash …………………………………. Sales …………………………... Cost of Goods Sold …………………. Inventory ……………………… Miscellaneous Expenses ……………. Cash …………………………... Inventory ……………………………. Home office …………………... Property Tax Expense ………………. Home Office ………………….. Inventory …………………………… Home Office …………………. Cash ………………………………… Sales …………………………. Cost of Goods Sold ……………….. Inventory …………………….. 11/1/08 Miscellaneous Expenses …………... Cash …………………………. 12/22/08 Home Office ……………………… Cash …………………………. 12/31/08 Depreciation Expense ……………. Accumulated depreciation ….. 12/31/08 General Corporate Expenses ……… Home Office ………………….. 30,000 36,000 122,000 188,000 4,000 4,000 27,000 27,000 18,000 18,000 33,000 33,000 18,000 18,000 7,000 7,000 18,000 18,000 5,000 5,000 26,000 26,000 26,000 26,000 18,000 18,000 4,000 4,000 63,000 63,000 4,000 4,000 6,000 6,000 15

(16) d. TARLAC BRANCH Balance Sheet December 31, 2008 Assets Cash ……………………………………………. Inventory ………………………………………. Equipment ……………………………………... Accumulated Depreciation ……………………. Total Assets …………………………… Equity Home Office* ………………………………….. P 38,000 26,000 P 122,000 (4,000) 118,000 P 182,000 P 182,000 *Home office balance is P 180,000 as computed in Part b plus the P 2,000 net income for the period. 16

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