Exam 4: Accounting for Branches; Combined Financial Statements

If the home office bills shipments of merchandise to the branch at 25% above home office cost and the adjusted balance of the Allowance for Overvaluation of Inventories: Branch ledger account is $20,400, the amount of branch inventories at billed prices is $81,600.

The Western Branch of Rivas Company reported a net income of $60,000 for the month of January. The appropriate journal entry (explanation omitted) for the home office of Rivas Company is:

On June 30, 2006, the unadjusted credit balance of the Allowance for Overvaluation of Inventories: Cyprus Branch ledger account in the accounting records of the home office of Wilmington Company was $60,000. The home office of Wilmington ships merchandise to the branch at a markup of 20% on home office cost. For the fiscal year ended June 30, 2006, the branch had reported a net loss (based on billed prices of merchandise shipped from home office) of $18,400 and ending inventories (all received from home office) of $132,000 at billed prices. Prepare journal entries for the home office of Wilmington Company on June 30, 2006, to record the foregoing information.

Newfoundland, Inc., has a branch in Boston. On April 1, 2006, the accounting records of the home office of Newfoundland had a ledger account, Allowance for Overvaluation of Inventories: Boston Branch, with a credit balance of $36,600. During April, merchandise costing $110,000 was shipped to the Boston Branch and billed at 20% above home office cost. The branch reported a net income of $9,600 for April, and branch inventories on April 30 were $162,000 at billed prices. a. Prepare a working paper to compute the cost of the branch inventories on April 1, 2006, assuming a uniform markup on all shipments of merchandise to the branch. b. Prepare a home office journal entry to adjust the Allowance for Overvaluation of Inventories: Boston Branch ledger account on April 30, 2006.

Start-up costs incurred by a branch in the initial months of operations are appropriately deferred and amortized in subsequent profitable accounting periods.

As a CPA and audit manager of Royal & Percy, LLP, you have been requested by John James, president of James Company, a nonpublic enterprise, to write a memo to James Company's accounting staff explaining the purpose of the Allowance for Overvaluation of Inventories: Post Street Branch ledger account and the typical journal entries in the account. James Company has just established Post Street Branch, its first branch, and is planning for the home office to ship merchandise to the branch at a markup of 20% above home office cost. Write the memo requested by John James.

A markup of 16 2/3% on billed price is equal to a markup of 14 2/7% on cost of merchandise shipped to the branch by the home office.

A debit to the Home Office ledger account and a credit to the Trade Accounts Receivable account in the accounting records of a branch indicates that the home office collected accounts receivable of the branch.

In a working paper for combined financial statements of home office and branch, the balance of the Shipments to Branch ledger account is eliminated against the balance of the Investment in Branch account.

Both a home office and a branch use the periodic inventory system. If at the end of an accounting period the balance of the branch's Home Office ledger account does not agree with the balance of the home office's Investment in Branch account because of a shipment of merchandise in transit from the home office to the branch:

The Home Office ledger account in the accounting records of a branch is best described as:

A debit to the Income Summary ledger account and a credit to the Home Office account appear in:

Freight costs on merchandise shipped, as directed by the home office, by Westside Branch to Eastside Branch in excess of normal freight costs from the home office to Eastside Branch are recognized as operating expenses of the home office.

If the home office carries branch equipment in its accounting records, an acquisition of equipment by the branch is recorded in the home office accounting records by a debit to the Investment in Branch ledger account and a credit to the Equipment: Branch account.

For the fiscal year ended August 31, 2006, the South Bay Branch of Torrance Company reported a net income of $60,000. Inventories of South Bay Branch on August 31, 2006, in the amount of $125,000 had been billed to the branch by the home office of Torrance Company at a markup of 25% above home office cost. On August 31, 2006, prior to adjustment, the Allowance for Overvaluation of Inventories: South Bay Branch ledger account had a credit balance of $75,000 in the accounting records of the home office. Prepare August 31, 2006, journal entries for the home office of Torrance Company to record the South Bay Branch's operating results for the year ended that date.

Included in the accounting records of the home office and the only branch, respectively, of Socrates Company were the following ledger accounts for June, 2006: a. Prepare a working paper to reconcile the reciprocal ledger accounts to corrected balances. b. Prepare journal entries on June 30, 2006, for the (1) home office, and (2) Plato Branch of Socrates Company. The branch uses the perpetual inventory system.

On June 4, 2006, Victoria Company opened its first branch. Separate accounting records were established for the branch. Both the home office and the branch used the perpetual inventory system. Among the intracompany transactions were the following: Prepare journal entries for the foregoing intracompany transactions in the accounting records of (a) the home office, and (b) the branch of Victoria Company.

The home office of Carnival Company bills its only branch at 30% above home office cost for all merchandise shipped to the branch. During 2006, the home office shipped merchandise to the branch at billed prices of $104,000. Branch inventories for 2006 were as follows: Prepare journal entries (including adjusting entries) for the home office of Carnival Company for 2006 to reflect the foregoing information.

If the perpetual inventory system is used by both the home office and the branch, the reciprocal ledger accounts used by the branch are the Home Office and Shipments from Home Office accounts.

If both the home office and the branch of a business enterprise use the periodic inventory system, the home office's Shipments to Branch ledger account: