(a) Purchases ………………………………………………….

122,500
Accounts Payable …………………………………. 122,500

(b) Cash ……………………………………………………….. 113,600

Accounts Receivable ……………………………… 113,600

(c) Accounts Payable ………………………………………. 124,000

Cash …………………………………………………… 124,000

(d) Expenses …………………………………………………… 26,600

Cash …………………………………………………… 26,600

(e) Cash ……………………………………………………….. 53,400

Branch ………………………………………………... 53,400

(f) Retained Earnings ………………………………………. 10,000

Cash …………………………………………………... 10,000

BARTON CO.
Balance Sheet for Branch
December 31, 20x4

Assets Liabilities

Cash …………………………… P 4,250 Accounts Payable ………… P 10,250

Accounts Receivable ……… 12,600 Accrued Expenses …………… 300
Merchandise Inv……………... 23,500 Home Office ………………….. 37,900
Prepaid Expenses …………… 750
Furnitures & Fixtures …. P 8,000
Less accum. Depr …… 650 7,350
Total Assets …………………… P48,450 Total Liabilities ………………….P48,450

BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6

Sales …………………………………………………………………………… P66,000

Cost of Goods Sold:
Purchases …………………………………………………………… P22,500
Shipments for home office ………………………………………. 50,200
Merchandise available for sale ………………………………… P72,700
Less Branch Books:
Expenses ………………………………………………………………. 650
Accumulated Depreciation – F&F………………………. 650
Sales …………………………………………………………………… 66,000
Merchandise Inventory ……………………………………………. 23,500
Income summary ………………………………………….. 89,500

Income Summary …………………………………………………… 90,900

Shipments from Home Office …………………………… 50,200
Purchases …………………………………………………… 22,500
Expenses …………………………………………………….. 18,200

Home Office ………………………………………………………… 1,400

 Income Summary ………………………………………… 1,400

(a) Home Office Books

Expenses ………………………………………………………………. 1,180
Accumulated Depreciation – F&F………………………. 1,180

Sales …………………………………………………………………… 105,000

Merchandise Inventory ……………………………………………. 48,500
Shipments to Branch ……………………………………………….. 50,200
Income summary ………………………………………….. 203,700

Income Summary …………………………………………………… 190,250

Merchandise Inventory …………………………………… 40,120
Purchases ……………………………………………………. 122,500
Expenses …………………………………………………….. 27,630

Branch Income ……………………………………………………… 1,400

Branch ………………………………………………………. Cash
…………………………………………………….. 18,000

(g) Purchases …………………………………………………. 122,500

Accounts Payable …………………………………. 122,500

(h) Cash ……………………………………………………….. 113,600

Accounts Receivable ……………………………… 113,600

(i) Accounts Payable ………………………………………. 124,000

Cash …………………………………………………… 124,000

(j) Expenses …………………………………………………… 26,600

Cash …………………………………………………… 26,600

(k) Cash ……………………………………………………….. 53,400

Branch ………………………………………………... 53,400

(l) Retained Earnings ………………………………………. 10,000

Cash …………………………………………………... 10,000

BARTON CO.
Balance Sheet for Branch
December 31, 20x4

Assets Liabilities

Cash …………………………… P 4,250 Accounts Payable ………… P 10,250

Accounts Receivable ……… 12,600 Accrued Expenses …………… 300
Merchandise Inv……………... 23,500 Home Office ………………….. 37,900
Prepaid Expenses …………… 750
Furnitures & Fixtures …. P 8,000
Less accum. Depr …… 650 7,350
Total Assets …………………… P48,450 Total Liabilities ………………….P48,450

BARTON CO.
 Income Statement for Branch
For Year Ended December 31, 19X6

Sales …………………………………………………………………………… P66,000

Cost of Goods Sold:
Purchases …………………………………………………………… P22,500
Shipments for home office ………………………………………. 50,200
Merchandise available for sale ………………………………… P72,700
Less Branch Books:
Expenses ………………………………………………………………. 650
Accumulated Depreciation – F&F………………………. 650
Sales …………………………………………………………………… 66,000
Merchandise Inventory ……………………………………………. 23,500
Income summary ………………………………………….. 89,500

Income Summary …………………………………………………… 90,900

Shipments from Home Office …………………………… 50,200
Purchases …………………………………………………… 22,500
Expenses …………………………………………………….. 18,200

Home Office ………………………………………………………… 1,400

Income Summary ………………………………………… 1,400

(b) Home Office Books

Expenses ………………………………………………………………. 1,180
Accumulated Depreciation – F&F………………………. 1,180

Sales …………………………………………………………………… 105,000

Merchandise Inventory ……………………………………………. 48,500
Shipments to Branch ……………………………………………….. 50,200
Income summary ………………………………………….. 203,700

Income Summary …………………………………………………… 190,250

Merchandise Inventory …………………………………… 40,120
Purchases ……………………………………………………. 122,500
Expenses …………………………………………………….. 27,630

Branch Income ……………………………………………………… 1,400

Branch ………………………………………………………. Cash
…………………………………………………….. 18,000
 (a) Purchases …………………………………………………. 122,500
Accounts Payable …………………………………. 122,500

(b) Cash ……………………………………………………….. 113,600

Accounts Receivable ……………………………… 113,600

(c) Accounts Payable ………………………………………. 124,000

Cash ……………………………………………………

(d) Expenses …………………………………………………… 26,600

Cash ……………………………………………………

(e) Cash ……………………………………………………….. 53,400

Branch ………………………………………………...

(f) Retained Earnings ………………………………………. 10,000

Cash …………………………………………………...

BARTON CO.

Balance Sheet for Branch

December 31, 20x4

Assets Liabilities

Cash …………………………… P 4,250 Accounts Payable …………

Accounts Receivable ……… 12,600 Accrued Expenses …………

300

Merchandise Inv……………... 23,500 Home Office ………………

37,900

Prepaid Expenses …………… 750

Furnitures & Fixtures …. P 8,000

Less accum. Depr …… 650 7,350

Total Assets …………………… P48,450 Total Liabilities

………………….P48,450

BARTON CO.

Income Statement for Branch

 (m) Purchases …………………………………………………. 122,500
Accounts Payable …………………………………. 122,500

(n) Cash ……………………………………………………….. 113,600

Accounts Receivable ……………………………… 113,600

(o) Accounts Payable ………………………………………. 124,000

Cash …………………………………………………… 124,000

(p) Expenses …………………………………………………… 26,600

Cash …………………………………………………… 26,600

(q) Cash ……………………………………………………….. 53,400

Branch ………………………………………………... 53,400

(r) Retained Earnings ………………………………………. 10,000

Cash …………………………………………………... 10,000

BARTON CO.
Balance Sheet for Branch
December 31, 20x4

Assets Liabilities

Cash …………………………… P 4,250 Accounts Payable ………… P 10,250

Accounts Receivable ……… 12,600 Accrued Expenses …………… 300
Merchandise Inv……………... 23,500 Home Office ………………….. 37,900
Prepaid Expenses …………… 750
Furnitures & Fixtures …. P 8,000
Less accum. Depr …… 650 7,350
Total Assets …………………… P48,450 Total Liabilities ………………….P48,450

BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6

Sales …………………………………………………………………………… P66,000

Cost of Goods Sold:
Purchases …………………………………………………………… P22,500
Shipments for home office ………………………………………. 50,200
Merchandise available for sale ………………………………… P72,700
Less Branch Books:
Expenses ………………………………………………………………. 650
Accumulated Depreciation – F&F………………………. 650
Sales …………………………………………………………………… 66,000
Merchandise Inventory ……………………………………………. 23,500
Income summary ………………………………………….. 89,500

Income Summary …………………………………………………… 90,900

Shipments from Home Office …………………………… 50,200
Purchases …………………………………………………… 22,500
Expenses …………………………………………………….. 18,200

Home Office ………………………………………………………… 1,400

Income Summary ………………………………………… 1,400
 (c) Home Office Books
Expenses ………………………………………………………………. 1,180
Accumulated Depreciation – F&F………………………. 1,180

Sales …………………………………………………………………… 105,000

Merchandise Inventory ……………………………………………. 48,500
Shipments to Branch ……………………………………………….. 50,200
Income summary ………………………………………….. 203,700

Income Summary …………………………………………………… 190,250

Merchandise Inventory …………………………………… 40,120
Purchases ……………………………………………………. 122,500
Expenses …………………………………………………….. 27,630

Branch Income ……………………………………………………… 1,400

Branch ………………………………………………………. Cash
…………………………………………………….. 18,000

BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4

Sales …………………………………………………………………………………. P171,000

Cost of goods sold:
Merchandise inventory, January 1 ………………………………….. P 40,120
Purchases ………………………………………………………………… 145,000
Merchandise available for sale ……………………………………… P185,120
Less merchandise inventory, December 31 ……………………….. 72,000
Cost of goods sold ………………………………………………………. 113,120
Gross profit ………………………………………………………………………….. P 57,880
Expenses …………………………………………………………………………….. 45,830
Net Income …………………………………………………………………………. P 12,050

(d) Branch Books:

Expenses ………………………………………………………………. 650
Accumulated Depreciation – F&F………………………. 650
Sales …………………………………………………………………… 66,000
Merchandise Inventory ……………………………………………. 23,500
Income summary ………………………………………….. 89,500

Income Summary …………………………………………………… 90,900

Shipments from Home Office …………………………… 50,200
Purchases …………………………………………………… 22,500
Expenses …………………………………………………….. 18,200

Home Office ………………………………………………………… 1,400

Income Summary ………………………………………… 1,400

(e) Home Office Books

Expenses ………………………………………………………………. 1,180
 Accumulated Depreciation – F&F………………………. 1,180

Sales …………………………………………………………………… 105,000

Merchandise Inventory ……………………………………………. 48,500
Shipments to Branch ……………………………………………….. 50,200
Income summary ………………………………………….. 203,700

BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4

Sales …………………………………………………………………………………. P171,000

Cost of goods sold:
Merchandise inventory, January 1 ………………………………….. P 40,120
Purchases ………………………………………………………………… 145,000
Merchandise available for sale ……………………………………… P185,120
Less merchandise inventory, December 31 ……………………….. 72,000
Cost of goods sold ………………………………………………………. 113,120
Gross profit ………………………………………………………………………….. P 57,880
Expenses …………………………………………………………………………….. 45,830
Net Income …………………………………………………………………………. P 12,050

(a) Branch Books:

Expenses ………………………………………………………………. 650
Accumulated Depreciation – F&F………………………. 650
Sales …………………………………………………………………… 66,000
Merchandise Inventory ……………………………………………. 23,500
Income summary ………………………………………….. 89,500

Income Summary …………………………………………………… 90,900

Shipments from Home Office …………………………… 50,200
Purchases …………………………………………………… 22,500
Expenses …………………………………………………….. 18,200

Home Office ………………………………………………………… 1,400

Income Summary ………………………………………… 1,400

(b) Home Office Books

Expenses ………………………………………………………………. 1,180
Accumulated Depreciation – F&F………………………. 1,180

Sales …………………………………………………………………… 105,000

Merchandise Inventory ……………………………………………. 48,500
Shipments to Branch ……………………………………………….. 50,200
Income summary ………………………………………….. 203,700
merchandise inv, December 31 ………………………….. 23,500
Cost of Goods Sold ……………………………………………….. 49,200
Gross Profit ……………………………………………………………………. P16,800
Expenses ……………………………………………………………………… 18,200
Net loss ………………………………………………………………………... P 1,400
BARTON CO.
Income Statement for Branch
For Year Ended December 31, 20x4
 Assets Liabilities & Stockholders’ Equity

Cash …………………………….. P 23,200 Liabilities

Accounts Receivable ……….. 19,050 Accounts payable ………… P 21,300
Merchandise Inventory……… 48,500 Accrued Expenses …………. 1,350 P22,650
Prepaid Expenses ……………. 2,050 Stockholders Equity
Furniture & Fixtures …. P 20,000 Capital stock, P20 par……… P50,000
Less accum. Depr….. 5,580 14,420 Retained Earnings …………. 72,740 122,470
Branch ………………………… 37,900 Total liabilities and stockholders’
Total Assets …………………... P145,120 equity ………………… P145,120

BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4

Sales ……………………………………………………………………………....... P105,000

Cost of goods sold:
Merchandise inventory, January 1 …………………………………. P 40,120
Purchases ………………………………………………………………... 122,500
Merchandise available for sale ……………………………………… P162,620
Less shipments to branch ……………………………………………... 50,200
Merchandise available for own sale ……………………………….. P112,420
Less merchandise inventory, December 31 ………………………. 48,500
Cost of Goods Sold ……………………………………………………. 63,920
Gross Profit ………………………………………………………………………… P 41,080
Expenses …………………………………………………………………………… 27,630
Net income from own operations …………………………………………….. P 13,450
Deduct branch net loss …………………………………………………………. 1,400
Total Income
46,410 46,410
99,326 101,700 110,500 108,126
Net Income to Balance ……….
2,374 ……….. ……….. 2,374

101,700 101,700 ……….. ………..

……….. ………..

110,500 110,500
Explanation of adjustments and eliminations:

(a) To eliminate reciprocal accounts, Home Office and Branch.

(b) To eliminate shipments to Branch and Shipments to Home Office. Difference between the two balances is debited to
Unrealized Intercompany Inventory profit (20% of P8,500, or P1,700).
(c) To eliminate unrealized profit in beginning inventory balances : P3,700 balance per trial balance, less P1,700 adjustment
per entry (b) or P2,000
(d) To reduce ending inventory cost: Branch inventory form home office at billed price ……………….
P11,700
Branch inventory from home office at cost, P11,700/1.20 ………
9,750
 Inventory reduction ……………………………………………………..
P 1,950

Expense ….. 2,510 95 ……….. 3,415 ……….. ………..

……….. ………..
160,295 57,141 ……….. ………..
……….. ……….. ……….. ………..
Merchandise Inv, Dec 31 …………… 24,900 14,600 ……….. (d) 1,950 ………..
……….. 36,850 ………..
.. (b) 8,500 ……….. ……….. ……….. ……….. ………..
P160,295 57,141 ……….. ………..
……….. ……….. ……….. ………..
Merchandise Inv, Dec 31 …….. 24,200 14,600 (d) 1,950 ……….. ………..
36,850 ……….. ………..
46,410 46,410
99,326 101,700 110,500 108,126
Net Income to Balance ……….
2,374 ……….. ……….. 2,374

101,700 101,700 ……….. ………..

……….. ………..

110,500 110,500
Explanation of adjustments and eliminations:

(a) To eliminate reciprocal accounts, Home Office and Branch.

(b) To eliminate shipments to Branch and Shipments to Home Office. Difference between the two balances is debited to
Unrealized Intercompany Inventory profit (20% of P8,500, or P1,700).
(c) To eliminate unrealized profit in beginning inventory balances : P3,700 balance per trial balance, less P1,700 adjustment
per entry (b) or P2,000
(d) To reduce ending inventory cost: Branch inventory form home office at billed price ……………….
P11,700
Branch inventory from home office at cost, P11,700/1.20 ………
9,750
Inventory reduction ……………………………………………………..
P 1,950

Expense ….. 2,510 95 ……….. 3,415 ……….. ………..

……….. ………..
160,295 57,141 ……….. ………..
……….. ……….. ……….. ………..
Merchandise Inv, Dec 31 …………… 24,900 14,600 ……….. (d) 1,950 ………..
……….. 36,850 ………..
.. (b) 8,500 ……….. ……….. ……….. ……….. ………..
P160,295 57,141 ……….. ………..
……….. ……….. ……….. ………..
Merchandise Inv, Dec 31 …….. 24,200 14,600 (d) 1,950 ……….. ………..
36,850 ……….. ………..
46,410 46,410
99,326 101,700 110,500 108,126
Net Income to Balance ……….
2,374 ……….. ……….. 2,374

101,700 101,700 ……….. ………..

……….. ………..

110,500 110,500
Explanation of adjustments and Shipments during __9,600 _ 8,000 __ 1,600
December
Available for Sale (before adjustment) P 21,600 P 18,000 P 3,600
Less: Inventory, Dec. 31 (after adjustment) __8,400 __7,000 __1,400
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment) P 13,200 P 11,000 ***P 2,200
*P2,000/20% = P10,000; ***P13,200 x 20/120 = P2,200

2. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/

Unrealized Intercompany Inventory Profit (refer to “a” for computation):
Unrealized Intercompany Inventory Profit......................................... 2,200

31 Prepaid Expense ………………………………………………… 350

Miscellaneous General Expense …………………… 350

31 Miscellaneous General Expense …………………………….. 260

Accrued Expenses ……………………………………. 260

31 Depreciation Expense ………………………………………….. 85

Accumulated Depreciation – F&F …………………. 85
Depreciation: 1% of P8,500, or P85
31 Cash in Transit …………………………………………………. 1,500
Branch Current………………………………………… 1,500
31 Sales …………………………………………………………… 44,850
Shipments to branch ………………………....................... 8,500
Income Summary …………………………………. 53,350
Dec 31 Income Summary ……………………………………………… 42,405
Purchases ……………………………………………… 27,600
Advertising Expense …………………………………. 2,850
Salaries and Commissions Expense ………………. 4,250
Store Supplies Expense ……………………………… 560
Miscellaneous Selling Expense …………………….. 1,850
Rent Expense …………………………………………. 2,700
Depreciation Expense – F&F ………………………. 85
Miscellaneous General Expense …………………. 2,510
 31 Branch Income Summary…………………………………….. 3,021
Branch Current………………………………………… 3,021

31 Unrealized Intercompany Inventory Profit ………………. 1,750

Branch Income Summary………………………… 1,750
Calculation of unrealized profit adjustment:
Balance of unrealized profit account,
December 31 ……………………….. P3,700
Inventory merchandise received from
Home office at billed price on
December 31, P11,700
Inventory at cost: P11,700/ 1.20, or P9,750
Balance of unrealized profit account on
December 31, P11,700 – P9,750 .... 1,950
Required decreased in unrealized profit
Adjustment to branch income for
Overstatement of cost of goods
Sold …………………………………….. P1,750

31 Income Summary …………………………………………… 1,271

Branch Income Summary……………………. 1,271

31 Income Summary …………………………………………… 2,374

Retained Earnings …………………………………. 2,374

Problem VI
1.
Branch H. Office
Current Current
Unadjusted balance, 12/31/20x4 P 44,000 P 9,000
Add (Deduct): Adjustments
1 Cash in transit ( 10,000)
2. Merchandise in transit 10,000
3. Branch expenses paid by home office 12,000
4. Cash in transit from home office _______ 3,000
Adjusted balance, 12/31/20x4 P 34,000 P34,000

2. Refer to PDF Copy of the Worsheet

3. Combined Income Statement

Sales [(P350,000 – P105,000) + P150,000)………....................................................... P395,000
Less: Cost of goods sold [(P220,000 – P84,000) +
(P93,000 + P3,600 – P21,000 – P1,200)]…………………………………….
210,400
Gross profit................................................................................................................... P184,600
Operating expenses (P70,000 + P41,000 + P12,000)................................................ 123,000
Net income................................................................................................................... P 61,600
Problem VII
(1)
PAXTON CO.
Income Statement for Dayton Branch
 For Year Ended December 31, 20x5
Sales.............................................................................................................................. P315,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P 44,500
Shipments from home office...................................................... 252,000
Merchandise available for sale................................................. P296,500
Less: Merchandise Inventory, December 31, 20x5.................. 58,500 238,000
Gross profit................................................................................................................. P 77,000
Operating expenses................................................................................................. 101,500
Net loss....................................................................................................................... P 24,500

PAXTON CO.
Income Statement for Cincinnati Home Office
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P1,060,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P115,000
Shipments from home office...................................................... 820,000
Merchandise available for sale................................................. P935,000
Less: Shipments to branch.......................................................... 210,000
Merchandise available for own sales....................................... P725,000
Less: Merchandise Inventory, December 31, 20x5.................. 142,500 582,500
Gross profit.................................................................................................................. P477,500
Expenses...................................................................................................................... 382,000
Net income from own operations............................................................................ P 95,500
Add branch net income........................................................................................... 16,650
Total income............................................................................................................... P112,150

(2)
PAXTON CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P1,375,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5...................................P 150,600
Purchases...................................................................................... 820,000
Merchandise available for sale................................................. P970,600
Less: Merchandise Inventory, December 31, 20x5.................. 191,250 779,350
Gross profit.................................................................................................................... P595,650
Operating expenses.................................................................................................... 483,500
Net income................................................................................................................... P112,150

(3) Merchandise Inventory, December 31................................................................ 58,500

Sales.......................................................................................................................... 315,000
 Income Summary............................................................................................
373,500

Income Summary......................................................................................................... 398,000

Merchandise Inventory, January 1................................................................
44,500
Shipments from Home Office.........................................................................
252,000
Operating expenses........................................................................................ 101,500

Home Office............................................................................................................... 24,500

Income Summary.......................................................................................... 24,500

(4) Branch Income Summary........................................................................................ 24,500

Branch Current.....................................................................................................
24,500

Unrealized Intercompany Inventory Profit............................................................... 41,150

Branch Income Summary....................................................................................
41,150
Calculation of unrealized profit adjustment:
Branch inventory, January 1, acquired from home office
at billed price...................................................................................... P 44,500
Less: Cost of inventory (P44,500/1.25)......................................................... 35,600
Unrealized Intercompany Inventory Profit Jan. 1....................................... P 8,900
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P252,000, cost of goods, P210,000.................................................... 42,000
P 50,900

Deduct balance to remain in unrealized profit account:

Branch inventory, December 31,
acquired from home office....................................... P 58,500
Less: Cost of inventory to home office,
P58,500/1.20................................................................ 48,750 9,750
Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold.................................................................. 41,150

Branch Income Summary........................................................................................... 16,650

Income Summary............................................................................................
16,650

Merchandise Inventory, December 31...................................................................... 142,500

Sales............................................................................................................................... 1,060,000
Shipments to Branch.................................................................................................... 210,000
Income Summary.............................................................................................
1,412,500

Income Summary......................................................................................................... 1,317,000

Merchandise Inventory, January 1................................................................
115,000
Purchases.........................................................................................................
820,000
Expenses...........................................................................................................
382,000

Income Summary.......................................................................................................... 112,150

Retained Earnings............................................................................................
112,150

Problem VIII
(1)
RUGGLES CO.
Income Statement for Branch
For Year Ended December 31, 20x4
Sales................................................................................................................................ P 78,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4......................................... P 32,000
Shipments from home office........................................... P 40,000
Purchases from outsiders................................................. 20,000 60,000
Merchandise available for sale....................................................... P 92,000
Less: Merchandise Inventory, December 31, 20x4........................ 31,500
Cost of goods sold............................................................................. 60,500
Gross profit.................................................................................................................... P 18,000
Operating expenses.................................................................................................... 12,500
Net income................................................................................................................... P 5,500

RUGGLES CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P 256,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 80,000
Purchases...................................................................................... 210,000
Merchandise available for sale................................................. P 290,000
Less: Shipments to branch.......................................................... 30,000
Merchandise available for own sales....................................... P 260,000
Less: Merchandise Inventory, December 31, 20x4.................. 55,000
Cost of goods sold............................................................................. 205,000
Gross profit................................................................................................................... P 51,000
Operating Expenses.................................................................................................... 60,000
Net loss from own operations..................................................................................... P ( 9,000)
Add: Adjusted branch net income............................................................................. 13,500
Combine net income.................................................................................................... P 4,500

(2)
RUGGLES CO.
Combined Income Statement for Home Office and Branch
For Year Ended December 31, 20x4
Sales.............................................................................................................................. P 334,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4................................... P 107,500
Purchases...................................................................................... 230,000
Merchandise available for sale.................................................. P 337,500
Less: Merchandise Inventory, December 31, 20x4................... 80,000
Cost of goods sold............................................................................. 257,500
Gross profit.................................................................................................................... P 77,000
Operating expenses.................................................................................................... 72,500
Net income................................................................................................................... P 4,500

(3) Merchandise Inventory......................................................................................... 31,500

Sales.......................................................................................................................... 78,500
Income Summary............................................................................................
110,000

Income Summary......................................................................................................... 104,500

Merchandise Inventory...................................................................................
32,000
Shipments from Home Office.........................................................................
40,000
Purchases.........................................................................................................
20,000
Expenses...........................................................................................................
12,500

Income Summary......................................................................................................... 5,500

Home Office.....................................................................................................
5,500

(4) Branch...................................................................................................................... 5,500

Branch Income................................................................................................
5,500
Unrealized Intercompany Inventory Profit............................................................... 8,000
Branch Income.............................................................................................. 8,000

Calculation of unrealized profit adjustment:

Branch inventory, January 1, acquired from home office
at billed price.................................................................................... P 24,500
Less: Cost of inventory (P24,500/1.225).................................................... 20,000
Unrealized Intercompany Inventory Profit Jan. 1................................... P 4,500
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P40,000, cost of goods, P30,000.................................................... 10,000
P 14,500
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 26,000
Less: Cost of inventory to home office,
P26,000/1.1/3................................................................ 19,500 6,500
Reduction in unrealized profit account- adjustment to branch
income for overstatement of cost of goods sold........................... 8,000