1. Ayala Branch was billed by Home Office for merchandise at 140% of cost.
At the end of its first month, Ayala Branch
submitted among other things, the following data:
Merchandise from HO @ BP P 98,000
Merchandise from outsider 40,000
Inventory, Dec. 31 (P7,000 from outsider) 28,000
Net sales for month 180,000
Required: Compute the following:
a. Compute the gross profit of the branch insofar as the Branch is concerned.
b. Compute the gross profit of the branch insofar as the Home Office is concerned.
2. Manila Inc. established a branch in Cebu to distribute part of the goods purchased by the home office. The home office
prices inventory shipped to the branch at 20% above cost. The following account balances were taken from the ledger
maintenance by the home office and the branch:
Manila Inc. Cebu Branch
Sales P600,000 P210,000
Beg. Inventory 120,000 60,000
Purchases 500,000 -
Shipment to branch 130,000 -
Shipment from home office - 156,000
Operating expenses 172,000 36,000
Ending inventory 98,000 48,000
The entire branch inventory is acquired from the home office.
Required: Compute the following:
a. The net income (loss) of the branch insofar as the branch is concerned.
b. The net income (loss) of the branch insofar as home office is concerned is understated by what amount?
c. Compute the cost of sales to be reported in the combined income statement.
3. The Petite Branch of Dainty Company submitted the following trial balance as of December 31, 2020 after its first year of
operations:
Cash P10,400
Accounts Receivable 63,200
SFHO 168,000
Expenses 10,800
Sales P134,400
Home Office 118,000
Total P252,400 P 252,400
Shipments to the branch are billed at 140% of cost; the merchandise inventory was P50,400.
Required: Compute the following:
a. The net income (loss) of the branch insofar as the branch is concerned.
b. The net income (loss) of the branch insofar as home office is concerned.
c. Compute the adjustment to the cost of goods sold by the branch.
4. A branch store in Marikina was established by Marco Co. on March 1. Shipments of merchandise, billed to this branch at
125% of cost, were as follows:
March 5 P120,000
March 10 50,000
March 209 35,000
On March 24, the branch returned defective merchandise worth P3,050 and March 31, it reported a net loss of P6,200
and merchandise inventory of P85,000.
Required: Compute the following:
a. As far as home office is concerned compute the branch cost of sales.
b. As far as home office is concerned compute the branch net income.
