Beruflich Dokumente
Kultur Dokumente
16. The transfer of merchandise from one branch to another does not justify increasing the carrying
amount of inventories by the additional freight costs incurred because of the indirect routing.
Excess freight costs incurred as a result of such transfers are recognized as operating expenses of
the home office because the home office makes the decision to transfer the merchandise.
T F 1. In a centralized accounting system for branches, the branch accounting records are maintained
by the home office.
T F 2. Both the Home Office ledger account and the Investment in Branch account are displayed in
the combined financial statements for the home office and the branch.
T F 3. The combined net income for the home office and branches would be the same when the home
office bills merchandise to branches at home office cost as when the home office bills branches
at amounts above home office cost.
T F 4. In most cases, a branch is operated more as a cost center than as a profit center.
T F 5. A branch imprest cash fund is displayed under the heading Investments in the combined
balance sheet of the home office and the branch.
T F 6. The Investment in Branch ledger account is displayed as a noncurrent asset in the separate
balance sheet of the home office, and the Home Office account is displayed as a long-term
liability in the separate balance sheet of the branch.
T F 7. The fiscal year for the home office must coincide with the fiscal year for the branch to facilitate
the preparation of combined financial statements.
T F 8. A net loss reported by a branch is recorded by the home office by a debit to the Investment in
Branch ledger account.
T F 9. If branch trade accounts receivable are carried in the home office accounting records, doubtful
accounts expense of the branch is recorded by the home office by a debit to Branch Loss and a
credit to Investment in Branch.
T F 10. If merchandise is billed to a branch at a price above home office cost, the net income reported
to the home office by the branch is overstated.
T F 11. Separate financial statements for an enterprises home office and branches generally are
prepared for use by creditors and government agencies.
T F 12. In a working paper for combined financial statements of a home office and branches, the
balance of the Shipments to Branch ledger account is eliminated against the balance of the
Home Office account.
T F 13. In a separate balance sheet for a home office, the balance of the Allowance for Overvaluation
of Inventories: Branch ledger account is deducted from the balance of the Investment in Branch
ledger account.
T F 14. The beginning inventories of a branch are reduced to home office cost in the working paper for
combined financial statements by a debit to Allowance for Overvaluation of Inventories:
Branch and a credit to beginning inventories when the periodic inventory system is used.
T F 15. The perpetual inventory system is impractical for a home office with many branches.
T F 17. Freight costs on merchandise shipments from Cody Branch to Dana Branch in excess of
normal freight costs from the home office to Dana Branch should be recognized as operating
expenses of Dana Branch.
T F 18. If a new branch is expected to be profitable starting with the second year of operations, a loss
incurred by the new branch in the first year should be deferred and recognized as expense over
a period of three to five years.
Completion Statements
Fill in the necessary words or amounts to complete the following statements.
____ 1. In accounting for branch transactions, it is improper for the home office to:
a. Credit cash received from a branch to the Investment in Branch ledger account.
b. Maintain Common Stock and Retained Earnings ledger accounts for only the home office.
c. Debit shipments of merchandise to the branch from the home office to the Investment in
Branch ledger account.
d. Credit shipments of merchandise to the branch to the Sales ledger account.
____ 2. The Home Office ledger account in the accounting records of the Tahoe Branch had a credit
balance of $12,000 at the end of April, and the Investment in Branch account in the accounting
records of the home office had a debit balance of $15,000. The most likely reason for the
discrepancy in the two ledger account balances is:
a. Merchandise shipped by the home office to the branch had not been recorded by the
branch.
b. The home office had not recorded the branch net income for April.
c. The branch had just collected home office trade accounts receivable in the amount of
$3,000.
d. The branch had not yet recorded the home office net income for April.
____ 3. Jayhawk Company has numerous branches in the state of Kansas. The home office purchases
merchandise and makes shipments to branches from a central warehouse at the request of
branch managers. Which of the following would be an improper accounting practice?
a. The Investment in Branch ledger account is debited in the accounting records of the home
office when merchandise is shipped to a branch, and the Shipments to Branch account is
credited (assume use of the periodic inventory system).
b. The home office debits Trade Accounts Receivable and credits Sales when merchandise is
shipped to a branch.
c. Cash received from a branch is credited to the Investment in Branch ledger account by the
home office.
d. Only the home office maintains a Common Stock ledger account and a Retained Earnings
account.
____ 4. Neither the Palmer Branch nor the home office of Rupert Company had completed any
intracompany transactions during the last half of May, yet the credit balance of the branchs
Home Office ledger account on May 31 was larger than the debit balance of the home offices
Investment in Palmer Branch account. The most likely reason for this discrepancy is:
a. The home office reported a net loss for the month of May.
b. The branch reported a net loss for the month of May.
c. The branch returned merchandise to the home office.
d. The branch reported a net income for the month of May.
____ 5. Which of the following ledger accounts is displayed in the combined financial statements for a
home office and branch?
a. Shipments to Branch
b. Home Office
c. Dividends Declared
d. Allowance for Overvaluation of Inventories: Branch
____ 6. The home office of Irby Company bills merchandise to branches at 25% above home office cost.
Information taken from the accounting records of Kipp Branch is as follows:
The net income or net loss of Kipp Branch, based on home office cost of branch merchandise,
is:
a. $7,900 net income
b. $9,400 net loss
c. $6,400 net income
d. $7,000 net income
e. Some other amount
SHORT EXERCISES
1. Below is a partial list of ledger accounts of the Vista Branch of Santee Company, followed by a
series of transactions. By placing the appropriate account number in the space provided, indicate
the accounts that are debited and credited in the accounting records of the branch to record each
transaction. The branch uses the perpetual inventory system.
1 Cash 6 Sales
2 Trade Accounts Receivable 7 Cost of Goods Sold
3 Inventories 8 Operating Expenses
4 Trade Accounts Payable 9 Income Summary
5 Home Office 10 All other ledger accounts
Vista Vista
Branch Branch
ledger ledger
accounts accounts
Transactions debited credited
a. Received cash from home office.
b. Recognized operating expenses (paid in cash) for the accounting
period.
c. Sales were made on account for the accounting period; recognized cost
of goods sold for the period.
d. Collections on trade accounts receivable were made.
e. Payments by branch to suppliers were made.
f. Branch remitted cash to home office.
g. Revenue and expense ledger accounts were closed at the end of the
accounting period. (Prepare a journal entry and assume that total
revenue exceeds total expenses.)
h. Closed Income Summary ledger account and notified home office that
a net income was earned in the latest accounting period.
2. The home office of Quilly Company bills Leone Branch at 25% above home office cost for all
merchandise shipped to the branch. During January, 2002, the home office shipped merchandise to
the branch at a billed price of $24,000. The branch inventories on January 1 and January 31, 2002,
were as follows:
Jan. 1 Jan. 31
Merchandise received from home
office (at billed prices) $27,600 $32,000
Merchandise purchased from 12,400 12,000
In the space below, prepare all journal entries (including adjustments) in the accounting records of
the home office for January, 2002 to record the foregoing information.
3. The Investment in Subble Branch ledger account of the home office of Darcy Company and the
Home Office account of the branch for the month of January, 2002, are below and on page 44.
Investment in Subble Branch
Home Office
Subble Branch
Journal Entry
2002
Jan. 31
Completion Statements
1. Branch, home office, profit center, division. 2. Reciprocal, eliminated, combined. 3. Realized. 4.
Home Office, Investment in Branch. 5. Allocated, Investment in Branch, Operating Expenses. 6.
25%, for Overvaluation of Inventories: Branch.
Multiple Choice
1. d 2. a 3. b 4. d 5. c 6. c [($39,500 x 0.20) $1,500 = $6,400]
SHORT EXERCISES
1.
Vista Vista
Branch Branch
ledger ledger
accounts accounts
Transactions debited credited
a. Received cash from home office. 1 5
b. Recognized operating expenses (paid in cash) for the accounting period. 8 1
c. Sales were made on account for the accounting period; recognized cost of
goods sold for the period. 2, 7 6, 3
d. Collections on trade accounts receivable were made. 1 2
e. Payments by branch to suppliers were made. 4 1
f. Branch remitted cash to home office. 5 1
g. Revenue and expense ledger accounts were closed at the end of the
accounting period. (Prepare a journal entry and assume that total revenue
exceeds total expenses.) 6 7, 8, 9
h. Closed Income Summary ledger account and notified home office that a net
income was earned in the latest accounting period. 9 5
3. a. Investment in Subble
Branch ledger account Home Office ledger
(in home office account (in branch
accounting records) accounting records)
Balances prior to adjustment $61,850 $62,685
Add: Collection of home office
trade account receivable
by branch 180
Expenses allocated to branch
by home office 1,150
Less: Merchandise returned to
home office by branch (195)
Collection of branch note
receivable by home office (2,000)
Adjusted balances $61,835 $61,835
CASE
a. The two credits to the Allowance for Overvaluation of Inventories: Iowa Branch are of
incorrect amount. A 20% markup on billed price is a 25% markup on home office cost;
therefore, the January 2, 2002, credit should be $2,500 ($10,000 x 0.25 = $2,500), and the
January 16 credit should be $10,000 ($40,000 x 0.25 = $10,000). The January 31 journal
entry should be a debit of $11,900, or 20% of branch cost of goods sold of $59,500 ($10,000
+ $2,500 + $40,000 + $10,000 $3,000 = $59,500).
b. The ending balance of the Allowance for Overvaluation of Inventories: Iowa Branch should be
$600 ($3,000 x 0.20 = $600). Therefore, the January 31, 2002, journal entry to correct the
balance of that account is a debit to Investment in Iowa Branch, $2,500 (the aggregate
understatement of the billed prices of the two merchandise shipments to the branch: $500 +
$2,000 = $2,500); a debit to Allowance for Overvaluation of Inventories: Iowa Branch, $8,800
($9,400 $600 = $8,800); and a credit to Realized Gross Profit: Iowa Branch Sales, $11,300
($11,900 $600 = $11,300).