Billings to the branch may be made at amounts above cost or cost plus an arbitrary percentage, also

known as the billed price.

Problem 1

Shipments at billed price

1. Home office transfers inventory worth P100,000 to the branch. Shipments to the branch Shipments
to the branch are billed at 120% above cost.

2. Home office transfers inventory worth P200,000 to the branch. Shipments to the branch are billed
at P120% above cost. Freight paid by the home office is P10,000.

3. Home office transfers inventory worth P80,000 to the branch. Shipments to the branch are billed at
120% above cost. Freight paid by the branch is P6,000.

4. Branch purchases inventory worth P40,000 on account from outside party. Freight paid by the
branch is P2,000

5. Branch makes total sales of P500,000 on account.

6. Branch incurs total expenses of P100,000, P20,000 of which were allocated by the home office to
the branch.

Assume the branch reports ending inventory of P250,000, inclusive of the capitalized freight-in.

Assume that the branch’s ending inventory of P250,000 consists of P240,000 shipments from home
office and P10,000 purchases from outside party.

Combined Financial Statements

The following information was taken from the books of the home office and its branch. Shipments to
the branch are billed at 120% above cost.

HO books Branch Books

Dr(Cr) Dr(Cr)

Cash 1,100,000.00 66,000.00

Accounts Receivable 180,000.00 100,000.00

Inventory, Beg 300,000.00

Shipments from Home Office 456,000.00

Purchases 1,200,000.00 40,000.00

Freight-in 32,000.00 18,000.00

Shipments to Branch (380000.00)

Investment in Branch 600,000.00

Allowance for Mark-up (76000.00)

Equipment 720,000.00 400,000.00

Accumulated Depreciation-equipment (72000.00) (40000.00)

Accounts Payable (72000.00) (40000.00)

Share Capital (2000000.00)

Retained-Earnings - beg. (152000.00)

Home Office (600000.00)

Sales (1600000.00) (500000.00)

Operating Expenses 220,000.00 100,000.00

Totals 0 0

Inventory, end

From outside purchases 460,000 10,000

From home office 240,000

Compute for the combined profit

Prepare the combined statement of financial position

Problem 2

The following information was taken from the records of a branch:

Sales by branch 700,000

Billings to branch by home office 625,000

Operating expenses 100,000

Ending inventory at billed price 250,000

The following information was taken from the records of the home office:

Branch current account 650,000

Shipments to branch 500,000

Allowance for markup-unadjusted 125,000

Compute for the following:

a. Billing rate based on cost or markup percentage based on cost

b. Sales of branch to be in the combined financial statements

c. Realized markup

d. Cost of goods sold of branch to be included in the combined financial statements

 e. Ending inventory of branch to be included in the combined financial statements

f. Unrealized markup in ending inventory

g. Ending balance of the allowance for markup account before combining the financial
statements

h. Individual profit of the branch

i. True profit of the branch

j. Adjusted balance of the branch current immediately prior to combining the financial
statements

Problem 3

Shipments received from the home office are billed at 120% above cost. During the year, the branch
received shipments billed at P120,000 and returned damaged goods with billed price of P18,000. the
branch has an ending inventory of P30,000, at billed price. The branch reported loss of P10,000 in its
individual financial statements.

Compute for the following:

a. Balance for the allowance for markup account before year-end adjustments

b. True profit of the branch to be taken up in the home office books

Problem 4

The home office bills shipments of merchandise to its branch at a markup of 20% on the billed price.
At the beginning of the period, the allowance for markup account has a credit balance of P4,000.
during the period, the home office made shipments of goods worth P240,000 at cost. The branch
reported an ending inventory of P120,000 at billed price.

Additional information:

Sales by branch 500,000

Operating expenses 100,000

a. Compute for the realized markup

b. Determine the year-end adjustment to the allowance account to reflect the true profit of
the branch.

c. Compute for the cost of goods sold at cost

d. Compute for the cost of goods sold at billed price

Problem 5

The home office consistently bills its branch for shipments at 130% of cost. During the period, the
home office made total shipments of P780,000, at billed price, to the branch. The allowance for
markup account had a net increase of P45,000, after year-end adjustments but before elimination
entries. The individual financial statements of the branch reported gross profit of P15,000.

Compute for the following:

a. True gross profit of the branch

b. Sales of branch to be included in the combined financial statements

c. Cost of goods sold of the branch to be included in the combined financial statements

Problem 6

The home office consistently bills its branch for shipments at 130% of the cost. During the period, the
home office made total shipments of P780,000, at billed price, to the branch. The allowance for
markup account had an ending balance of P45,000 after year-end adjustments but before elimination
entries. The true gross profit of the branch is P150,000.

Compute for the following:

a. Individual gross profit of the branch

b. Ending inventory of the branch at cost and at billed price.