P 6875 Less Inventory Dec 31 after adjustment 16500 13750 2750 Reduction in

# P 6875 less inventory dec 31 after adjustment 16500

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P 6,875 Less: Inventory, Dec. 31 (after adjustment) 16,500 13,750 __2,750 Reduction in unrealized profit account- adjustment to branch profit for overstated of cost of goods P 24,750 P 20,625 *P 4,125

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sold (adjustment) *or, P24,750 x 20/120 = P4,125; Decrease in Unrealized Intercompany Inventory Profit: Balance prior to adjustment, 12/31, P7,000 – P125 ................... P6,875 Balance required in account, 12/31,P16,500 – (P16,500/1.20).. 2,750 Decrease in Allowance ................................................................. P4,125 Branch Income Summary (P4,125 – P2,600) .................................................... 1,525 Income Summary .................................................................................... 1,525 Therefore, the Real/True/Adjusted Branch Net Income/Branch Net Income in so far as HO is concerned, amounted to P1,525, computed as follows: Branch net loss as reported/unadjusted…………………………………………………… (P2,600) Add: Overvaluation of branch inventory/Realized profit from branch sales……….. 4,125 Real/True/Adjusted Branch Net Income or Branch NI in so far as HO is concerned P1,525 Problem III a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on December 31, calculated as follows: Billing Price Cost (Billing/ 1.35) Unrealized Profit (Billing Price
Minus Cost) Inventory, December 1 P 16,200 P 12,000 P 4,200 Shipments during December __20,250 _ 15,000 __ 5,250 Available for Sale (before adjustment) P 36,450 P 35,625 P 9,450 Less: Inventory, Dec. 31 (after adjustment) __18,900 _14,000 __4,900 Reduction in unrealized profit account- adjustment to branch profit for overstated of cost of goods sold (adjustment) P 17,550 P 21,625 *P 4,550 * or, P17,550 x 35/135 = P4,550 b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/ Unrealized Intercompany Inventory Profit (refer to “a” for computation): Unrealized Intercompany Inventory Profit .................................................... 4,550 Branch Income Summary .................................................................. 4,550 c. Home Office Books Branch Books Shipments to Branch 400 Home Office Current 540 Unrealized Int Inv. Pr 140 Shipments to Branch 540 Branch Current 540 Cost of merchandise returned: P540/1.35, or P400. Problem IV 1. The branch office inventory as of December 1 considered of:

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Shipments from Home Office (see below) ............................................................. P 12,000** Purchases from outsiders (balance of inventory) .................................................. 3,000 Total inventory ........................................................................................................ ... P 15,000 Goods acquired from home office and included in branch inventory at billed price are calculated as follows: Billing Price Cost (Billing/ 1.20) Unrealized Profit (Billing Price Minus Cost) Inventory, December 1 **P 12,000 *P 10,000 P 2,000 Shipments during December __9,600 _ 8,000 __ 1,600 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
Branch Income Summary .......................................................... 2,200 Problems V (1) Individual Statements SPENCER CO. Balance Sheet for Branch December 31,20x4 Assets Liabilities____________________ Cash ..................................................... P 2,650 Accounts payable ................................... P 4,200 Accounts receivable ........................ 12,850 Accrued expenses ................................... 105 Merchandise inventory ..................... 14,600 Home office ............................................... 29,239 Store supplies ...................................... 300 Prepaid expenses ............................... 120 Furniture and fixtures .............. P 3,600 Less: Accumulated depreciation .............. 576 3,024 ________ Total assets ....................................... P 33,544 Total liabilities ............................................ P 33,544 SPENCER CO.

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