Branch Accounting Electronic Supplement Solutions: Solution W10-1

Chapter 10
BRANCH ACCOUNTING
Electronic Supplement Solutions
Solution W10-1
The sales agency is not a separate accounting or business entity. Ordinarily, the only accounting records required
for sales agencies are for cash receipts and disbursements, which are handled in essentially the same manner as
petty cash systems. Branch accounting systems parallel the systems of independent businesses except in the
manner of accounting for ownership equities and in recording transactions between branches and the main office
of the enterprise.
Solution W10-2
A system to accumulate agency sales and expense information provides a basis for comparing agency expenses
over time and with expenses of similar sales agencies, and it enables profit evaluation of agency operations. The
extent of detail accumulated for each sales agency depends upon the information needs of management.
Solution W10-3
Expenses of the sales agencies are only recorded when replenishing the agency=s working capital funds, typically
at the end of the year. If agency expenses are paid directly from the central authority, they would be recorded
when paid.
Solution W10-4
The branch account on the home office books is an asset account representing the investment of the home office in
branch net assets.
Solution W10-5
The home office=s Shipments to branch account is a Acontra purchases@ account on the home office books, and
the Shipments from home office account on the branch books is essentially a Abranch purchases@ or an
Ainventory@ account. These accounts determine the separate cost of sales for home office and branch operations,
but, because they are reciprocal, we eliminate them in preparing combined financial statements for the enterprise.
Solution W10-6
The balances will be reciprocal when shipments to a branch are made at cost. These accounts will not have
reciprocal balances when the home office makes shipments to a branch at a transfer price in excess of cost. The
branch records the shipments at the transfer price, while the home office records at cost.
Solution W10-7
Some firms enter merchandise shipments to their branches at billing prices and adjust the loading
account at the end of the accounting period. When using this approach, the balance of the loading
account during an accounting period will reflect unrealized profit in branch beginning inventories, and the
Shipments to branch account will include the loading factor on shipments for the current period. The Shipments to
branch account (home office books) and the Shipments from home office account (branch books) are reciprocals
under this method.
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Solution W10-8
No, the allocation of expenses among home office and branch operations is frequently necessary to provide an
accurate measurement of income for the separate units of the enterprise.
Solution W10-9
Branch Journal Entries
1 Shipments from home office (E,-SE) 10,000
Home office (+SE) 10,000
2 Purchases (E,-SE) 4,000
Cash (-A) 4,000
3 Accounts receivable (+A) 20,000
Sales (R,+SE) 20,000
4 Operating expenses (E,-SE) 3,000
Cash (-A) 3,000
5 Home office (-SE) 2,000
Shipments from home office (-E,+SE) 2,000
6 Advertising expense (E,-SE) 1,000
Home office (-SE) 1,000
Cash (-A) 2,000
7 Depreciation expense (E,-SE) 500
Operating expense (E,-SE) 200
Accumulated depreciation (-A) 500
Home office (+SE) 200
Cash (-A) 5,000
9 Cash (+A) 14,000
Accounts receivable (-A) 14,000
10 Cash (+A) 3,150
Accounts receivable (-A) 1,000
12 Cost of goods sold (E,-SE) 11,900
Shipments from home office (-E,+SE) 8,000
Purchases (-E,+SE) 4,000
Inventory (+A) 100
Beginning inventory + Net shipments from home office + Purchases - Ending

inventory ($1,900 + $8,000 + $4,000 - $2,000)
12 Cost of goods sold (-E,+SE) 11,900
Sales (-R,-SE) 20,000
Operating expenses (-E,+SE) 3,200
Advertising expense (-E,+SE) 1,000
Depreciation expense (-E, +SE) 500
Revenue and expense summary 3,400
13 Revenue and expense summary 3,400
Home Office Journal Entries
1 Branch (+A) 10,000
Shipments to branch (-E,+SE) 10,000
2 No Entry
3 No Entry
4 No Entry
5 Shipments to branch (E,-SE) 2,000
Branch (-A) 2,000
6 Advertising expense (E,-SE) 1,000
Branch (-A) 1,000
7 Branch (+A) 700
Operating expense (-E,+SE) 200
Depreciation expense (-E,+SE) 500
8 Cash (+A) 5,000
Branch (-A) 5,000
9 No Entry
10 Branch (+A) 3,150
Note receivable (-A) 3,000
Interest income (R,+SE) 150
11 Cash (+A) 1,000
Branch (-A) 1,000
12 No entry
13 Branch (+A) 3,400
Branch profit (R,+SE) 3,400
Solution W10-10
Shipments to branch (E,-SE) 10,000
Loading in branch inventory (-A) 10,000
To adjust shipments to a cost basis
Loading in branch inventory (+A) 2,000
Branch profit (R,+SE) 2,000
To adjust branch profit for realization of markups on branch shipments
Solution W10-11
Cost of Goods Sold

Main Plant Branch Total
Beginning inventory $ 126,000 $ 24,000
Add: Purchases 1,400,000 48,000
Adjust for branch shipments (300,000) 300,000
Goods available for sale 1,226,000 372,000
Less: Ending inventory (120,000) (26,000)
Cost of goods sold $ 1,106,000 $346,000 $1,452,000
Solution W10-12
Reconciliation of home office and branch accounts
Liberty=s Maywood Branch account balance $340,000
Remittance from branch in transit (15,000)
Expense allocation not recorded by branch (5,000)
Home office share of advertising expense paid by branch (1,000)
Maywood=s home office account balance $319,000
Note: There is no need to consider inventory, since transfers are at cost.
Solution W10-13
1. Cost of Goods Sold Schedule
Home Branch Total
Add: Purchases 80,000 0
Goods available for sale 66,000 28,800
Cost of goods sold $ 51,000 $ 22,800 $73,800
2. Comparative Income Statements
Home Branch Total
Sales $ 120,000 $ 40,000 $ 160,000
Cost of goods sold (51,000) (22,800) (73,800)
Other expenses (20,000) (10,000) (30,000)
Net income $ 49,000 $ 7,200 $ 56,200
Solution W10-14
1. Comparative Income Statements

Home Branch Total
Sales $ 537,500 $ 300,000 $ 837,500
Cost of goods sold (see schedule below) (280,000) (187,500) (467,500)
Other expenses (120,000) (50,000) (170,000)
Net income $ 137,500 $ 62,500 $ 200,000

Cost of Goods Sold Schedule
Home Branch* Total
Add: Purchases 500,000 0
Cost of goods sold $ 280,000 $187,,500 $467,500

* Conversion of branch inventory from transfer prices to cost basis:
Beginning inventory: ($45,000 / 120%) = $37,500
Shipments from home office: ($240,000 / 120%) = $200,000
Ending inventory: ($60,000 / 120%) = $50,000
2. Combined Balance Sheet

Inventory $ 120,000
Other assets 695,000
Total assets $ 815,000
Other liabilities $ 115,000
Capital stock 500,000
Retained earnings 200,000
Total liabilities & equities $ 815,000
Solution W10-15
1. Cost of Goods Sold Schedule

Home Branch* Total
Beginning inventory (at cost) $ 3,500 $ 2,300
Add: Purchases 240,000 11,000
Cost of goods sold $ 150,500 $ 101,650 $252,150

* Conversion of branch inventory from transfer prices to cost basis:
Beginning inventory: ($300 + ($2,200 / 110%)) = $2,300
Shipments from home office: ($99,000 / 110%) = $90,000
Ending inventory: ($150 + ($1,650 / 110%)) = $1,650
2. Combination Working Papers
Home Branch Adjustments Income Balance

Statement Sheet
Cash $1,500 $1,000 $ 2,500
Accounts 200 200

receivable
Inventory 3,000 1,800 a 150 4,650
Building 60,000 18,000 78,000
Equipment 30,000 12,000 42,000
Branch 32,300 c 32,300
Cost of goods 150,500 110,700 b 9,050 (252,150)

sold
Other expenses 15,000 7,000 (22,000)
Total $292,500 $150,500 $ 127,350
Accounts payable $15,000 $ 500 $15,500
Unrealized profit 9,200 a 150

b 9,050
Home office 30,000 c 30,000
Capital stock 50,000 50,000
Retained earnings 16,000 61,850
Sales 200,000 120,000 320,000
Branch profit 2,300 c 2,300
Total $292,500 $150,500 $ 127,350
Net Income $45,850
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Chapter 10

Branch Journal Entries

1 Shipments from home office (E,-SE) 10,000

Home office (+SE) 10,000

2 Purchases (E,-SE) 4,000

Cash (-A) 4,000

3 Accounts receivable (+A) 20,000

Sales (R,+SE) 20,000

4 Operating expenses (E,-SE) 3,000

Cash (-A) 3,000

5 Home office (-SE) 2,000

Shipments from home office (-E,+SE) 2,000

6 Advertising expense (E,-SE) 1,000

Home office (-SE) 1,000

Cash (-A) 2,000

7 Depreciation expense (E,-SE) 500

Operating expense (E,-SE) 200

Accumulated depreciation (-A) 500

Home office (+SE) 200

8 Home office (-SE) 5,000

Cash (-A) 5,000

9 Cash (+A) 14,000

Accounts receivable (-A) 14,000

10 Cash (+A) 3,150

Home office (+SE) 3,150

11 Home office (-SE) 1,000

Accounts receivable (-A) 1,000

12 Cost of goods sold (E,-SE) 11,900

Purchases (-E,+SE) 4,000

Inventory (+A) 100

Beginning inventory + Net shipments from home office + Purchases - Ending

12 Cost of goods sold (-E,+SE) 11,900

Sales (-R,-SE) 20,000

Operating expenses (-E,+SE) 3,200

Advertising expense (-E,+SE) 1,000

Depreciation expense (-E, +SE) 500

Revenue and expense summary 3,400

13 Revenue and expense summary 3,400

Home office (+SE) 3,400

Home Office Journal Entries

1 Branch (+A) 10,000

Shipments to branch (-E,+SE) 10,000

5 Shipments to branch (E,-SE) 2,000

Branch (-A) 2,000

6 Advertising expense (E,-SE) 1,000

Branch (-A) 1,000

7 Branch (+A) 700

Operating expense (-E,+SE) 200

Depreciation expense (-E,+SE) 500

8 Cash (+A) 5,000

Branch (-A) 5,000

10 Branch (+A) 3,150

Note receivable (-A) 3,000

11 Cash (+A) 1,000

Branch (-A) 1,000

13 Branch (+A) 3,400

Branch profit (R,+SE) 3,400

Shipments to branch (E,-SE) 10,000