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Shutting down a branch

The document provides exercises and solutions related to accounting for branches of companies, specifically focusing on journal entries for transactions involving net income, inventory, and the closing of branches. It includes examples from Trapp Company and Glendale Company, detailing the necessary accounting entries for various scenarios including unrealized profits and the disposal of branch assets. Additionally, it features multiple-choice questions to test knowledge on branch accounting practices.

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magdykamel109
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6 views6 pages

Shutting down a branch

The document provides exercises and solutions related to accounting for branches of companies, specifically focusing on journal entries for transactions involving net income, inventory, and the closing of branches. It includes examples from Trapp Company and Glendale Company, detailing the necessary accounting entries for various scenarios including unrealized profits and the disposal of branch assets. Additionally, it features multiple-choice questions to test knowledge on branch accounting practices.

Uploaded by

magdykamel109
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Third Year

Specialized accounting
Sheet (3)
Chapter one
Accounting For branches

Edited by
Dr. Magdy kamel
Tel/ 01273949660

Exercise (11)

1 | Page Dr. Magdy kamel tel/ 01273949660


On May 31, 2005, Portland Street Branch (the only branch) of Trapp Company
reported a net income of $80,000 for May 2005, and a $240,000 ending inventory at
billed price of merchandise received from the home office at a 25% markup on billed
price. Prior to adjustment, the May 31, 2005, balance of the home office’s Allowance
for Overvaluation of Inventories: Portland Street Branch was $200,000 credit.
Prepare journal entries (omit explanations) on May 31, 2005, for the home office of
Trapp Company to reflect the foregoing facts
Solution
Journal entries
Home office Branch
Investment in branch 80,000 Income summary 80,000
Income : branch 80,000 Home office 80,000

Unrealized profit 140,000


Realized profit 140,000

Income: branch 80,000


Realized profit 140,000
Income summary 220,000

Exercise 13:
The home office of Glendale Company, which uses the perpetual inventory system,
bills shipments of merchandise to the Montrose Branch at a markup of 25% on the
billed price. On August 31, 2005, the credit balance of the home office’s Allowance
for Over- valuation of Inventories: Montrose Branch ledger account was $60,000.
On September 17, 2005, the home office shipped merchandise to the branch at a
billed price of $400,000. The branch reported an ending inventory, at billed price,
of $160,000 on September 30, 2005.

Prepare journal entries involving the Allowance for Overvaluation of Inventories:


Montrose Branch ledger account of the home office of Glendale Company on September
17 and 30, 2005.
Solution
Sept. 17 Investment in Montrose Branch 400,000

2 | Page Dr. Magdy kamel tel/ 01273949660


Inventories 300,000
Unrealized profit 100,000

30 unrealized profit 120,000


Realized Gross Profit: 120,000

Closing entries
Realized profit 120,000
Income summary 120,000

Shutting down a branch :


Assume that, because of continuous loss of the branch, the HO decided to shut down a
branch. Fixed assets records of the branch are maintained by the branch.
The following account balances appeared at the branch records after closing entries:
 Assets = $320,000
 Liabilities = $60,000
 Accumulated depreciation = $20,000
 Home office account = $240,000 credit balance
Required: prepare journal entries for the branch and home office
Solution
 Assume that The branch was sold for $140,000
Home office Branch
Cash 140,000 Home office 240,000
Loss on disposal of branch 100,000 Liabilities 60,000
Investment in branch 240,000 Accumulated depreciation 20,000
Assets 320,000

 Assume that the branch was sold for $340,000


Home office Branch
Cash 340,000 Home office 240,000
Investment in branch 240,000 Liabilities 60,000
Accumulated depreciation 20,000
gain on disposal of branch 100,000 Assets 320,000

3 | Page Dr. Magdy kamel tel/ 01273949660


The balance sheet of the branch showed the following
 Notes receivable 30,000
 Land 90,000
 Equipment 200,000
 Accumulated depreciation 20,000
 Accounts payable 15,000
 Notes payable 45,000
 Home office account = $240,000 credit balance
Required: prepare journal entries for the branch and home office.

Assume that The branch was sold for $160,000

Solution

Home office Branch


Cash 160,000 Home office 240,000
Loss on disposal of branch 80,000 Accounts payable 15,000
Investment in branch Notes payable 45,000
240,000 Accu.depreciation 20,000
Notes receivable 30,000
Land 90,000
Equipment 200,000

(Ex. 1)
Select the best answer for each of the following multiple- choice questions:

1. May the Investment in Branch ledger account of a home office be accounted for by
the
Cost Method of Accounting Equity Method of Accounting
a. Yes Yes
b. Yes No
c. No Yes
d. No No

2. Which of the following generally is not a method of billing merchandise


shipments by a home office to a branch?
a. Billing at cost.
b. Billing at a percentage below cost.
c. Billing at a percentage above cost.
d. Billing at retail selling prices.

4 | Page Dr. Magdy kamel tel/ 01273949660


3. A branch journal entry debiting Home Office and crediting Cash may be prepared
for:
a. The branch’s transmittal of cash to the home office only.
b. The branch’s acquisition for cash of plant assets to be carried in the home
office accounting records only.
c. Either a or b.
d. Neither a nor b.

4. A home office’s Allowance for Overvaluation of Inventories: Branch ledger account,


which has a credit balance, is:
a. An asset valuation account.
b. A liability account.
c. An equity account.
d. A revenue account.

5. Does a branch use a Shipments from Home Office ledger account under the:
Perpetual Inventory System Periodic Inventory System
a. Yes Yes
b. Yes No
c. No Yes
d. No No

7. For a home office that uses the periodic inventory system of accounting for
shipments of merchandise to the branch, the credit balance of the Shipments to
Branch ledger account is displayed in the home office’s separate:
a. Income statement as an offset to Purchases.
b. Balance sheet as an offset to Investment in Branch.
c. Balance sheet as an offset to Inventories.
d. Income statement as revenue.

8. If the home office maintains accounts in its general ledger for a branch’s plant
assets, the branch debits its acquisition of office equipment to:
a. Home Office.
b. Office Equipment.
c. Payable to Home Office.
d. Office Equipment Carried by Home Office.

5 | Page Dr. Magdy kamel tel/ 01273949660


10. The appropriate journal entry for the home office to recognize the branch’s
expenditure of $1,000 for equipment to be carried in the home office accounting

records is:
a. Equipment 1,000
Investment in Branch 1,000

b. Home Office 1,000


Equipment 1,000

c. Investment in Branch 1,000


Cash 1,000

d. Equipment: Branch 1,000


Investment in Branch 1,000

12. If a home office bills merchandise shipments to the branch at a markup of 20% on
cost, the markup on billed price is:
a. 16⅔%
b. 20%
c. 25%
d. Some other percentage

6 | Page Dr. Magdy kamel tel/ 01273949660

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