Reference no: EM132594469
Question - Branch was billed at cost
Alet Company, which prepares financial reports at the end of the calendar year, established a branch on July 1, 2009.
The following transactions occurred during the formation of the branch and its first six months of operations, ending December 31, 2009.
1. The Home Office sent P35,000 cash to the branch to begin operations.
2. The Home Office shipped inventory to the branch. Intracompany billings totaled P75,000, which was the Home Office's cost. (Both the Home Office and the Branch use a periodic inventory system.) 3. The branch acquired merchandise display equipment which cost P15,000 on July 1, 2009. (Assume that branch fixed assets are carried on the home office books).
4. The branch purchased inventory costing P53,750 from outside vendors on account.
5. The branch had credit sales of P106,250 and cash sales of P43,750.
6. The branch collected P55,000 of its accounts receivable.
7. The branch paid outside vendors P35,000.
8. The branch incurred selling expenses of P18,750 and general and administrative expenses of P15,000. These expenses were paid in cash when they were incurred and include the expense of leasing the branch's facilities.
9. The home office charged the branch P2,500 for its share of insurance.
10. Depreciation expense on the display equipment acquired by the branch is P1,250 for the six-month period. (Depreciation expense is classified as a selling expense.)
11. The branch remitted P12,500 cash to the home office.
12. The branch's physical inventory on December 31, 2009 is P41,250, of which P31,250 was acquired from the home office (there was no beginning inventory).
Requirements -
1. Prepare journal entries in the books of the home office and in the books of the branch office for the above transactions.
2. Prepare closing entries in the books of the branch office to close its income statement accounts.
3. Prepare an adjusting entry in the books of the home office to reflect the increase or decrease in the branch's net assets resulting from the branch operations.