The trial balances of the home office and the branch office of The Allen Company appear...

  

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The trial balances of the home office and the branch office of The Allen Company appear as follows: Cash. Inventory Home Office. Inventory Branch. Sundry Assets Branch Debits Purchases.. Shipments from Home Office Freight in from Home Office. Sundry Expenses... Sundry Liabilities. Home Office.... Sales.... *********** Amount $1,050 1,100 600 300 ************ Credits The Allen Company Trial Balance December 31, 19X7 Shipments to Branch Unrealized Intercompany Inventory Profit.. Capital Stock.... Retained Earnings. **** Home 17,000 23,000 Deposited by Branch December 27, 19X7 December 29, 19X7 December 30, 19X7 January 2, 19X8 Branch 200 11,550 200,000 48,450 60,000 190,000 105,000 5,500 42,000 24,300 532,000 195,000 The audit at December 31, 19X7, disclosed the following: (1) The branch office deposits all cash receipts in a local bank for the ac- count of the home office. The audit working papers for the cash cutoff revealed: 35,000 155,000 140,000 110,000 1,000 200,000 31,000 532,000 195,000 3,500 51,500 January January Recorded by Home Office December 30, 19X7 January 2, 19X8 3, 19X8 6, 19X8 (2) The branch office pays locally incurred expenses from an imprest bank account that is maintained with a balance of $2,000. Checks are drawn once a week on this imprest account and the home office is notified of the amount needed to replenish the account. At December 30 an $1,800 reimbursement check was mailed to the branch office. (3) The branch office receives all of its goods from the home office. The home office bills the goods at cost plus a markup of 10% of cost. On December 31 a shipment with a billing value of $5,000 was in transit to the branch. Freight costs are typically 5% of billed values. Freight costs are considered to be inventoriable costs. (4) The trial balance beginning inventories are shown at their respective costs to the home office and to the branch office. The inventories on December 31, excluding the shipment in transit, are Home office, at cost........... Branch office, at billing value. $30,000 $10,400 Instructions: Prepare a work sheet for The Allen Company and its branch office, with columns for "Trial Balance," "Adjustments and Eliminations," "Home Office Income Statement," "Branch Income Statement," and "Combined Balance Sheet." The branch income statement should be prepared on the basis of home office cost. (Formal journal entries are not required. Supporting compu- tations must be in good form.) Number your work sheet adjusting and eliminating entries. Disregard income taxes. (AICPA adapted) The trial balances of the home office and the branch office of The Allen Company appear as follows: Cash. Inventory Home Office. Inventory Branch. Sundry Assets Branch Debits Purchases.. Shipments from Home Office Freight in from Home Office. Sundry Expenses... Sundry Liabilities. Home Office.... Sales.... *********** Amount $1,050 1,100 600 300 ************ Credits The Allen Company Trial Balance December 31, 19X7 Shipments to Branch Unrealized Intercompany Inventory Profit.. Capital Stock.... Retained Earnings. **** Home 17,000 23,000 Deposited by Branch December 27, 19X7 December 29, 19X7 December 30, 19X7 January 2, 19X8 Branch 200 11,550 200,000 48,450 60,000 190,000 105,000 5,500 42,000 24,300 532,000 195,000 The audit at December 31, 19X7, disclosed the following: (1) The branch office deposits all cash receipts in a local bank for the ac- count of the home office. The audit working papers for the cash cutoff revealed: 35,000 155,000 140,000 110,000 1,000 200,000 31,000 532,000 195,000 3,500 51,500 January January Recorded by Home Office December 30, 19X7 January 2, 19X8 3, 19X8 6, 19X8 (2) The branch office pays locally incurred expenses from an imprest bank account that is maintained with a balance of $2,000. Checks are drawn once a week on this imprest account and the home office is notified of the amount needed to replenish the account. At December 30 an $1,800 reimbursement check was mailed to the branch office. (3) The branch office receives all of its goods from the home office. The home office bills the goods at cost plus a markup of 10% of cost. On December 31 a shipment with a billing value of $5,000 was in transit to the branch. Freight costs are typically 5% of billed values. Freight costs are considered to be inventoriable costs. (4) The trial balance beginning inventories are shown at their respective costs to the home office and to the branch office. The inventories on December 31, excluding the shipment in transit, are Home office, at cost........... Branch office, at billing value. $30,000 $10,400 Instructions: Prepare a work sheet for The Allen Company and its branch office, with columns for "Trial Balance," "Adjustments and Eliminations," "Home Office Income Statement," "Branch Income Statement," and "Combined Balance Sheet." The branch income statement should be prepared on the basis of home office cost. (Formal journal entries are not required. Supporting compu- tations must be in good form.) Number your work sheet adjusting and eliminating entries. Disregard income taxes. (AICPA adapted)

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SOLUTION Debits Cash Inventory Sundry Assets Investment in Branch Purchase Shipment from Home Of... View the full answer