The management of Windsor Company, which has several branches as well as a home office, is planning to sell the net assets of Southwark Branch to an unrelated business enterprise.

As controller of Windsor, you are asked by the board of directors if you can prepare separate financial statements for Southwark Branch for the prospective purchaser. Among the directors’ questions are the following:

1. What specific financial statements are appropriate, and what are their titles?

2. Would there be an equity section in a balance sheet for the branch?

3. How should unrealized intracompany markup above home office cost in the branch’s ending inventories be treated in the branch’s separate financial statements?

Before attempting to answer the directors’ questions, you consult the following sources:

AICPA Professional Standards, vol. 2, “Accounting & Review Services,” etc.:

AR100.04, ET 92.04.

Statement of Financial Accounting Concepts No. 1, “Objectives of Financial Reporting by Business Enterprises,” par. 6.

Statement of Financial Accounting Concepts No. 6, “Elements of Financial Statements,” par. 24.

Statement of Financial Accounting Standards No. 57, “Related Party Disclosures,”

par. 2.

Instructions After consulting the foregoing sources, prepare a memorandum to the board of directors of Windsor Company in answer to their questions.