Problem 1.

The following information are extracted from the books and records of Maroon Company and its Red branch. The balances are at December 31, the fourth year of the company's operations.

Home Office Books Branch Books

Sales 600,000

Shipments to branch 200,000

Shipments from Home Office 240,000

Purchases 60,000

Expenses 120,000

Inventory, January 1 112,000

Allowance for overvaluation of branch inventory 56,000

There are no shipments in transit between the HO and branch. Both shipments accounts are properly recorded. The ending inventory at billed price includes merchandise acquired from the HO in the amount of P60,000 and P7,000 acquired from vendors for total of P67,000.

Question No. 1How much of the beginning inventory was acquired from "outsiders"?

Question No. 2How much is the true branch net income?

Problem 2.

Fuchsia Trading bills its Pink Company branch for shipment of goods at 20% above cost. At the close of business on October 30, 2010, a fire gutted the branch warehouse and 60% of the merchandise stocks stored therein were totally destroyed. The branch sold the recovered inventory at 40% lower than the normal selling price. Thereafter, the following data were gathered:

January inventory, at billed priceP500,000

Shipments from home office1,300,000

Net sales to October 301,000,000

Selling Expenses5% of normal selling price

Total amount of undamaged inventory sold300,000

Question No. 1What is the estimated cost of the merchandise destroyed by the fire?

Question No. 2How much net income / loss would the branch be reported for the year 2010?

Problem 3.

The following information is taken from the books and records of Beige Company and its Brown branch. The balances are at December 31, 2010, the second year of operations.

Home Office Books Branch Book

Sales 500,000

Expenses 150,000

Shipments to branch 180,000

Allowance for overvaluation of branch inventory 37,500

The branch obtains all of its merchandise from the home office. The home office ships the merchandise at 120% of its cost. The ending inventory of the branch is P60,000 billed price.

Question No. 1How much is the net income reflected in the books of the branch?

Question No. 2How much is the true income of the branch?