QUESTION FOUR

Assume that Smaldino Company bills merchandise to Branch X at cost and that Branch X maintains complete accounting records and prepares financial statements. Both the home office and the branch use the perpetual inventory system. Equipment used at the branch is carried in the home office accounting records. Certain expenses, such as advertising and insurance, are incurred by the home office on behalf of the branch and are billed on the branch. Transactions and events during the first year (Year 1) of operations of

Branch X are summarized below:

i. Cash of K1,000 was forwarded by the home office to Branch X

ii. Merchandise with a cost of K60,000 was shipped by the home office to Branch X

iii. Equipment was acquired by Branch X for K550, to be carried in the home office accounting records. (Other plant assets for Branch X generally are acquired by the home Office.)

iv. Credit sales by Branch X amounted to K80,000; the cost of the merchandise sold was K45,000.

v. Collections of trade accounts receivable by Branch X amounted to K62,000.

vi. Payments for operating expenses by Branch X totaled K20,000.

vii. Cash of K37,500 was remitted by Branch X to the home office.

viii. Operating expenses incurred by the home office and charged to Branch X totaled K3,000.

Required: prepare journal entries in accounting records of the home and the branch.