On January 1, 2021
On January 1, 2021, Super Balut Co. establishes a branch for an initial cash investment of P10,000,000. The subsequent transactions are as follows:
a. On January 3, 2021, the home office acquires land and building to be used by the branch for a total cost of P30,000,000. The branch records the assets in its books. The fair value of the land is P11,000,000, while the fair value of the building is P22,000,000. The building has an estimated useful life of 20 years and no residual value. The company uses the straight-line method of depreciation.
b. On February 14, 2021, the home office transfers inventory worth P20,000,000 to the branch. The home office pays freight of P500,000.
c. On March 1, 2021, the home office transfers additional inventory worth P5,000,000 to the branch. This time the branch pays the freight of P100,000.
d. On March 31, 2021, the branch acquires equipment for P900,000 cash. The equipment will be carried in the home office’s books. The equipment has a useful life of 5 years.
e. On July 1, 2021, the branch acquires furniture for P600,000 cash and records the furniture in its books. The furniture has a useful life of 4 years.
f. On August 30, the branch purchases inventory from a supplier for P10,000,000, on account. No freight is paid.
g. During 2021, the branch makes total sales of P100,000,000, half of which is on account.
h. The branch collects P30,000,000 on its accounts receivable. The home office collects P10,000,000 accounts receivable on behalf of the branch. The home office retains the collection.
i. On September 30, 2021, the branch remits P35,000,000 to the home office.
j. On October 2021, the branch pays P8,000,000 accounts payable.
k. During 2021, the branch pays expenses of P15,000,000, P1,000,000 of which pertains to expenses of the home office.
l. The home office allocates general overhead of P3,000,000 to the branch.
Year-end:
m. Ending inventory consists of ¼ from the first shipment and ½ from the second shipment from the home office.
n. Depreciation expenses are recorded.
o. Closing entries are recorded.
Requirements:
- Provide the entries in each of the books of the home office and the branch. Provide also the adjusting and closing entries.
- Reconcile the reciprocal accounts at the end of the period.
- Prepare the
statement of financial position and statement of profit or loss of the branch.
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