Reference no: EM132630670

On January 1, Super Balut Co. establishes a branch for an initial cash investment of 10,000,000. The subsequent transactions are as follows:

a. On January 3, 20x1, the home office acquires land and building to be used by the branch for a total cost of 30,000,000. The branch records the assets in its books. The fair value of the land is 11,000,000, while the fair value of the building is 22,000,000. 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 Feb 14, 20x1, the home office transfers inventory worth 20,000,000 to the branch. The home office pays freight of 500,000.

c. On March 1, 20x1, the home office transfers additional inventory worth 5,000,000 to the branch. This time the branch pays the freight of 100,000.

d. On March 31, 20x1, the branch acquires equipment for 900,000 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, 20x1, the branch acquires furniture for 600,00 cash and records the furniture in its books. The furniture has a useful life of 4 years.

f. August 30, the branch purchases inventory from a supplier of 10,000,000, on account. No freight is paid.

g. During 20x1, the branch makes total sales of 100,000,000, half of which is on account.

h. The branch collects 30,000,000 on its accounts receivable. The home office collects 10,000,000 accounts receivable on behalf of the branch. The home office retains the collection.

i. On Sep 30, 20x1, the branch remits 35,000,000 to the home office.

j. On Oct 20x1, the branch pays 8,000,000 accounts payable.

k. During 20x1, the branch pays expenses of 15,000,000, 1,000,000 of which pertains to expenses of the home office.

l. The home office allocates general overhead of 3,000,000 to the branch.

Year-end:

m. Ending inventory consists 1/4 from the first shipment and 1/2 from the second shipment form home office.

n. Depreciation expenses are recorded.

o. Closing entries are recorded.

Requirements:

Problem 1: Provide the entries in each of the books of home office and the branch. Provide also the adjusting and closing entries.

Problem 2: Reconcile the reciprocal accounts at the end of the period.

Problem 3: Prepare the Statement of Financial Position and Statement of Profit or Loss of the branch.

Problem 4: What are the entries in each of the books of home office and the branch?

Problem 5: What are adjusting and closing entries?

Problem 6: What are the Statement of Financial Position and Statement of Profit or Loss of the branch?