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Home-office inventories, December 31, 1919:
Raw materials

$35,000.00
Goods in process

13,000.00 Finished goods

16,000.00

Prepare :
(a) Closing entries on the branch books.
(b) Balance sheet of branch after closing.

(c) Statement converting branch trial balance and December 31, 1919, inventory to the dollar values at which the various items should appear in the closing entries which will be made to take up the branch profit on the home office books and in the branch balance-sheet consolidated with the home-office balance-sheet.

(d) Branch profit-and-loss statement for the year, from facts shown on the branch books, shown in pounds sterling and in dollars.

(e) Journal entries on the home-office books taking up the branch profit shown in the statement required in (d).

(f) Journal entries closing the home-office books, allowing $1,000.00 depreciation on the factory buildings and $500.00 depreciation on the furniture and fixtures of the branch.

(8) Statement of the London branch current account on the homeoffice books.

(h) Branch balance-sheet in pounds sterling and dollars, showing dollar balance of home-office current account in agreement with branch current account balance in (g).

(i) Working papers consolidating the branch and home-office balancesheets.

(j) When the average rate is not known or is not to be used for nominal account conversions, the various conversions are made as follows:

Fixed assets at the rate current at the time of purchase.
Current assets and liabilities at current rate.
Opening inventory at rate at beginning of period.

Shipments from home office at balance of shipments account on homeoffice books.

Nominal accounts at current rate.
Prepare the following assuming that the average rate is not known:

Journal entry on home-office books taking up net profit shown by branch books.

Journal entry adjusting the branch current account and reserve for exchange.

(k) Assume that the home office does not keep a reserve for exchange, but absorbs the adjustment in the branch profit and loss account-show how the last entry under (j) would be made in that case, and draw up the branch profit and loss account as it would appear on the homeoffice books.

£75,000

5,000

£80,000

SOLUTION
(a) Closing entries on branch books.
Sales
Merchandise inventory, Dec. 31, 1919
Profit and loss

To set up inventory and close sales account
Profit and loss

Merchandise inventory, Jan. 1, 1919
Merchandise from home office
Expenses

To close merchandise cost and expense accounts

59,000

4,000 50,000 5,000

21,000

Profit and loss
Home-office current account

To close out net profit

21,000

60,000

Home-office current account
Remittance account

To close remittance account

60,000

(b) EASTERN & WESTERN MANUFACTURING Co., LONDON BRANCH

Balance-Sheet-December 31, 1919
Assets

LIABILITIES
Cash

£ 7,000 Accounts payable £ 1,000 Accounts receivable 3,000 Home-office current

15,000 Merchandise inventory 5,000 Furniture and fixtures 1,000

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(c)
Statement of Conversion of Branch Trial Balance

£
£ Rate

$ Home-office current

54,000 Not converted-contra acct. on

home-office books Remittance account. 60,000

Not converted-contra acct, on

home-office books Cash

7,000

4.665 32,655.00 Accounts receivable. 3,000

4.665 13,995.00 Merc'dise inv. Jan. 1 4,000

4.64 18,560.00 Merc'dise from h. o. 50,000

h. o. contra 232,500.00 Expenses

5,000

4.65 23,250.00 Sales

75,000 4.65

348,750.00 Accounts payable

1,000 4.665

4,665.00 Furniture and fixtures 1,000

4.83 4,830.00

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Inventory, December 31, 1919, £5,000 @ 4.665 = $23,325.00

(d) EASTERN & WESTERN MANUFACTURING Co., LONDON BRANCH Profit and Loss Statement-Year Ending December 31, 1919

Pounds sterling

Dollars Sales

75,000

348,750.00 Deduct cost of goods sold: Inventory .....

4,000

18,560.00 Merchandise from home office. 50,000

232,500.00

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(e) Journal entries on home-office books taking up branch net profit. London branch current account ...

97,765.00 London branch profit-and-loss-account

274,310.00 London branch profit-and-loss account

372,075 To credit branch profit and loss with: Sales

£75,000 @ 4.65 348,750 Inventory Dec. 31 5,000 @ 4.665 23,325

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To debit branch profit and loss with:

Inventory Jan. 1 £ 4,000 @ 4.64 18,560
Mdse, from h. o.

50,000 @h. o. bal. 232,500 Expenses

5,000 @ 4.65 23,250

Total debits

274,310

To charge current account with profit

97,765

500.00

(f) Journal entries closing home-office books. London branch profit and loss account

Reserve for dep'n, London furniture and fixtures To provide one year's depreciation

500.00

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Selling account

.773,500.00
Manufacturing account
Finished goods, Jan. 1

Selling expense
To charge selling with finished goods and expenses

745,500.00

8,000.00 20,000.00

Finished goods inventory

16,000.00
Sales

.780,000.00
Selling account
To put present inventory on books, crediting selling
account therewith, and closing sales to selling account

796,000.00

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13,500.00
97,265.00

Profit and loss
London branch profit and loss

Surplus
To close home office and branch profits to surplus

110,765.00

1,625.00

1,625.00

London branch current account

Reserve for exchange fluctuations
Entry to raise current account balance representing
net assets at branch to net conversion values.

.279,000.00

279,000.00

Remittances from London branch

London branch-current account
To close remittance account to current account

Statement of London Branch Current Account

January 1, 1919, to December 31, 1919 Balance, January 1, 1919

249,750.00 Add branch profit for the year as shown by branch books, but

before providing depreciation on furniture and fixtures 97,765.00

Total
Deduct remittances

347,515,00 279,000.00

68,515.00

Balance before exchange adjustment
Add charge to current account and credit to reserve to reconcile

current account with branch balance-sheet at conversion values

1,625.00

Balance, December 31, 1919

70,140.00

(h) EASTERN & WESTERN MANUFACTURING CO., LONDON BRANCH

Balance Sheet-December 31, 1919

ASSETS
£
Rate

$ Cash

7,000

4.665 32,655.00 Accounts receivable

3,000 4.665

13,995.00 Merchandise inventory

5,000
4.665

23,325.00 Furniture and fixtures

1,000
4.83

4,830,00

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(i)

EASTERN & WESTERN MANUFACTURING COMPANY Consolidated Balance-Sheet Working Papers-December 31, 1919

Assets

Home office Branch Eliminations Consolid'd Factory land 10,000

10,000 Factory buildings 40,000

40,000 Raw materials 35,000

35,000 Goods in process 13,000

13,000 Finished goods 16,000 23,325

39,325 Accounts receivable 12,265 13,995

26,260 London branch current 70,140

70,140 Cash

31,000 32,655 Furniture and fixtures

4,830

4,830

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