Question

Q4. On December 31, the Investment in Branch account in the home office books shows a balance of Br.50,000. The following facts are ascertained:
1. Merchandise billed at Br.12, 500 is in transit on December 31 from the home office to the branch.
2.The branch collected a home office accounts receivable for Br.3, 500. The branch did not notify the home office of such collection
3. On December 30, the home office sent cash of Br.7,500 to the branch, but this was charged to General Expense; the branch has not received the cash as of December 31.
4. Branch profit for December was recorded by the home office at Br.2,400instead of Br.2,040.
5. The branch returned supplies of Br.1,500 to the home office but the home office has not yet recorded the receipt of the supplies. Assume all other transactions have been properly recorded
6. The branch recorded twice a Br.5000 allocation of overhead cost from the home office
7. A Br.6000 freight paid by the home office for inventory shipment to the branch was recorded by the branch as Br.600
Required: What is the adjusted and unadjusted balance of the Home Office account on the branch books on December 31?

Answer 1

Answer:
- Unadjusted balance of the Home Office account on the branch books (Dec. 31): Br. 41,740
- Adjusted (correct) balance after making the necessary corrections: Br. 52,140

Work‑out (item by item reconciliation starting from the Home Office (HO) Investment balance Br.50,000):

1. Merchandise billed to branch in transit (recorded by HO, not by branch): subtract 12,500
2. Branch collected HO accounts receivable (recorded by branch, not by HO): add 3,500
3. HO sent cash Br.7,500 but charged to General Expense (neither correctly recorded in branch books as cash receipt by Dec.31) — no entry on branch books at Dec.31 (effect considered when correcting HO); no effect in the unadjusted branch balance here
4. HO recorded branch profit Br.2,400 instead of Br.2,040 (overstated by 360 on HO books): subtract 360
5. Branch returned supplies Br.1,500 (recorded by branch, not yet by HO): add 1,500
6. Branch recorded twice an allocation of overhead Br.5,000 (branch error — recorded by branch only): add 5,000
7. Freight Br.6,000 paid by HO was recorded by branch as Br.600 (HO recorded 6,000; branch only 600 → HO‑only portion 5,400): subtract 5,400

Compute:
- Total HO‑only amounts to be deducted = 12,500 + 360 + 5,400 = 18,260
- Total branch‑only amounts to be added = 3,500 + 1,500 + 5,000 = 10,000

Unadjusted branch balance = 50,000 − 18,260 + 10,000 = 41,740

Correcting HO errors (notably the Br.7,500 charged to expense instead of to branch, and the items HO failed to record) yields the adjusted/correct Home Office (branch) balance:
Adjusted balance = Br.52,140

(Thus the branch’s Home Office account currently shows Br.41,740; after posting the correcting entries it should be Br.52,140.)