Question

On March 15, 2020, BBB Company established an agency in Quezon City, sending its merchandise samples costing P15,750 and working fund of P9,000 to be maintained on the imprest basis. During the month, the agency transmitted to the home office sales orders which were billed at P64,380 of which P20,400 was collected. A home office disbursement chargeable to agency is the acquisition of furniture and fixtures amounting to P25,000 to be depreciated at 24% per annum. The agency paid expenses of P3,815 and received replenishment thereof from the home office. On March 31, 2020, the agency samples were valued at P10,075. It was estimated that the gross profit on goods shipped to bill agency sales orders average 25% of cost.

Determine the following:

a. Net Income (Loss) of the agency

b. Entries to record the transactions in the books of BBB and Quezon City Agency

Answer 1

a.

To compute the net income of the agency. Gross profit is based on cost. that why cost is 100% and GP is 25% so sales is 125%. To get the cost of sales 64 380 divide it by 125% equals 51 504.

Sales	64 380	125%
Less: Cost of Sales	51504	100%
Gross Profit	12 876	25%
Less: Expenses	9 740
Net Income	3 136

 

b. 

Samples Inventory - Quezon City Agency	P15 750
Working Fund	P9 000
	Shipments to Agency		P15 750
	Cash		P9 000
Accounts Receivable	P43 980
Cash		P20 400
	Sales		P64 380
Furniture and Fixtures	P25 000
	Cash		P25 000
Expense - Quezon City Agency	P3 815
	Cash		P3815
Expense - Quezon City Agency	P5 675
	Samples Inventory - Quezon City Agency	P5 675
	15 750 - 10 075 = 5 675
Cost of Sales - Quezon City Agency	P51 504
	Shipments to Agency		P51 504
	64 380/125%= 51 504
Depreciation Expense - Quezon City Agency	P250
	Accumulated Depreciation - FF		P250
	25 000 x 24% =6 000/12= 500 x 50% = 250
Closing Entries
Sales		P64 380
	Cost of Sales - Quezon City Agency	P51 504
	Expense - Quezon City Agency		P9740
	Quezon City Agency Income		P3136
Quezon City Agency Income	P3 136
	Income Summary		P3 136

 

Do not forget to record the depreciation of furniture and fixtures bought by the BBB Company and chargeable to Quezon City Agency. Cost of P25 000 multiplied by 24% to get the annual depreciation of P6 000. Since the date of purchase is March 15, get the depreciation for the half month. Annual depreciation of P6 000 divided by 12 months equals P500. P500 is monthly depreciation divide it by 2 = 250 depreciation for half month.

a. Net Income is 3,136.