uestion Description Assume that you are the accountant of ABC Company. The company’s home office is in Dubai and it has only one branch in Abu Dhabi. During 2017 the following transactions and events occurred. Part A Home office transferred $100,000 cash, $500,000 inventory (billed at cost) and other assets costing $20,000 to Abu Dhabi branch. Abu Dhabi branch transferred to home office $20,000 cash and $10,000 inventory (recorded at cost). An equipment is purchased by the home office for the branch’s usage for $80,000. Home office also pays $5000 for insurance for this asset which they allocated to branch. The home office keeps the accounting records for the equipment. Instructions: Prepare journal entries for these transactions for both home office and branch. Part B Prepare consolidated Income statement, Retained Earnings Statement and Balanced Sheet for ABC Company for the year ended December 31, 2018. You should use 4 column worksheets (Home office, Branch, Elimination and Combination). In the worksheet indicate the amounts as debit or credit. You need to assume account titles and account balances needed to prepare the worksheets and the financial statements. Prepare home Office Adjusting and Closing Entries and Branch Closing Entries that should be done 31/12/2018
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Assume that you are the accountant of ABC Company. The company’s home office is in Dubai and it has only one branch in Abu Dhabi. During 2017 the following transactions and events occurred.
Part A
- Home office transferred $100,000 cash, $500,000 inventory (billed at cost) and other assets costing $20,000 to Abu Dhabi branch.
- Abu Dhabi branch transferred to home office $20,000 cash and $10,000 inventory (recorded at cost).
- An equipment is purchased by the home office for the branch’s usage for $80,000. Home office also pays $5000 for insurance for this asset which they allocated to branch. The home office keeps the accounting records for the equipment.
Instructions: Prepare
Part B
- Prepare consolidated Income statement,
Retained Earnings Statement andBalanced Sheet for ABC Company for the year ended December 31, 2018. You should use 4 column worksheets (Home office, Branch, Elimination and Combination). In the worksheet indicate the amounts as debit or credit.
You need to assume account titles and account balances needed to prepare the worksheets and the financial statements.
- Prepare home Office Adjusting and Closing Entries and Branch Closing Entries that should be done 31/12/2018
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