Appendix 1A The Basics of

Branch/Division
Accounting

1
2 APPENDIX 1A THE BASICS OF BRANCH/DIVISION ACCOUNTING

A s discussed earlier, internal expansion using a branch/division form of organization is merely

the extension of the existing legal entitynot the creation of a new legal entity, as when a sub-
sidiary is formed. The headquarters location of the legal entity that establishes the newly formed
branch/division is referred to as the home office. Hereafter, we use the lone term branch rather than
the dual term branch/division.

I. ACCOUNTING SYSTEMS
Unlike a subsidiary, which is a separate legal entity that must maintain its own books and records,
home offices with branches have the option either to (1) allow the branch to maintain its own
books and records in a decentralized accounting system or (2) account for the branch on the home
offices books in a centralized accounting system. The decision is based on what is most practical
and economical.

Centralized Accounting
Under a centralized accounting system, an outlying location does not maintain a separate general
ledger in which to record its transactions. Instead, it sends source documents on sales, purchases,
and payroll to the home office. Outlying locations usually deposit cash receipts in local bank ac-
counts on which only the home office can draw. When the home office receives source documents,
it reconciles sales information with bank deposits, reviews and processes invoices for payment, and
prepares payroll checks and related payroll records. Inventory and fixed assets at each outlying lo-
cation also are recorded in the home office general ledger, appropriately coded to signify the loca-
tion to which they belong. Journal entries pertaining to each outlying locations transactions are
then prepared and posted to the home office general ledger. These entries are usually coded so that
accountants at the home office can readily prepare operating statements for each outlying location.
Centralized accounting systems commonly use computers at the home office to minimize the cler-
ical aspects of keeping records and preparing financial statements. The home office reviews oper-
ating statements for each outlying location and provides copies to outlying management. Central-
ized accounting systems are usually practical when the operations of the outlying location do not
involve complex manufacturing operations or extensive retailing or service activities. Grocery,
drug, and shoe store chains usually use centralized accounting systems. Because they present no un-
usual accounting issues, centralized accounting systems are not discussed any further.

Decentralized Accounting
Under a decentralized accounting system, an outlying location maintains a separate general ledger
in which to record its transactions. Thus the outlying location is a separate accounting entity, even
though it is not a separate legal entity. It prepares its own journal entries and financial statements,
submitting the latter to the home office, usually on a monthly basis. Decentralized accounting sys-
tems are common for outlying locations that have complex manufacturing operations or extensive
retailing operations involving significant credit sales. The following two accounting issues must be
resolved in a decentralized accounting system:

1. The manner in which transactions between the home office and the outlying locations are
recorded.
 APPENDIX 1A THE BASICS OF BRANCH/DIVISION ACCOUNTING 3

2. The procedures by which the revenues, costs, and expenses of the outlying locations are re-
ported for financial and income taxreporting purposes.

The remainder of this appendix discusses these two issues.

II. BRANCH GENERAL LEDGER ACCOUNTS

Intracompany Accounts
A branch is established when a home office transfers cash, inventory, or other assets to an outly-
ing location. Because the home office views the assets transferred to the branch as an investment,
it makes the following entry:

Investment in Branch . . . . . . . . . . . . . . . . . . . . . . . . . . xxx

Asset(s). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxx

This Investment in Branch account (sometimes called Branch Current) is used to track and
maintain control over (1) the assets transferred to the branch and (2) the increase or decrease in
the branchs net assets as a result of the branchs operations.
On receipt of the assets from the home office, the branch makes the following entry:

Asset(s). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxx
Home Office Capital . . . . . . . . . . . . . . . . . . . . . . . xxx

The Home Office Capital account represents the equity interest of the home office in the branch.
The use of such an account allows double-entry bookkeeping procedures to be used at the branch
level. (Remember that branches are not separate legal entities, and they do not have Common
Stock, Additional Paid-in Capital, and Retained Earnings accounts.)
The balance in the Investment in Branch account on the books of the home office always equals
the balance in the Home Office Capital account on the books of the branch. In practice, these ac-
counts are referred to as the intracompany or reciprocal accounts. At the end of each accounting
period, the branch closes its income or loss to its Home Office Capital account. Upon receipt of
the branchs financial statements, the home office adjusts its Investment in Branch account to re-
flect the branchs income or loss and makes the offsetting credit or debit to an income statement
account called Branch Income or Branch Loss (the equivalent of applying the equity method of ac-
counting for a subsidiarys earnings). As a result of this entry and upon closing the Branch Income
or Branch Loss account to the Retained Earnings account, the branchs income or loss is included
in the home offices Retained Earnings account.

Centralization of Finance/Treasury Activities

Branches are usually financed entirely by the home office, and they typically do not establish rela-
tions with local banks. But this pattern is not always the case with subsidiaries. Therefore,
branches usually do not incur interest expense. Some home offices that borrow money to expand,
however, will require such debt to be carried on the branch books and serviced by the branch.
If a branch has cash in excess of its immediate needs, it usually transfers the excess to the home
office, which is responsible for investing excess cash on a companywide basis. Thus branches usu-
ally do not have interest income from investments.

Income Tax Accounts and Reporting

Because branches are not separate legal entities, they do not file their own income tax returns. The
home office must include the income or loss from its branches along with its own income or loss
from operations for federal income taxreporting purposes. If the home office has operations in
4 APPENDIX 1A THE BASICS OF BRANCH/DIVISION ACCOUNTING

states that impose income taxes, it must file branch income tax returns in those states. Federal and
state income taxes are almost always computed at the home office and recorded exclusively in the
home offices general ledger. Few companies attempt to allocate or transfer income tax expense
from the home office general ledger to branch general ledgers. This not only simplifies the tax-
recording procedures but also eliminates the need to make arbitrary allocation assumptions. Fur-
thermore, the potential benefits, if any, from allocating income tax expense to the branches are
minimal in most instances.
Because branches do not have interest income, interest expense, or income tax expense, the in-
come or loss from their operations is an operating income or loss, not a net income or loss. Here-
after, all references to a branchs income or loss are in this context.

Home Office Allocations

The home office usually arranges and pays for certain expenses that benefit the branches. The most
common example is insurance. In theory, some portion of the insurance expense should be allo-
cated to the various branches so that the home office may determine the true operating income or
loss of each branch. In practice, however, allocations of home office expenses vary widely. Numer-
ous home offices allocate only those expenses that relate directly to the branch operations, such as
insurance and national advertising costs. Some home offices without any revenue-producing oper-
ations of their own allocate all their expenses (including salaries of home office executives, facili-
ties costs, legal fees, audit fees, and interest expense) to the branches. Branch managers are there-
fore continually aware that branch operations must cover these costs. Some home offices do not
allocate any home office expenses to the branches on the theory that because the branches have no
control over them, arbitrary allocations serve no useful purpose. The home office records alloca-
tions by debiting the Investment in Branch account and crediting the applicable expense accounts.
The branch debits the applicable expense accounts and credits its Home Office Capital account.
The result is the same as though the home office had transferred cash to the branch and the branch
had arranged for and incurred the expenses.

Fixed Asset Accounts

Some home offices require their branches fixed assets to be recorded on the home offices books
instead of on the branches books. Such a procedure automatically ensures that uniform deprecia-
tion methods and asset lives are used for all branches. The home office usually charges the branch
for the depreciation expense of its fixed assets. It does this by crediting Accumulated Depreciation
and debiting the Investment in Branch account instead of debiting Depreciation Expense. The
branch debits Depreciation Expense and credits the Home Office Capital account instead of cred-
iting Accumulated Depreciation. When fixed assets are recorded on the home offices books, the
fixed assets pertaining to the branch must be added to the Investment in Branch account to evalu-
ate the profitability of branch operations in relation to the total assets actually invested in the
branch. Branch fixed assets recorded on the home offices books are always coded or recorded in
separate accounts so that they may be readily identified.

Other General Ledger Accounts

The branch maintains the balance sheet and income statement accounts necessary to record trans-
actions that take place between (1) the home office and the branch and (2) the branch and its cus-
tomers, creditors, and employees. The extent of the accounts required depends on the scope of the
branchs operations.

Intracompany Inventory Transfers

Many home offices and their branches have intracompany inventory transfers. When such trans-
fers are made at a markup, the issue of unrealized intracompany profit arises. The appendix to
Chapter 9 discusses how to account for unrealized intracompany inventory profit involving a home
office and a branch.
 APPENDIX 1A THE BASICS OF BRANCH/DIVISION ACCOUNTING 5

III. COMBINED STATEMENTS

Month-End Verification of
Intracompany Account Balances
Before the branch prepares its closing entries and submits financial statements to the home office,
it must verify that its Home Office Capital account agrees with the Investment in Branch recipro-
cal account maintained by the home office. If the accounts do not agree, there are two possible
explanations:

1. A transaction initiated by one of the accounting entities has been improperly recorded by the
other accounting entity. The accounting entity that made the error must make the appropriate
adjusting entry.
2. A transaction initiated by one of the accounting entities has been recorded by the initiating en-
tity but not yet by the receiving entityfor example, cash transfers in transit, inventory ship-
ments in transit, and intracompany charges. Normally, the receiving accounting entity prepares
the adjusting entry as though it has completed the transaction before the end of the accounting
period. (It would be more disruptive to have the initiating accounting entity reverse the trans-
action.)

These adjusting entries to bring the intracompany accounts into agreement are absolutely nec-
essary for the proper preparation of combined financial statements. After making any necessary
adjustments, the branch submits an income statement and a balance sheet to the home office.

The Basic Elimination Entry

After the home office general ledger is adjusted for the branchs income or loss, it reflects the over-
all net income earned by the home office and the branch. In reporting to stockholders, however, it
is necessary to prepare combined financial statementsjust as it was necessary to prepare consol-
idated financial statements for a parent and subsidiary. The combining process is nearly identical
to that for consolidation of a parent and subsidiary. The worksheet used is called a combining
worksheet, however, rather than a consolidation worksheet. The basic elimination entry used to ef-
fect the combining is substantively the same as the basic elimination shown for the consolidation
of a subsidiary. This entry eliminates (1) the Investment in Branch account in the Home Office col-
umn (a reciprocal account), (2) the Branch Income account in the Home Office column, and (3)
the preclosing balance of the Home Office Capital account (a reciprocal account) in the Branch
column of the statement of retained earnings/analysis of home office equity section.

Comprehensive A Combining Worksheet

Illustration
A combining worksheet is shown in Illustration 1A-1. The assets and liabilities in the first two
columns are also used in Illustrations 2-4 and 2-12 in Chapter 2, when we discuss consolidation
of a parent and subsidiary. The basic elimination entry is as follows:

WO R K S H E E T E N T R Y O N LY
Branch Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
Home Office Capital (preclosing balance) . . . . . . . . . . . . . . . . . . . . . . . . . 56,000
Investment in Branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000

Review Points for Illustration 1A-1. Note the following:

1. The combining worksheet is started after the home office has made its adjusting entry concern-
ing the branchs income and after it has provided for income taxes on the branchs income.
6 APPENDIX 1A THE BASICS OF BRANCH/DIVISION ACCOUNTING

I L L U S T R AT I O N 1 A- 1 FIRST YEAR OF BRANCH OPERATIONS

Home Office and Branch

Combining Worksheet as of December 31, 2006

CONSOLIDATION ENTRIES
HOME
OFFICE BRANCH DR. CR. COMBINED
Income Statement (2006)
Sales . . . . . . . . . . . . . . . . . . . . . 600,000 234,000 834,000
Cost of sales . . . . . . . . . . . . . . . . (360,000) (110,000) (470,000)
Expenses . . . . . . . . . . . . . . . . . . . (190,000) (100,000) (290,000)
Branch income . . . . . . . . . . . . . . . 24,000 24,000 1 0
Net Income . . . . . . . . . . . . . . 74,000 24,000 24,000 74,000
Statement of Retained Earnings/
Analysis of Home Office Capital
Retained earnings, 1/1/06. . . . . . . 100,000 n/a 100,000
Home office capital (preclosing) . . . n/a 56,000a 56,000 1 0
+ Net income . . . . . . . . . . . . . . . . 74,000 24,000 24,000 74,000
Dividends declared . . . . . . . . . . . (51,000) (51,000)
Balances, 12/31/06 . . . . . . . . . . . 123,000 80,000 80,000 123,000
Balance Sheet
Cash . . . . . . . . . . . . . . . . . . . . . . 65,000 11,000 76,000
Accounts receivable . . . . . . . . . . . 75,000 37,000 112,000
Inventory . . . . . . . . . . . . . . . . . . 110,000 55,000 165,000
Investment in branch . . . . . . . . . . 80,000 1 80,000 0
Land. . . . . . . . . . . . . . . . . . . . . . 220,000 30,000 250,000
Buildings and equipment . . . . . . . . 500,000 150,000 650,000
Accumulated depreciation . . . . . . . (320,000) (13,000) (333,000)
Total Assets . . . . . . . . . . . . . . 730,000 270,000 80,000 920,000
Payables and accruals . . . . . . . . . . 157,000 70,000 227,000
Long-term debt . . . . . . . . . . . . . . 250,000 120,000 370,000
Common stock ($1 par) . . . . . . . . . 10,000 10,000
Addl paid-in capital . . . . . . . . . . . 190,000 190,000
Retained earnings. . . . . . . . . . . . . 123,000 123,000
Home office capital . . . . . . . . . . . 80,000 80,000 0
Total Liabilities and Equity . . . . 730,000 270,000 80,000 80,000 920,000

Proof of debit and credit postings. . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 80,000

a
This amount is the balance in the Home Office Capital account excluding the current year earnings ($80,000 ending balance $24,000 of 2006 earnings).
Explanation of entries:
1 The basic elimination entry.

2. The balance in the Retained Earnings account in the Home Office column includes the branchs
income net of applicable income taxes. This retained earnings amount is the combined retained
earnings.
3. The net income in the Combined column is the same as the net income in the Home Office col-
umn.
4. The amounts in the Combined column are identical to the amounts in the Consolidated column
of Illustration 2-4 and 2-12.

GLOSSARY OF NEW TERMS FOR APPENDIX 1A

Home office The headquarters location of a legal business entity that establishes a branch.
 APPENDIX 1A THE BASICS OF BRANCH/DIVISION ACCOUNTING 7

Centralized accounting A system whereby the accounting for outlying locations is performed at
the home office; the outlying locations do not maintain general ledgers.
Decentralized accounting A system whereby outlying locations maintain their own general ledgers
and submit financial reports periodically to the home office.

SELF-STUDY QUESTIONS FOR APPENDIX 1A

(Answers are at the end of these questions.)
1. Which of the following accounts is a reciprocal account to the Investment in Branch account?
a. Branch Income.
b. Capital in Home Office.
c. Home Office Capital.
d. Contributed Capital.
2. In preparing combined statements, which of the following accounts are eliminated (brought to
a zero balance) in the combining process?
Branch Income or Loss Home Office Capital
a. Yes Yes
b. No Yes
c. No No
d. Yes No
3. Which of the following would account for the Investment in Branch account being less than the
Home Office Capital account?
a. A cash transfer to the branch that is in transit.
b. A cash transfer to the home office that is in transit.
c. A home office expense allocation to the branch that the branch has not yet recorded.
d. Payment by a home office customer of its bill at the branch that the branch neglected to re-
port to the home office.
4. A month-end allocation of previously recorded advertising expenses to a branch requires which
of the following entries on the home office books?
Debit Credit
a. Investment in Branch Advertising Expense
b. Home Office Capital Advertising Expense
c. Branch Income Home Office Capital
d. Investment in Branch Accrued Liabilities
5. A month-end allocation of previously recorded advertising expenses to a branch requires which
of the following entries on the branch books?
Debit Credit
a. Advertising Expense Accrued Liabilities
b. Branch Income Home Office Capital
c. Advertising Expense Home Office Capital
d. Home Office Capital Accrued Liabilities
6. In the combining worksheet at year-end, the Home Office Capital account has an ending bal-
ance of $200,000 as shown in the balance sheet. The branch reported $44,000 of income for
the year. What would the basic elimination entry include?
a. A $200,000 debit to the Home Office Capital account in the analysis of home office capital.
b. A $156,000 credit to the Home Office Capital account in the analysis of home office
capital.
c. A $156,000 debit to the Home Office Capital account in the balance sheet.
d. A $44,000 debit to the Home Office Capital account in the balance sheet.
8 APPENDIX 1A THE BASICS OF BRANCH/DIVISION ACCOUNTING

7. Use the information in question 6. What would the basic elimination entry include?
a. A $44,000 debit to the Branch Income account.
b. A $44,000 credit to the Branch Income account.
c. A $156,000 debit to the Branch Income account.
d. A $200,000 debit to the Branch Income account.

Answers to Appendix Self-Study Questions

1. c 2. a 3. d 4. a 5. c 6. c 7. a

(Interactive Quizzes containing these questions and answers can be found at the website:
http://pahler.swlearning.com)

EXERCISES FOR APPENDIX 1A

E 1A-1 Recording Intracompany Transactions The following are intracompany transactions between a
home office and its branch:
1. The home office sent $100,000 cash to the branch.
2. The home office shipped inventory costing $200,000 to the branch; the intracompany billing
was at cost. Assume that each location uses a perpetual inventory system.
3. The home office allocated to the branch $3,000 of previously recorded advertising expenses to-
taling $9,000.
4. A branch customer erroneously remitted a $4,000 payment to the home office instead of to the
branch. The home office recorded the deposited check and notified the branch.
5. The home office, which carries branch fixed assets on its books, allocated $5,000 of deprecia-
tion expense to the branch.
6. The branch remitted $60,000 excess cash to the home office.

Required 1. Prepare the home office and branch journal entries for these transactions.
2. Assuming that the branch reported $22,000 of net income for the period, prepare the home of-
fices entry in recognition of this income.

E 1A-2 Reconciling Intracompany Accounts On 12/31/05, the Home Office Capital account on the
branchs books has a $44,000 balance, and the Investment in Branch account on the home offices
books has an $85,000 balance. In analyzing the activity in each of these accounts for December,
you find the following differences:
1. A $10,000 branch remittance to the home office initiated on 12/27/05 was recorded on the
home office books on 1/3/06.
2. A home office inventory shipment to the branch on 12/28/05 was recorded by the branch on
1/4/06: the $20,000 billing was at cost.
3. The home office incurred $12,000 of advertising expenses and allocated $5,000 of this amount
to the branch on 12/15/05. The branch has not recorded this transaction.
4. A branch customer erroneously remitted $3,000 to the home office. The home office recorded
this cash collection on 12/23/05. Meanwhile, the branch has made no entry yet.
5. Inventory costing $43,000 was sent to the branch by the home office on 12/10/05. The billing
was at cost, but the branch recorded the transaction at $34,000.
 APPENDIX 1A THE BASICS OF BRANCH/DIVISION ACCOUNTING 9

Required Prepare the entries to bring the intracompany accounts into balance as of 12/31/05. Assume that
a perpetual inventory system is in use. (Use T accounts.)

E 1A-3 Reconciling Intracompany Accounts The following entries are reflected in the intracompany ac-
counts of a home office and its lone branch for June 2005:
Investment in Branch

6/1 Balance . . . . . . . . . . . . . . . . . $ 50,000

6/5 Inventory shipment . . . . . . . . . 30,000 6/2 Remittance . . . . . . . . . . . . . . . $10,000
6/12 Inventory shipment . . . . . . . . . 12,000 6/8 Collection of branch receivable . . 1,000
6/20 Inventory shipment . . . . . . . . . 17,000 6/27 Equipment purchase by branch . . 7,000
6/25 Advertising allocation to branch
(50% of $8,000 incurred) . . . . . 4,000
6/28 Inventory shipment . . . . . . . . . 14,000
6/30 Depreciation allocation . . . . . . 2,000
6/30 Balance . . . . . . . . . . . . . . . . . $111,000

Home Office Capital

6/1 Balance. . . . . . . . . . . . . . . . . . $50,000

6/2 Remittance. . . . . . . . . . . . . . . $10,000 6/8 Inventory shipment. . . . . . . . . . 30,000
6/24 Purchase of equipment (carried 6/10 Collection of home office
on home office books) . . . . . . . 7,000 receivable . . . . . . . . . . . . . . . . 2,000
6/29 Remittance. . . . . . . . . . . . . . . 15,000 6/16 Inventory shipment. . . . . . . . . . 12,000
6/30 Inventory returned to home . . . 6/24 Inventory shipment. . . . . . . . . . 17,000
office . . . . . . . . . . . . . . . . . . 1,000 6/28 Advertising allocation . . . . . . . . 400
6/30 Depreciation allocation . . . . . . 2,000
6/30 Balance. . . . . . . . . . . . . . . . . . $76,400

Required 1. Prepare a schedule to reconcile the intracompany accounts. Assume that (1) inventory ship-
ments to the branch are billed at the home offices cost and (2) a perpetual inventory system is
used.
2. Prepare the adjusting journal entries to bring the intracompany accounts into balance.

PROBLEM FOR APPENDIX 1A

P 1A-1* Combining Worksheet: Inventory Transfers at Cost The 12/31/06 financial statements of Kringle
Inc. and its 34th Street branch (established in 2006) are given as follows:
Home Office Branch

Income Statement (2006)

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 700,000 $ 200,000
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (390,000) (135,000)
Selling expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,000) (11,000)
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000) (4,000)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,000)
Branch income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Income before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250,000 $ 50,000
Income tax expense @ 40% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,000 $ 50,000

(continued)

* The financial statement information presented for problems accompanied by asterisks is also provided on Model 1BR (filename:
MODEL01BR) at the http://pahler.swlearning.com website, allowing the problem to be worked on the computer.
10 APPENDIX 1A THE BASICS OF BRANCH/DIVISION ACCOUNTING

Home Office Branch

Balance Sheet
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,000 $ 10,000
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 20,000
Inventory:
Acquired from vendors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000 10,000
Acquired from home office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770,000 140,000
Investment in branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,290,000 $ 210,000
Payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,000 $ 40,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000
Home office capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
Total Liabilities and Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,290,000 $ 210,000
Dividends declared during 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 110,000

Required Prepare a combining statement worksheet as of 12/31/06, assuming that inventory transfers to the
branch from the home office are at cost.