1. A branch that maintains a general ledger is said to use a (n) accounting system?
a. Centralized
c. Athoritarian
b. Decentralized
d. None of the above.
2. The Investment in Branch accounting has a balance that equals the account of the branch?
a. Home Office Current
b. Asset .
c. liability
d. None of the above.,
3. 0n the home office's books, the earnings of a branch are recorded in an account called?
a. Branch Income Summary
c. Retained earnings
b. Income. Summary
d. Liability account
4. Income taxes pertaining to · branch earnings are usually recorded on the books of the
a. Home Office c. Ignored
b. Branch d. None of the above.
5. Statement 1: An expense item allocated by the home office to a branch is recorded, by the branch, by
a, debit to an expense ledger account and a credit to the Home Office account.
Statement 2: A debit to the Home office ledger account and a credit to the Trade Accounts Receivable
account in the accounting records of a branch indicate that the home office collected accounts receivable
of the branch.
a. S1-True S2-True
b. S 1-True S2-False
c. S1-False S2-True
d. S 1-False; S2-False.
6. Statement 1: Start up costs incurred by a branch in the initial months of operations are appropriately
deferred and amortized in subsequent profitable accounting periods.
statement 2 : If the home office carries branch equipment in its accounting records, an acquisition of
equipment by the branch is recorded in the home office accounting records by a debit to the Investment in
Branch ledger account and a credit to the Equipment Branch Account
a. S1-True: S2-True
c. S1-False S2.-True
b. 5S1-True S2-False
d. S 1-False: S2-False
7. Statement 1: separate financial statements of home office and branch do not meet the needs of
investors, creditors, or other outside users of financial statements.
Statement 2 : In a working paper for combined financial statements of home office and branch, the
balance of the Shipments to Branch ledger account is eliminated against the balance of the Investment in
Branch account.
a. S1-True S2-True
b. 51-True 52-False
c.S1-False : S2-True
d. S1-False: S2-False
8. statement 1 : If the perpetual inventory system is used by both the home office and the branch, the
reciprocal ledger accounts used by, the branch are the Home Office and Shipments from Home Office
accounts.
Statement 2 : The shipments to branch account is added to the home office's purchases account in
determining home office Cost of goods sold.
a. S 1-True ; S2-True c. S1-False ; S2-True
b. S1-True : S2-False d. S1-False ; S2-False
9. Statement 1 : when inventory is received from the home office, a branch increases its home office
account.
Statement 2 : Reciprocal home office and branch accounts are eliminated when home office and branch
financial statements are combined for external reporting.
a. S1-True : S2-True c. S1-False ; S2,-True
b. S1-True S2-False d. S1-False: S2-False
10. Statement 1 :. The branch office account on the home office's books and the Home office account on
the branch's books are examples of nonreciprocal accounts whose balances would be combined when the
home office is preparing a balance sheet for all its combined operations.
statement 2 : when performing the end-of-the-period reconciliation between the Home office account on
the branch's books and the Branch Account on the home office's books, shipments in transit from the
branch back to the home office will be treated as an addition to the home office's Branch Account.
a. S1-True; S2-True
b. S1-True S2-False
c. S1-False 52-True
d. S1-False: 52-False
11. statement 1: when performing the end-of-the-period reconciliation between the Home office
accounts on the branch's books and the Branch Account on the home office's books, home office expenses
which are allocated to the branch office from the home, office will be subtracted from the Home office
Account on the branch's books.
Statement 2 : There are three ways to reconcile the balance in the home office's would be to reconcile
from the home office balance to the branch balance. A second way would be to reconcile from the branch
balance to the home office balance. A final home office balance to the adjusted true balance, way would
be to reconcile both the home office’s branch balance and the branch's
a. S1-True S2-True
b. S1 True; S2-False
c. S1-False S2-True
d. S1-False S2-False
12. Statement 1 : The incremental profitability of a branch office may be hidden if the home office
allocates too many fixed costs to the branch office.
Statement 2 : A major disadvantage of a centralized accounting system is half the profitability of branch
operations cannot be determined because branch operations are not accounted for in a separate general
ledger.
a.S1-True S2-True
b. S1-True; S2-False
c. S1-False 52-True
d S1-False 52-. False
13. Statement 1: Home office allocations to a branch are not required under current standards.
Statement 2 : Income taxes can be allocated to a branch.
a. S1-True; S2-True
c. S1-False S2-True
b. S1-True; S2-False
d. S1-False S2-False
14. Statement 1 : Branch fixed assets can be carried on the home office's books under a decentralized
accounting system.
Statement 2 : If branch fixed assets are recorded On the home office's-books, depreciation expense would
not be charged to branch operations.
a. S1-True; S2-True c. S1-False S2-True ·
b. S1-True S2-False d. S1-False: S2-False
15. Which of the following accounts is a reciprocal account to the Investment in Branch account?
a. Branch Income.
c. Home Office Capital.
b. Equity in Home Office. d. None of the above.
16. In preparing combined financial 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
17. A control feature in a decentralized accounting system is
a. The balance in the Investment in Branch account must equal the balance in the Home Office Capital
account.
b. The balance in the Investment in Branch account must equal the balance in the Home Office Capital
account less the branches cumulative unremitted
profits.
C. The intracompany accounts. Are eliminated ln pre paring combined financial
statements.
d. The balance in the Investment in Branch account must equal the balance in the Branch Income account.
18. which of the following would explain why the investment in branch account is less than the Home
office capital account?
A. cash transfer to the branch is in transit.
b An inventory shipment to the branch (at cost) is in transit.
c A home office has received and deposited a remittance from a branch
d customer but has not yet notified the branch.
e. None of the abov
19. A home office, month-end allocation of previously recorded advertising expenses to branch requires
the following entry on the home office's books
Debit
Credit
a. Investment in Branch
Advertising Expense
b. Home office Capital
Advertising Expense
c. Investment in Branch
Accrued Liabilities
d. None of the above
20. A home office, month-end allocation of previously recorded advertising expenses to branch requires
the following entry on the branch's books to record the allocation
Debit
Credit
a. Advertising Expense
Accrued Liabilities
b. Branch Income
Home Office Capital
c. Advertising Expense
Branch Income
d. Home Office Capital
Accrued Liabilities
e. None of the above.
21.The Shipments to Branch ledger account in the accounting records of the home office of
a business enterprise
a. Is an asset valuation account
b. Indicates that the home office uses the periodic inventory system
C. Is adjusted at the end of the accounting period to equal the unrealized
profit in the branch's ending inventories
d. Is not displayed in the home office's separate financial statements
22.The Western Branch of Rivas Company reported a net income of P60, 000 tor the month
of January, The-appropriate journal entry (explanation omitted). For the home office of
Rivas Company is :
a. income summary
60,000
Income: Western Branch
b. Income: Western Branch
60,000
income summary
C. Investment in western branch 60,000
Income: Western Branch
d. Investment in western branch 60,000
income summary
60,000
60,000
60,000
60,000
23.Both a home office and a branch use the periodic inventory system. If at the end of an accounting
period the balance of the branch's Home Office ledger account does not agree with the balance of the
home office's Investment in Branch account because of a shipment of merchandise in transit from the
home office to the branch
a. The home office debits Investment in Branch and credits Shipments in Transit to Branch.
b. The branch debits Home office and credits shipments in Transit from Home Office.
c. the home office debits Shipments in Transit to Branch and credits Investment
d. The branch debits Shipments in transit from Home Office and credit Home Office.
24.On September 30, 20×4, the home office of King company shipped merchandise costing Branch did
not receive the merchandise on that same clay. Both the home office and P8, 000 to Rizal Branch and
prepared an appropriate entry for the shipment. The Rizal Branch did not receive the merchandise on that
same day. Both the home office and the branch use the perpetual inventory system
The end of period adjustments on September 3o, 2o×4 should include
a. A debit to Inventories and a credit to Home office current in the branch accounting records.
b A debit to Branch current and-a credit to Inventories in the home office accounting records.
C. A debt to Home Office current and a credit to Inventories in the branch accounting records.
d. Other journal entry
25. Among the journal entries'(explanation omitted) in the accounting records of the home
Office of Price Company was the following:
This journal entry indicates that
a. The home office acquired office equipment for the branch
b. The home office shipped office equipment to the branch
c. The branch acquired office equipment, which is carried in the accounting records of the home office
d. None of the foregoing occurred
26. The Income Branch ledger account S maintained in the accounting records of
a. The home office only
b. The branch only
c. Both the home office and the branch
d. Neither the home office nor the branch
27. If at the end of an accounting period the balance of the Investment in Branch ledger
account in the accounting records of the home office is P20, 000 and the balance of the
Home, Office account in the accounting records of the branch (after the branch recorded
closing entries) is P25, 500, the most likely explanation for the discrepancy of P5, 500 is a
a. Remittance of cash to the branch not recorded by the home office
b. Net income of branch not recorded by the home office
C. Net loss of branch not recorded by the home office
d. Collection by the home office of a branch note receivable not recorded by the branch
28. The Home Office ledger account n the accounting records of a branch is best described
as
a. A revenue account
b. An equity account
c. A deferred revenue account
d. None of the foregoing
29. The following journal entry (explanation omitted) appeared in the accounting records of
Marty Corporation's only branch : 6oo, 000
a. The branch incurred operating expenses for the benefit of the home office
b. The home office incurred operating expenses for the benefit of the branch
c. The branch paid the home office for services rendered to the branch
d. None of the foregoing occurred
30. In a working paper for combined financial statements of home office and branch, the
a. The debit column of the branch income statement section and the credit column of the branch statement
of retained earnings section
b. The credit column of the branch income statement section and the debit column of the branch statement
of retained earnings section
c. The debit column of the branch income statement section and the credit column of the home office
statement of retained earnings section
d. Some other manner.
31. A debit to the Income summary ledger account and a credit to the Home Office account appear in
a. The accounting records of the home office to record the net income of the home office
b. The accounting records of the home office to record the net income of the branch
c. The accounting records of the branch to record the net income of the branch
d. Some other manner
32. The following journal entry (explanation omitted) appeared fn the accounting records of the home
office of Silversmith Company This journal entry indicates that
a. The branch incurred operating expenses for the benefit of the home office
b. The home office incurred operating expenses for the benefit of the branch
c. The branch paid the home office for services rendered to the branch
d. None of the foregoing occurred
33. If both the home office and the branch of a business enterprise use the periodic inventory system, the
home office's Shipments to Branch ledger account :,
a. Is a valuation account for the home office's Investment in Branch Account#
b. Always should have the same balance as the branch's Shipments from Home Office account
c. ls a revenue account
d. Is a valuation account for the home office’s purchases account?
34. If both the home office and the branch of a business enterprise use the perpetual inventory system, a
Shipment to Branch ledger account appears in the accounting
records of
a. The home office only
b. The branch only
C. Both the home office and the branch
d. Neither the home office nor the branch
35. On January 31, 20×4, the home office of wall company collected a trade account include a
receivable of Doris Branch. The accounting for this transaction by wall company should
a. Credit to Trade Accounts Receivable: Doris Branch in the accounting records
of the home office
b. Debit to Cash in Transit in the accounting records of Doris Branch
c. Credit to Investment in Doris Branch in the accounting records of the home officed. Debit. To Receivable from Home office in the accounting records of Doris Branch
36. If the home office of Mobile Company maintains the accounting records for plant assets of its
branch, and the branch acquired equipment for P100,000, the appropriate journal entry for the branch
is
a. Debit the Home Office Current account and credit a plant asset account for P100,000
b. Debit the Home Office Current account and credit Cash forP100,000.
c. Debit a plant asset account and credit the Home Office Current account for P100,000
d. Debit Cash and credit the Home Office Current account for P100,000.
Use the following information for Questions 37 and 38:
A company has an external sales agency. The company allows the sales agency to incur and pay for all its
expenses and approved asset purchases. The company has never transferred any tangible assets to the
agency and created the agency by simply establishing an agency working capital fund of P25,000.
Whenever the sales agency needs more working capital, it transmits the receipts for what is has spent
back to the main office which then sends cash back to the agency to cover the remitted items. Small
amounts of merchandise inventory are sent to the agency for display and demonstration purposes. These
items are transferred at cost.
37. An operation such as the one described above most closely resemble a(n):
a. Voucher system
b. Petty Cash system
c. Accounts Receivable subsidiary ledger
d. Accounts Payable subsidiary ledger
38. The primary advantages of the system described is that it:
a. Is adequate for effective control over agency expenses
b. Is adequate for measuring the contribution of agency operations to enterprise income
c. It is simple to establish and maintain
d. It provides a basis for determining if agency operations are being performed efficiently
39. Which of the following statements most correctly describes the types of information that a sales
agency would gave to collect for the home office to properly determine the sales agency’s
profitability?
a. Only agency sales, operating expenses, and cost of sales
b. Only agency sales and operating expenses
c. Only agency sales, cost of sales, operating expenses, and the actual or average amount of
fixed assets located at the agency locations.
d. Only agency sales, operating expenses, and the ending balance of accounts receivable.
40. Which of the following statements correctly describes the relationship between the accounting
systems used or a sales agency when compared to the accounting systems used for a branch office:
a. The sales agency accounting system cannot be set up to measure the profitability of the sales
agency but the branch accounting system can be set up to measure the profitability of the
branch.
b. The sales agency accounting system can be set up to measure the profitability of the sales
agency but the branch accounting system cannot be set up to measure the profitability of the
branch
c. The accounting system of the sales agency is not usually considered a separate segment of the
company’s entire accounting system but the accounting system of the branch office is usually
considered a separate segment of the company’s entire accounting system.
d. None of the above
41. In preparing the financial statements of the home office and its various branches:
a. Nonreciprocal accounts are eliminated bur reciprocal accounts are combined
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combined
d. Reciprocal accounts are eliminated and nonreciprocal accounts are combined
Special Procedures
42. Statement 1 (S1): The balance of the Allowance for Overvaluation of Inventories: Branch ledger
account is deducted from the balance of the Investment in Branch account in the separate balance
sheet of the home office.
Statement 2 (S2): If the home office bills shipments of merchandise to the branch at 25% above home
office cost and the adjusted balance of the Allowance for Overvaluation of Inventories: Branch ledger
account is P20,400, the amount of branch inventories at billed prices is P81,600.
a. S1- True; S2- True
c. S1- False; S2- True
b. S1- True; S2- False
d. S1- False; S2- False
43. Statement 1 (S1): If branch managers are responsible for ordering merchandise from the home office,
any excess freight costs incurred as a result of inter-branch shipments are absorbed by the appropriate
branch rather than by the home office.
Statement 2 (S2): Freight costs on merchandise shipped, as directed by the home office, by Westside
Branch to Eastside Branch in excess of normal freight costs from the home office to Eastside Branch
are recognized as operating expenses of the home office.
a. S1- True; S2- True
c. S1- False; S2- True
b. S1- True; S2- False
d. S1- False; S2- False
44. Statement 1 (S1): A markup of 16 2/3% on billed price is equal to a markup of 14 2/7% on cost of
merchandise shipped to the branch by the home office.
Statement 2 (S2): If the home office bills merchandise shipments to the branch at prices above home
office cost, the net income reported to the home office by the branch is overstated from a total
company point of view.
a. S1- True; S2- True
c. S1- False; S2- True
b. S1- True; S2- False
d. S1- False; S2- False
45. Statement 1 (S1): In a combined balance sheet for home office and branch, the balance of the
Allowance for the Overvaluation of Inventories: Branch ledger account is deducted from the balance
of the Investment in Branch account.
Statement 2 (S2): A home office ships merchandise to its branch at a transfer price greater than cost.
When this merchandise is resold by the branch to outside entities, the branch’s profit will be
overstated.
a. S1- True; S2- True
c. S1- False; S2- True
b. S1- True; S2- False
d. S1- False; S2- False
46. Statement 1 (S1): A closing entry prepared by a branch will adjust the loading account and record
branch profit or loss in the home office account.
Statement 2 (S2): Unrealized profits from transaction between a home office and its branch are
eliminated in preparing combined financial statements for the enterprise.
a. S1- True; S2- True
c. S1- False; S2- True
b. S1- True; S2- False
d. S1- False; S2- False
47. Statement 1 (S1): A home office records shipments to its branch at billing prices and adjusts the
loading account at year-end. When this approach is used, the loading account during the period will
always be zero.
Statement 2 (S2): If a “loading” account is used, the “shipments to branch” account on the home
office books is created for the actual cost of shipments made to the branch whereas the “shipments
from the home office” on the branch’s books includes any initial unrealized profit.
a. S1- True; S2- True
c. S1- False; S2- True
b. S1- True; S2- False
d. S1- False; S2- False
48. Statement 1 (S1): Freight charges incurred by the branch office on merchandise inventory shipped
from the home office would be included in the branch’s cost of goods available for sale even if the
wrong merchandise was shipped from the home office.
Statement 2 (S2): One reason why a branch office would not have a “loading” account is that the
home office usually does not want the branch personnel to know the amount of unrealized profit built
in to the merchandise’s transfer price.
a. S1- True; S2- True
c. S1- False; S2- True
b. S1- True; S2- False
d. S1- False; S2- False
49. Statement 1 (S1): It is equally probable that “loading” account could be charged with an unrealized
inventory loss as it is that it could be charged with an unrealized inventory profit.
Statement 2 (S2): As a general rule, the “loading” account will be credited for the unrealized profit
element of merchandise shipped to the branches and debited or the amount of any realized inventory
profits.
a. S1- True; S2- True
c. S1- False; S2- True
b. S1- True; S2- False
d. S1- False; S2- False
50. Statement 1 (S1): If the “Shipments from the Home Office” account and the “Shipments to the
Branch Office” account are kept on a reciprocal basis and the home office charges a mark- up on
these shipments, there will be no need to adjust the loading account at the end of the period for any
realized inventory profits.
Statement 2 (S2): If the “Shipment from the Home Office” account and the “Shipments to the Branch
Office” account are kept on a reciprocal basis and the home office charges a mark-up on these
shipments, two adjustments to the loading account will be needed at the end of the period. One
adjustment will be needed to adjust the “Shipments to Branch” account down to its cost basis, and, a
second adjustment will be needed to transfer any realized inventory profits from the loading to the
“Branch Profit” account.
a. S1- True; S2- True
b. S1- True; S2- False
c. S1- False; S2- True
d. S1- False; S2- False
51. The Allowance for Overvaluation of Inventories: Branch ledger account of the home office is debited:
a. When the home office ships merchandise to the branch at a billed price that exceeds cost.
b. In a journal entry to close the account at the end of an accounting period.
c. When the branch’s ending inventory is recorded in the home office accounting records.
d. In some other circumstances.
52. Amongst the various reasons given for the internal transfer of merchandise inventory at a price above
its cost are:
a. The equitable allocation of income amongst the various units of the business enterprise
b. Efficiency in pricing inventories
c. Concealment of the true profit margins from branch personnel
d. All of the above are considered valid reasons
53. A branch office is allowed to make sales, carry inventory for resale to customers, and incur normal
operating expenses. The home office ships merchandise to the branch office at cost plus a 20%
markup. The home office uses a loading account. If the loading account is used in its customary
fashion, it will track:
a. Unrealized inventory profits only
b. Unrealized inventory profits and overall branch profits but not branch losses
c. Unrealized inventory profits and overall branch profits and losses
d. Overall branch profits and losses but not unrealized inventory profits
54. It is generally accepted that a branch office should incur and pay for, or at least be charged with it, the
reasonable caused of transporting merchandise into the branch office and preparing it for sale to
customers. In light of this generally accepted practice, which of the following charges for freight costs
would be considered unreasonable if imposed on the branch office:
a. Requiring the branch to ship some of its inventory to another branch location due to inventory
shortages at the destination branch.
b. Charging a cost to the branch for freight charges that is a fixed percentage of the cost billed to
the branch for the inventory itself
c. Charging freight charges to a branch office for inventory shipped by mistake where the
number of such mistakes occur rather frequently
d. All of the situations would normally be considered unreasonable
55. In preparing combined financial statements, which of the following accounts are eliminated (brought
to a zero balance) in the combining process?
Branch Income or Loss
Purchases sent to Branch
a.
Yes
Yes
b.
No
Yes
c.
No
No
d.
Yes
No
56. In the year end general ledger closing procedures, which accounts are closed in arriving at Cost of
Sales?
Purchases sent to Branch
Purchases from Home Office
a.
Yes
Yes
b.
No
Yes
c.
No
No
d.
Yes
No
57. The general ledger entry to adjust the Intracompany Profit Deferred account at the end of an
accounting period
a.
b.
c.
d.
Is reversed in the following accounting period
Is reversed in the combining process
Results in an entry in the combining process that is essentially a reclassification entry
Results in the intracompany Profit Deferred account being reduced to a zero balance in the
combined column of the combining statement worksheet.
e. None of the above
MULTIPLE CHOICE THEORIES- ANSWERS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
B
A
A
A
A
D
B
D
D
B
B
C
D
C
C
A
A
D
A
E
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
B
C
D
A
C
A
B
B
B
A
C
B
D
D
C
B
B
C
C
C
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
D
B
A
D
D
A
C
C
C
A
D
D
A
D
D
D
C