HOME OFFICE AND BRANCH ACCOUNTING
PROBLEMS:
1.
Cebu branch submitted the following data to its home office in Manila for 2016, its first year of operation:
Sales
Shipments from home office
Operating expenses
Home Office
P 2,300,000
1,850,000
235,000
480,000
Shipments to the branch are billed at cost. The December 31 inventory of the branch was P255,500.
What is the balance of the Investment in Branch account on December 15, 2016 on the home office books?
a. P 950,500
b. P 470,500
c. P 950,000
d. P 480,000
SOLUTION:
Answer: A
Since the balance of the reciprocal accounts “Home Office” account and “Investment in Branch”
account are equal, then the balance of the Home Office account after closing the branch profit is to be
computed. The computation is:
Home Office account balance before branch profit
Add: Profit (loss)
Sales
Cost of sales:
Shipments from HO
Inventory, Dec. 31
Gross profit
Operating expenses
Home Office account balance, December 31, 2014
2.
P 480,000
P 2,300,000
P 1,850,000
255,500
1,954,500
P 705,500
235,000
470,500
P 950,500
The home office in Quezon City ships and bill merchandise to its provincial branch at cost. The branch
carries its own accounts receivable and makes its own collections. The branch also pays its expenses.
The transactions for 2016 are reflected in the branch trial balance that follows:
Cash
Accounts Receivable
Home Office
Shipments from Home Office
Sales
Expenses
P 20,000
80,000
Total
P 405,500
December 31, inventory
P 65,000
P 180,000
250,000
225,500
55,500
P 405,500
No. 2 – Continued
Assuming all the transactions are properly recorded, what is the balance of the Investment in Branch account in the
home office books?
a. P 180,000
b. P 195,000
c. P 165,000
d. P 175,000
SOLUTION:
Answer: C
Home Office account before branch profit (loss)
Add: Profit (loss)
Sales
Cost of Sales:
Shipments from HO
Inventory, 12/31
Gross profit
Expenses
Home Office account balance, 12/31
P 180,000
P 225,500
P 250,000
65,000
185,000
P 40,500
55,500
( 15,000)
P 165,000
Therefore the balance of the Investment in Branch account is also P 165,000.
3. The following data pertains to the shipments of merchandise from Home Office to Branch during 2016:
Home office’s cost of merchandise
Inter-office billings
Sales by branch to outsiders
Merchandise inventory on December 31, 2016
P 350,000`
420,000
520,000
50,000
In the combined statement of comprehensive income of the Home Office and the Branch for the year ended
December 31,2016, what amount of the above transactions should be included as sales?
a. P 570,000
b. P 520,000
c. P 470,000
d. P 350,000
SOLUTION:
Answer: B
In the preparation of combined statements of the home office and the branch, all inter-office transactions are
eliminated as if it had never occurred. Therefore, the only transactions that should be presented are transactions to
outsiders, which is in this problem, the P 520,000 sales by branch to outsiders.
4. Nike Corporation operates a number of branches in the provinces. On December 31, 2016, its Davao branch
showed a Home Office account balance of P 54,700 and the home office books showed an Investment in Davao
Branch account balance of P 51,100. The following information they help in reconciling both accounts:
1. A P 24,000 shipment, charged by Home Office to Davao Branch, was actually sent to and retained by Cebu
Branch.
2. A P 30,000 shipment, intended and charged to Aklan Branch was shipped to Davao Branch and retained by the
latter.
3. A P 4,000 emergency cash transfer from Cebu Branch was not taken up in the Home Office books.
4. Home Office collects a Davao Branch accounts receivable of p 7,200 and fails to notify the branch.
5. Home Office was charged for P 2,400 for merchandise returned by Davao Branch on December 30. The
merchandise is in transit.
Home Office erroneously recorded Davao Branch’s net income for 2016 at P 32,550.
What is the adjusted balances of the Home Office and Davao Branch reciprocal accounts on December 31, 2016?
a. P 40,300
b. P 54,700
c. P 47,500
d. P 43,500
SOLUTION:
Answer: C
To compute the adjusted balances of the reciprocal accounts a reconciliation statement is to be prepared as follows:
Unadjusted balances, December 31, 2016
Add (deduct) the following adjustments
1. Shipment charged to Davao branch
but actually sent to Cebu branch
2. Shipment charged to Aklan branch
but actually sent to Davao branch
3. No effect.
4. Home office collection of Davao Branch
accounts receivable
5. Merchandise returned by Davao branch.
Still in transit to home office.
6. Overstatement of Davao branch net
Net income (P 32,550 – P 25,350)
Adjusted balances, December 31, 2016
(Branch books)
Home Office
Account
P 54, 700
(HO Books)
Investment in
Davao Branch
Account
P 51, 100
( 24,000)
( 7,200)
( 2,400)
P 47,500
( 7,200)
P 47,500
5. The branch manager of Tower Cosmetics in Cebu submitted a report as of May 31, 2016 containing the following
information:
Petty Cash Fund
Sales
Sales Returns
Accounts Wriiten Off
Shipments from Home Office
Accounts Receivable – May 31, 2015
Accounts Receivable – May 31, 2016
Inventory – May 31, 2015
Inventory – May 31, 2016
Expenses (reimbursed by H.O)
P
1,500
198,720
3,600
1,920
136,080
43,800
49,140
37,170
41,370
57,930
Assuming all cash collected by the branch is remitted to Tower Cosmetics home office, the remittances for the
period amounted to:
a. P 187,860
b. P 189,780
c. P 195,120
d. P 198,720
SOLUTION:
Answer: A
The P 187, 860 is computed as follows:
Accounts receivable, 5/31/2015
Net Sales (P 198,720 – P 3,600)
Total
Less: Accounts Receivable, 5/31/2016
Accounts written off
Remittance
P 43, 800
195, 120
P 238, 920
P 49, 140
1, 920
51, 060
P 187,860
6. On December 31, the Investment in Branch account in the home office books shows a balance of P 50,000. The
following facts are ascertained:
1. Merchandise billed at P 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 P 3,500. The branch did not notify the home
office of such collection.
3. On December 30, the home office sent cash of P 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 P 2,400 instead of P 2,040.
5. The branch returned supplies of P 1,500 to the home office but the home office ha snot yet recorded the
receipt of the supplies.
Assume all the other transactions have been properly recorded.
What is the unadjusted balance of the Home Office account on the branch books on December 31?
a. P 64, 140
b. P 39, 140
c. P 14, 000
d. P 13, 000
SOLUTION:
Answer: B
P 39, 140 is computed as follows:
Investment in Branch account balance,12/31
(Home Office books)
Add (Deduct):
Merchandise in transit
Collection of Home Office accounts receivable by Branch
Erroneous recording of Branch profit
Supplies returned by Branch
Home Office account balance,12/31 (Branch books)
P50,000
(12,500)
3,500
( 360)
( 1,500)
P39,140
7. A reconciliiation of the Dagupan Branch account of Mandaluyong Company and the Home Office account carried
in the branch’s books shown the following discrepancies at December 31,2016.
1. A credit for merchandise allowance for P 300 was taken by the branch as P 360.
2. A charge by the branch of P 550 for an advance taken by the president when he visited the branch has
not yet been recorded by the home office.
3. The branch has not taken up P900 covered by a debit memo from the home office as share in advertising
expenses.
The Invesrment in Dagupan Branch account in the home office books had a debit balance of P 43,000 at December
31,2016. The reciprocal accounts were in agreement at the beginning of the year.
The unadjusted balance of the Home Office account in the branch’s books at December 31,2016 was:
a. P 43, 500
b. P 42, 950
c. P 41, 990
d. P 41, 490
SOLUTION:
Answer: D
The P 41, 490 unadjusted balance of Home Office account is computed as follows:
Unadjusted balance, Investment in Branch account, 12/31
Less: Merchandise allowance (error)
Branch advances to President
Advertising expense charged to Branch
Unadjusted balance, Home office account, 12/31
P43,000
P 60
550
900
1,510
P41,490
8. The following were found in your examination of the interplant accounts between the Home Office and the
Butuan Branch:
a.
b.
c.
d.
e.
f.
Transfer of fixed assets from Home Office amounting to P53,960 was not booked by the branch.
P10,000 covering marketing expense of another branch was charged by Home Office to Butuan
Butuan recorded a debit note on inventory transfers from Home Office of P75,000 twice.
Home Office recorded a cash transfer of P65,700 from Butuan Branch as coming from Davao Branch
Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to P10,500. Home Office
decided that this charge is appropriately Davao Branch’s cost.
Butuan recorded a debit memo from Home Office of P4,650 as P4,560
The net adjustments DR (CR) to the Investment in Butuan Branch account to the Home Office account are:
Investment in Butuan
Home Office
a.
P (75,700)
P20,950
b.
75,700
( 20,950)
c.
( 55,700)
75,000
d.
( 65,700)
( 74,000)
SOLUTION:
Answer: A
Dr. (Cr.) Adjustment to Investment in Butuan Branch account
Marketing expense of another branch charged to Butuan (b)
Butuan’s remittance credited to Davao branch (d)
Dr. (Cr.) adjustment to Butuan Branch
account in the home office books
Dr, (Cr.) Adjustment to Home Office account:
Fixed assets transfer not book by Butuan (a)
Inventory transfer recorded twice by Butuan (c)
Error in recording DM for P4,650 as P4,560 (f)
Dr. (Cr.) adjustment to Home Office account
In Butuan Branch books
P(10,000)
( 65,000)
P(75,000)
P(53,960)
75,000
(
90)
P 20,950
9. After examining on a comparative basis the inter-office account of the Bulacan Company with its suburban
branch and the similar account carried on the latter’s books, the following discrepancies at the close of the business
on June 30, 2016 were seen:
a. A charge for labor by the Home Office P500 was recorded twice by the branch.
b. A charge of P895 was made by the Home Office for freight on merchandise, but the amount was recorded
by the Branch as P89.50.
c. A charge of P980 (furniture and fixture) on the Home Office books was taken up by the Branch as P890.
d. A credit by the Home Office for P350 (merchandise allowances) was taken up by the Branch as P400.
e. The Home Office charged the Branch P425 for interest on open account which the Branch failed to take up
in full; instead, the Branch sent to the Home Office a wrong adjusting memo, reducing the charge by P100
and set up a liability for the next amount.
f. The Home Office received P5,000, from the sale of a truck which it erroneously credited to the Branch; the
Branch did not change the Home Office therewith.
g. The Branch by mistake sent the Home Office a debit note for P370 representing its proportion of a bill for
repairs of truck; the Home Office did not record it.
h. The Branch inadvertently received a copy of the Home Office entry dated July 19, 2014 correcting item (f)
and entered a credit in favor of the Home Office as of June 30, 2016.
At June 30, 2016, the unadjusted balance of the Investment in Branch account on the Home Office books showed
P175,520. At the beginning of the year, the interoffice accounts were in balance.
What is the unadjusted balance of the Home Office account on the branch books on June 30, 2016?
a.
b.
c.
d.
P184,279.50
P160,725.50
P18,729.00
P165,279.50
SOLUTION:
Answer: A
Unadjusted balance of investment in branch account, 6/30
(a) Charge for labor
(b) Charge for freight
(c) Purchase of furniture and fixture
(d) Merchandise allowance
(e) Charge for interest
(f) Proceeds from sales of truck
(g) Charge for truck repairs
(h) Proceeds from sales of truck
Unadjusted balance of Home Office account, 6/30
P175,520.00
500.00
(
805.50)
(
90.00)
(
50.00)
(
425.00)
5,000.00
(
370.00)
5,000.00
P184,279.50
10. Rustans, Philippines has two merchandise outlets, its Home Office in Manila and its Cebu City branch. For
control purposes, all purchases are made by the Home Office and shipped to the Cebu City branch at cost plus 10%.
On January 1, 2016 the inventories of the Home Office in Manila and the Cebu City branch are P13,600 and P3,960
respectively. During 2016, the Home Office purchased merchandise costing P40,000 and shipped 40% of it to the
Cebu City branch. At December 31, 2016, the following journal entry to prepare the books for the next accounting
period was prepared by the branch”
Sales
Inventory, December 31
Inventory, January 1
Shipments from main store
Expenses
Home Office
32,000
4,840
3,960
17,600
10,480
4,800
What was the actual branch income for 2016 on a cost basis assuming the use of the provisions of the Statement of
Financial Accounting Standards?
a.
b.
c.
d.
P4,800
P6,320
P6,480
P6,840
SOLUTION:
Answer: B
Sales
Cost of sales:
Inventory, Jan. 1
Shipment from Home Office
Inventory, Dec. 31
Gross Profit
Expenses
Net income per branch books
Add:
Overvaluation of cost of sales
Billed Price (above)
Cost to H.O ( 16, 720 / 110%)
Actual branch income at cost basis
P32,000
3,960
17, 600
( 4,840)
16,720
15,200
16,720
15,280
10,480
4,800
1,520
P 6,320
11. On September 1, Star Company opened a branch in Dagupan City, shipping to it merchandise billed at P60,000.
During the month, additional shipments were made at a billed price of P24,000. Returns by the branch of bad-order
goods were credited for P1,680. At the end of the month, the branch reported its inventory of P33,600 and its net
loss for the month at P5,200 Shipments to and from the branch were consistently billed at 120% off cost.
a.
b.
c.
d.
P28,000 and P2,920, respectively
P28,000 and (P5,200), respectively
P33,600 and P2,920, respectively
P33,600 and P5,200, respectively
SOLUTION:
Answer: A
Branch Inventory at Cast:
Branch inventory at billed price
Divide by the billing percentage of cost
Branch inventory of cost
P33,600
120%
P 28,000
Branch net income as far as the Home office is concerned:
Branch net loss, as reported
Add: Overvaluation of Cost of Sales of the Branch:
Total Shipment to Branch:
Billed price (P60,000 + P24,000)
Cost (84,000 120%)
Less: Branch returns –
Billed price
Cost(P1,680 120%)
Net Shipment
Less: Inventory, 9/30Billed price
Cost
(P5,200)
P84,000
70,000
P 1,680
1,400
P33,600
28,000
P14,000
280
P13,720
5,600
8,120
Branch Net Income
P 2,92
12. Makati Company bills its Valenzuela Branch for merchandise at 140% of cost. At the end of January, 2016, the
branch reported the following information.
Merchandise from
Home Office
(At Billed Price)
Inventory, January 1
Shipments received
Inventory, January 31
P 7,560
28,280
8,400
What should be the balance of the allowance account for overvaluation of the branch inventory at
January 31 before adjustment?
a.
P 2,400
b.
P 2,160
c.
P 9,080
d.
P10,240
SOLUTION:
Answer: D
The balance of the Allowance for Overvaluation of Branch Inventory account represents the overvaluation of branch
inventory on January 1 and overvaluation of the shipment received. Computation is as follows:
Billed
Price +
Inventory. January 1
Add: Shipment
P 7,560
28,280
Billing
Percentage =
Cost
OverValuation
140%
140%
P 5,400
20,200
P2,160
8,080
Balance of allowance before adjustment
13.
P 10,240
The Binondo branch of China Products Inc. buys merchandise from third parties and receives
merchandise from the home office for which it is billed at 20% above cost. Below are excepts from the
trial balances and data on the home office and Binondo branch for the month just eneded.
Home Office
Allowance for overvaluation of branch merchandise
Shipments to Branch
P370,000
850,000
Branch
Beginning inventory
Shipments from home office
Purchases
1,440,000
1,020,000
410,000
Month end additional data:
Ending inventory of branch
From home office at Billed Price P1,170,000
From outsiders (at cost) 290,000
P1,460,000
The total cost of goods sold of the Binondo branch at cost (net of overvaluation) for the month just ended
amounted to.
a.
b.
c.
d.
P1,410,000
P1,385,000
P1,235,000
P1,850,000
SOLUTION:
Answer: C
Beginning inventory
Purchase
Shipment from home office
Goods available for sale
Ending inventory
Cost of sales
Less: Overvaluation
Beginnning inventory and shipments
Less:Ending inventory
Billed price
Cost(P1,170,000/120%)
Cost of goods sold (net)
14.
P1,440,000
410,000
1,020,000
2,870,000
1,460,000
1,410,000
370,000
P1,170,000
975,000
195,000
` 175,000
P 1,235,000
Shopper Company started a branch office in Iloilo City on June 1,2016. On this date, the company shipped
to its Branch merchandise billed at P90,000. On June 15, another shipment was made at billed prices of
P36,000. During the month, the branch was credited for P2,520 for the damaged goods returned by the
branch. On June 30,2016, branch reported the following:
Inventory, June 30
Net loss for the month
Shipments to and from the branch wee uniformly billed at 120% of cost.
a. No net income or loss
b. Net income of P4,380
c. Net income of P12,180
d. Net loss of P7,800
P50,400
(P7,800)
SOLUTION:
Answer: B
According to the Home Office books, Iloilo branch will have a P4,30 net income as computed below:
Branch net loss
Add: Overvaluation of Cost of Sales of branch –
Total shipment to Branch:
Billed price(90,000+P36,000)
Cost (P126,000 120%)
Less: Branch returns
Billed price
Cost (P2,520 120%)
Net Shipment to Branch
Less: Inventory, 6/30
Billed price
Cost (P50,400 120%)
Branch Net Income
(P7,800)
P126,000
105,000
P 2,520
2,100
P21,000
420
P 20,580
P 50,400
42,000
8,400
12,180
P 4,380
15. Tarlac branch of Quezon City Company, at the end of its first quarter of operations, submitted the following
statement of comprehensive income.
Sales
Cost of sales:
Shipments from Home Office
Local purchases
Total
Inventory at end
Gross margin on sales
Expenses
Comprehensive income
P300,000
P28,000
30,000
P 310,000
50,000
P 260,000
P 40,000
35,000
P 5,000
Shipments to the branch wee billed at 140% of cost. The branch inventory as at September 30 amounted to P50,000
of which P6,600 was locally purchased, Markup on local purchases, 20% over cost. Branch expenses incurred by
Head office amounted to P2,500
On September 30, the branch inventory at cost and the net income realized by the home office from the Tarlac
branch operation are:
a.
b.
c.
d.
Branch inventory at cost
P37,600
P50,000
P31,600
37,600
Net income realized
P72,600
P55,000
P 5,000
P70,100
SOLUTION:
Answer: D
P37,600 is computed as follows:
Acquired from Home Office:
Billed price (P50,000-P6,600
Divide by billing percentage of cost
Local purchases
Branch inventory at cost, 9/30
P43,400
140%
P 31,000
6,600
P 37,600
Below is the computation of Home Office income from branch operation of P70,100.
Branch net income (P5,000 – P2,500 expense)
``
Add: Overvaluation of Branch Cost of Sales:
Shipment from Home Office:
Billed price
P280,000
Cost(P280,000 + 140%)
200,000
P80,000
Less: Inventory, endBilled price (P50,00-P6,600)
P43,400
Cost (43,400 + 140%)
31,000
12,400
Branch net income realized by Home Office
P 2,500
67,600
P 70,100
16. Ayala Branch was billed by Home Office for merchandise at 140% of cost. At the end of its first month, Ayala
Branch submitted among other things, the following data:
Merchandise from Home from Home Office (at billed price)
Merchandise purchased locally by Branch
Iventory, December 31 of which P7,000 are local purchase
Net sales for month
P 98,000
P55,000
28,000
180,000
SOLUTION:
Answer: B
Branch inventory, at cost, 12/31:
Acquired from Home Office (P21,000 / 140%)
Local purchases
Total
Branch Gross Profit:
Net sales
Cost of sales insofar as Home Office is concerned:
Shipment from Home Office, at cost
(P98,000 / 140%)
Purchases
Cost of goods available for sale
Inventory, at cost, 12/31:
P 15,000
7,000
P 22,000
P 180,000
P70,000
40,000
110,000
Acquired from Home Office
(21,000 140%)
P 15,000
Local purchases
7,000
22,000
88,000
Gross profit insofar as Home Office is concerned
P 92,000
17. The Coffee Blend Corporation decided to open a branch in Manila. Shipments of merchandise to the branch
totaled P54,000 which included a 20% mark-up on cost. All accounting records are to be kept at the home office.
The branch submitted the following report summarizing its operation for the period ended December 31, 2016.
Sales on account
Sales on cash basic
Collections of account
Expenses paid
Expenses unpaid
Purchase of merchandise for cash
Inventory on hand, December 31; 80% from home office
Remittance to home office
P74,000
22,000
60,000
38,000
12,000
26,000
30,000
55,000
The branch 12/31 inventory at cost and the branch net income (loss) as far as the home office is concerned are:
Branch
Inventory at Cost
a. P26,000
b. P25,000
c. P26,000
d. P20,000
Branch
Net income (loss)
(P1,000)
(P4,000)
P1,000
P 800
SOLUTION:
Answer: C
Below is the computation of Branch ending Inventory at cost:
Acquired from Home Office (80% x P30,000) / 120%
Add: Acquired from outsiders (20% x P30,000)
Branch inventory at cost, 12/31
P 20,000
6,000
P 26,000
The P1,000 net income is derived as follows:
Sales (P74,000 + P22,000)
Cost of sales insofar as Home Office is concerned:
Shipment from Home Office at cost
(54,000 / 120%)
Purchases
Cost of goods available for sale
Inventory, at cost, 12/31
Gross profit
Expenses (38,000+ P12,000)
Branch net income insofar as Home Office is concerned
P 96,000
P45,000
26,000
71,000
26,000
45,000
P 51,000
50,000
P 1,000
18. Trial balances before adjustments for the home office and the branch of the King Company show the following
items on December 31. The home office bills the branch at 20% above cost.
Home Office
Allowance for overvaluation of branch merchandise
Shipment to branch
Purchases
Shipment from home office
Merchandise inventory, December 1
Branch
P 3,600
8,000
P2,500
9,600
15,000
What part of the branch inventory as of December 1 represented purchases from outsiders?
a. P3,000
b. P5,000
c. P2,000
d. P1,800
SOLUTION:
Answer: A
Merchandise Inventory, December 1
Less: Merchandise acquired from Home Office at Billed Price
Overvaluation (3,600 – P 1,600)
Cost (P2,000 / 20%)
Merchandise acquired from outsiders
P 15,000
P 2,000
10,000
P
12,000
3,000
19. The Manila Sales Co. established a branch in San Pablo City early last year, it shipped merchandise and billed
the branch for P300,000 prior to its opening. For the year, it made additional shipments at billed price of P120,000.
Within the year the branch shipped back P7,500 inventory and got the credit memo for said returns. On the last
working day of the year, an inventory count was made. Ending inventory of P1855,000 was established consisting of
purchases from third parties at P20,000, with the balance coming from home office shipments at billed price. The
home office billed the branch at 20% above cost. The total purchases of the branch from outside suppliers amounted
to P72,6500. The total goods available for sale by the branch at cost (net of overvaluation and returns amounted to:
a.
b.
c.
d.
P416,250
P485,000
P422,500
P435,250
SOLUTION:
Answer: A
Total shipment from office
Returns
Purchases
Good available for sale, at Billed Price
Less: Overvaluation of shipment:
Billed Price
Cost (P420,000 / 120)
Returns:
Billed Price
Cost (7,500 / 120%)
Goods available for sale, at Cost
P 420,000
( 7,500)
72,500
P 485,000
P420,000
350,000
70,000
P 7,500
6,250
( 1,250)
68,750
P 416,250
20. The income statement submitted by the Bulacan Branch to the Home Office for the month of December,2016 is
shown below. After effecting the necessary adjustments the true net income of the Branch was ascertained to be
P156,000. The Branch inventories were:
Merchandise from home office
Local purchases
Total
Sales
Cost of sales:
Inventory, December 1
Shipments from home office
Local purchases
Total available for sale
Inventory, December 31
Gross margin
Operating expenses
Total comprehensive income for December 2016
12/01/2016
P70,000
10,000
P 80,000
12/31/2016
P 84,000
16,000
P 100,000
P 600,000
P 80,000
350,000
30,000
P 460,000
100,000
360,000
P 240,000
180,000
P 60,000
What is the balance of the “Allowance for Overvaluation in Branch Invetory” account at December 31, 2016?
a.
b.
c.
d.
P10,000
P16,000
P24,000
P34,000
SOLUTION:
Answer: C
Before computing the balance of the allowance account, the percent of billing price to cost should be computed first
as follows:
Branch net income, per Home Office
Branch net income, per Branch
Realized mark-up on merchandise from the
Home Office already sold by the Branch
P 156,000
60,000
Shipments from Home Office
Less: Increase is portion of Branch inventory
Acquired from Home Office
Portion already sold by Branch
Less Mark-up Thereon (above)
Cost of portion already sold by Branch
350,000
P 96,000
14,000
336,000
96,000
P 240,000
Percent of billing price to cost P336,000/240,000
140%
The balance of the “Allowance for Overvaluation in Branch inventory” accounted December 31, 2016 after
adjustment represent the overvaluation of the branch ending inventory acquired from the Home Office computed as
follows:
Billed price
Cost (P84,000 / 140%)
Balance of the allowance account
P 84,000
60,000
P 24,000
21. Mahiyain Commercial Corporation operates a branch in Iloilo City. Selected accounts taken from the books of
Mahiyain and its branch show balances as of December 31,2016 as follows:
Merchandise inventory, January 1
Purchase
Shipments from home office
Shipments to branch
Branch inventory allowance
Sales
Merchandise inventory, December 31
Home Office
Branch
P
P 8,000
30,000
93,750
176,500
10,350
12,000
150,000
75,000
19,750
115,000
14,000
The ending inventory of the branch includes items costing P4,350 which were acquired from suppliers other than the
home office.
As far as the home office is concerned, the cost of sales of the Iloilo City branch was:
a. P 97,120
b. P102,850
c. P121,400
d. P131,850
SOLUTION:
Answer: B
Branch inventory, January 1
Purchases
Shipments from home office
Merchandise available for sale
Less: Branch inventory, Dec31
Branch cost of sales, per branch books
Less: Mark-up on merchandise from the home office
already sold by the branch:
Branch inventory allowance
Less: Mark-up on portion of Dec.31 inventory
acquired from home office:
(P10,350 – P4,350) x 25/125
Branch cost of sales, as far as the home office is concerned
P
8,000
30,000
93,750
P 131,750
10,350
P 121,400
P 19,750
1,200
18,550
P 102,850
Note: Shipments of merchandise from the home office to the branch are billed as 125% of cost, determined as
follows:
Shipments from Home Office
=
P93,750
Shipments to Branch
=
P75,000
=
140%
22. The Neneng Corporation established its San Pedro branch in March 2016. During the first year of operations, the
home office shipped to the branch merchandise which had cost P120,000. Three-fourths of these merchandise was
sold by the branch for P141,000. Operating expenses of the branch amounted to P27,000.
How much total comprehensive income will the branch report if merchandise is billed by the home office to the
branch at 25% above cost?
a. P 800
b. P 1,200
c. P 1,500
d. P 8,000
SOLUTION:
Answer: C
Sales
Less: Cost of sales at Billed Price (sch.1)
Gross profit
Expenses
Total comprehensive income to be reported by the Branch
Schedule 1
P 141,000
112,500
28,500
27,000
P 1,500
Cost of shipment to branch
P 120,000
Add:25% mark-up
30,000
Billed price of shipment to branch
150,000
Portion sold
x 3/4
Cost of sales at billed price
P 112,500
23. A branch store in Marikina was established by Marco Co. on March 1. Shipments of merchandise, billed to this
branch at 125% of cost, were as follows:
March 5
March 10
March 20
P 120,000
50,000
35,000
On March 24, the branch returned defective merchandise worth P3,050 and on March 31, it reported a net loss of
P6,200 and merchandise inventory of P85,000.
In the home office books, the branch total comprehensive income (loss) is:
a.
b.
c.
d.
P (6,200)
P 17.190
P 20,240
P 23,390
SOLUTION:
Answer: B
Reported branch loss
Add: Overvaluation in branch cost of sales
Shipment to branch
Less: Returns
3,050
Ending inventory
85,000
Cost of sales, at Billed Price
Cost of sales, at Billed cost to Home Office
(116,950/125%)
Branch total comprehensive income, per Home Office books
P ( 6, 200)
P 205,000
88,050
116,950
93,560
23,390
P 17,190
24. The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao City. During 2016, the home
office shipped to the branch supplies costing P120,000 at a billed price of 20% above cost. The inventories of
supplies at the branch were as follows: January 1, 2016, P90,000; December 31,2016, P108,000. On December 31,
2016 the home office holds inventories of P160,500 which includes P10,500 held on consignment.
How much is the inventories in a combined statement of financial position as of December 31, 2016?
a.
b.
c.
d.
P210,000
P240,000
P270,000
P300,000
SOLUTION:
Answer: B
The combined inventories on Dec,31 2016 statement of financial position is computed as follows:
Home Office (P160,500 – P10,500)
P 150,000
Branch, at cost (P108,000 / 120%)
90,000
Combined inventories, 12/31
P 240,000
25. The Iloilo Company operates a branch in Davao, and the profit and loss data for the home office and the branch
for 2016 follows:
Home office
Branch
Sales
Purchases from outsiders
Shipments to branch
Cost to home office
Billing price to branch
Expenses
Inventories Jan, 1,2016
Home office, at cost
Branch:
From outsiders, at cost
From Home Office at 20% above cost
Inventories, Dec. 31, 2016
Home office, at cost
Branch:
From outsiders, at cost
From Home office at 2016 billing
P250,000
200,000
P 75,000
15,000
30,000
37,500
10,000
40,000
80,000
7,500
24,000
55,000
5,500
26,000
The combined total comprehensive income (loss) of the home office and the branch on December 31, 2016 is:
a. P30,800
b. P(33,800)
c. P33,800
d. P27,000
SOLUTION:
Answer: C
Sales
Less: Cost of sales
Jan. 1 inventories, at cost (sc.1)
Purchases
Merchandise available for sale
Less: Dec, 31 inventories, at cost (sch.1)
Gross profit on sales
Less: Expenses
Total comprehensive income
P 325,000
P 107,500
215,000
P 322,500
81,300
241,200
P 83,800
50,000
P 33,800
Schedules 1:
Home Office
Branch, at cost
Acquired from outsiders
Inventories
Jan. 1
P 80,000
7,500
Dec. 31
55,000
5,500
Acquired from Home Office
Jan. 1 (P 24,000 / 120%)
20,000
Dec. 31 (P 26,000 / 125%)
20,800
Combined
P 107,500
P 81,300
2016 Billing (7,500 / 30,00) = 140%
26. Manila Inc. established a branch in Cebu to distribute part of the goods purchased by the home office. The home
office prices inventory shipped to the branch at 20% above cost. The following account balances were taken form
the ledger maintained by the home office and the branch:
Sales
Beginning inventory
Purchases
Shipment to branch
Shipment from home office
Operating expenses
Ending inventory
Manila Inc,
Cebu Branch
P 600,000
120,000
500,000
130,000
72,000
98,000
P 210,000
60,000
156,000
36,000
48,000
All of the branch inventory is acquired from the home office –
The combined total comprehensive income of the home office and the branch is:
a. P 170,000
b. P 70,000
c. P 278,000
d. P 132,000
SOLUTION:
Answer: A
Sales
Cost of Sales:
Beginning inventory:
Home Office
Branch, at cost (P60,000/120%)
Purchases
Total
Ending inventory:
Home Office
Branch, at cost (P48,000/120%)
Gross profit
Operating expenses
Combined total comprehensive income
P 120,000
50,000
98,000
40,000
P 170,000
500,000
670,000
138,000
532,000
278,000
108,000
P 170,000
27. Selected accounts from the December 31, 2016 trial balances of Heart Co. and its branch follow:
Heart
Branch
Inventory, Jan. 1
P 46,000
Investment in Branch
116,600
Purchases
380,000
Shipments from home office
209,000
Freight in
10,450
Expenses
104,000
58,100
Home Office
(106,600)
Sales
(310,000)
(280,000)
Shipments to branch
(200,000)
Branch merchandise markup
(22,000)
As of December 31, 2016, a shipment with a billing price of P11,000 was in transit to the branch. Freight cost,
typically 5% of the billing price, is inventoriable. Merchandise on hand at year-end wee” at home office, P64,000 at
cost; at branch, P33,000 at billing price.
What is the combined total comprehensive income of Heart Company and its branch for 2016?
a.
b.
c.
d.
P 77,000
P 84,900
P 76,000
P 76,100
SOLUTION:
Answer: C
Sales (P310,000 + P280,000)
Cost of sales
Inventory, 1 /1 (Schedule 1)
Purchases
Freight in (P220,000 x 5%)
Goods available for sale
Inventory, 12/31 (schedule 1}
Freight in (P 44,000 x 5%)
Gross profit
Expenses (P 104,00 + P 58,100)
Combined total comprehensive income
P 590,000
P 67,100
P 380,000
11,000
P 104,000
2,000
391,000
P 458,100
106,200
351,900
P 238,100
162,000
P 76,000
Schedule 1: Combined inventories – at cost:
Inventories
January 1
Home office, at cost
Branch, at cost:
Inventory, January 1:
P 46,000
December 31
P 64,000
Billed price
P 23,100
Mark-up (schedule 2)
2,000
Inventory, December 31:
At cost [(P33,000 + P11,00) / 110 %]
Combined
*Billing % (P 209,000 + P 11,000) / P200,200 = 110%
21,000
40,000
P 104,000
P 67,100
Schedule 2: Mark-up on Branch beginning inventory
Branch merchandise markup before adjustment
Less: overvaluation of shipments [(P 209,000 + P 11,000) – P 200,000]
Mark up of branch beginning inventory
P 22,000
20,000
P 2,000
28. Apo Supply Company is engaged in merchandising both at its Home Office in Makati and at its Branch in
Davao City. Selected accounts taken from the trial balances of the Home Office and the branch as of December 31,
2016 follow:
Makati
Branch
Debits
Inventory, January 1, 2016
Davao Branch
Purchases
Freight in from Home Office
Sundry expenses
P 23,000
P 58,300
190,000
52,000
P 11,550
105,000
5,500
28,000
-P
155,000
110,000
P 53,300
140,000
-
1,000
-
Credits
Home Office
Sales
Sales to Branch
Allowance for Overvaluation of
Branch Inventory at Jan. 1, 2016
Additional information:
-
The Davao City branch gets all of its merchandise from the home office. The home office bills the goods at
cost plus a 10% mark-up, At December 31,2016, a shipment with billed value of P5,000 was still in transit.
Freight on this shipment was P250 and is to be treated as part of the inventory.
-
Inventories eon December 31, 2016, excluding the shipment in transit, follow:
Home Office, at cost
P 30,000
Branch, at billed price (excluding freight of P520)
10,400
What is the combined total comprehensive income (loss) of the home office and the branch on December 31, 2016?
a.
b.
c.
d.
P 30,470
P 20,870
P (10,000)
P (30,470)
SOLUTION:
Answer: A
Sales
Cost sales:
Inventory, 1/1:
Home Office
Branch, at cost (11,550 – 1,000)
Freight-in (5,500 + 250)
Purchases, Home Office
Total
Inventory 12/31:
Home Office
Branch, at cost [(10,400 + 5,000)
/110%]
Freight- in (P 520 + P250)
Gross profit
Sundry Expenses
Combined total comprehensive income
P 295,000
P 23,000
10,550
5,750
39,300
190,000
229,300
P 30,000
14,000
770
44,770
84,330
110,470
30,000
P 30,470
29. On November 2, 2016, the home office of Toby Sport Company recorded a shipment of merchandise to its
Bulacan Branch as follows:
Investment in branch – Bulacan
60,000
Shipments to Branch
50,000
Allowance for overvaluation of
Branch inventory
8,000
Cash (for freight charges)
2,000
The Bulacan branch sells 40% of the merchandise to outside customers during the rest of the period. The books of
the home office are closed on December 31 of each year.
On January 10,2017, the Bulacan branch transfer half of the original shipment to the Baguio branch, and the Bulacan
branch pays P1,000 freight for the shipment. If the shipment had been made by the home office to Baguio Branch,
the freight charges would have been P1,500.
What is the entry of the Bulacan branch to record the receipt of the shipment from the home office on November 2,
2016?
a. Shipments from home office
50,000
Accounts receivable
8,000
Freight in
2,000
Home office
60,000
b.
c.
Shipment from home office
Home office
60,000
Shipment from home office
Freight in
58,000
2,000
60,000
Home office
52,000
d. Shipment from home office
Freight out
Home office
SOLUTION:
50,000
2,000
52,000
Answer: C
Choice ( c ) is correct, because the branch should record the shipment from office at billed price (P50,000 +
P8,000), and should treat the freight changed to the office as inventoriable cost.
30. Using The same data in No. 29, at what amount should the 60% of the merchandise remaining unsold at
December 31, 2016 be included in the inventory of the Bulacan Branch?
a.
b.
c.
d.
P31,200
P36,000
P36,800
P34,800
SOLUTION:
Answer: B
Shipments from home office at billed price
Unsold
Ending inventory
Freight in (P2,000 x 60%)
Total
31.
P 58,000
60%
P 34,800
1,200
P 36,000
Using The same data in No.29, what is the entry in the books of Bulacan branch to record the transfer
on January 10,2017?
a.
b.
c.
d.
Baguio branch
Shipment from home office
31,000
Home office
Inventory
Home office
Inventory
Cash
31,000
Home office
Cash
Inventory
31,000
SOLUTION:
Answer: D
31,000
31,000
31,000
30,000
1,000
1,000
30,000
In the books of Bulacan branch (sending branch) the inter-branch transfer should be treated as if it was returned to
the home office. Inventory account should be treated as if it was returned to the home office. Inventory account
should be credited in place of the Shipment from Home Office account and freight-in which was already closed at
the end 2013. Therefore entry (d) is correct (P29,000 + P2,0000).
32. Using the same data in No. 29, what is the entry in the books of baguio branch to record the transfer on
January 10,2017?
a.
b.
c.
d.
Shipments from Bulacan Branch
Bulacan branch
30,200
Shipments from home office
Freight in
Home office
Cash
29,000
1,500
Shipments from home office
Freight in
Home Office
29,000
1,500
Shipments from home office
Freight in
Home office
30,000
1,000
30,200
30,500
1,000
30,500
31,000
SOLUTION:
Answer: C
In the books of Baguio branch (receiving branch) the inter-branch transfer should be treated as if it was received
from the home office. And the freight to be recognized should be the freight from the office. Therefore choice ( c ) is
correct.
33. Using the same data in No. 29, what is the entry in the home office books to record the inter-branch transfer on
January 10,2017?
a.
Investment in branch – Baguio
Excess freight
Investment in branch Bulacan
30,500
1,500
32,000
b. Investments in branch – Baguio
Investments in branch – Bulacan
30,500
c.
32,500
Investment in Branch – Bulacan
Investment in branch – Baguio
d. Investment in branch – Baguio
Excess freight
Investment in branch – Bulacan
30,500
32,500
30,500
500
31,000
SOLUTION:
Answer: A
In the books of the home office the inter-branch transfer can be cleared by debiting the receiving branch (Baguio)
and crediting the sending branch (Bulacan). Excess Freight account should be changed for the difference which is
treated as an expense of the home office. Therefore choice (a) is correct
Alternative entry: If the Allowance for Overvaluation of Branch Inventory account is classified by branch:
Investment in Branch – Baguio
Allowance for Overvaluation of Branch Inventory
Bulacan (P 8,000 x 50%)
Excess freight
Ivestment in Branch – Bulacan
Allowance for Overvaluation Branch
Inventory – Baguio
30,500
4,000
1,500
32,000
4,000
34. Papa. Inc. of Makati opens a sales agency in Pasig City and a working fund of P100,000 is established on
imprest basis. The first payment from the fund is P5,000 for rent of the store space.
What is the entry in the books of the home office to record the payment of rent by the agency?
a.
b.
c.
e.
Rent expense – Pasig agency
Cash
5,000
Pasig agency
Cash
5,000
Rent expense – Pasig agency
Working fund
5,000
5,000
5,000
5,000
No entry.
SOLUTION:
Answer: D
The expenses paid by the branch are not recorded in the home office book. It is only recognized upon replenishment
of the working fund (pretty cash fund).
35. Mama, Inc. opened a sales agency in San Pedro Laguna in 2016. The following is a summary of the transactions
of the sales agency:
Sale orders sent to Home office
Sales orders filled by home office in 2016
Freight on shipment of agency
Collections, net of 10% discount
Selling expenses paid from the agency working fund
Administrative expenses charged to agency
Samples shipped to agency:
Cost
Inventory, December 31, 2016
P 120,000
95,000
2,000
81,000
5,500
5% gross sales
8,200
4,550
The company’s gross profit rate on agency sales is 30% excluding the freight cost on shipments yo agency.
What is the total comprehensive income of the agency for 2016?
a. P 3,600
b. P 5,600
c. P 1,600
d. P 6,300
SOLUTION:
Answer: A
Sales
Sales discount (P 81,000 / 90%) x 10%
Net sales
Cost of sales (P95,000 x 70% ) + 200
Gross profit
Expenses:
Selling expenses
Administrative expenses (P 95,000 x 5%)
Samples expenses (P 8,200- P 4,550)
Net income
P 95,000
9,000
86,000
68,500
17,500
P 5,500
4,750
3,650
13,900
P 3,600
36. A Makati home office transfers inventory to its Pasig Branch at 140% of cost. During 2016, the reciprocal
account in the statement of comprehensive income of the home office amounts to P 328,125. On December 31,2016,
the home office adjusted the branch income summary by debiting the Allowance for Overvaluationof Branch
inventory account in the amount of P 81,250. The branch’s statement of financial position at the beginning of the
year shows P 105,000 of inventory acquired from the home office.
How much is the ending inventory of the branch per books?
a. P 200,000
b.
c.
d.
P 161,250
P 280,000
P 80,000
SOLUTION:
Answer: C
Branch beginning inventory — acquired from home office
Shipment from home office — at billed (P 328,125 x 140%)
Goods available for sale at billed price
Cost of sales (P 81,250 / 40%) x 140%
Branch ending inventory per books
P 105,000
459,375
564,375
(284,375)
P 280,000
37. On July 31, 2016, the home office in Manila establishes a sales agency in Bulacan. The following assets are
sent to the agency:
Cash (working fund to be operated under the imprest system)
P 22,000
Samples of merchandise
36,000
During the month of August, the following transactions occured:
 The sales agency submits sales order of P 272,000 sales per invoice was billed at P 268,000. Cost of sales
to customers is P 124,000.
 Collections during the month amount to P 58,200, net of 3% discount.
 Home office disbursements chargeable to the agency are as follows:
Furniture
P 40,000
Salaries for the month
21,600
Annual rent of office space
36,000
 On August 31, the sales agency working fund is replenished. Paid vouchers submitted by the sales agency
amounting to P 17,925. Samples are useful until December 31, 2016 which, at this time, are believed to
have a salvage value of 15% cost. Furniture is deprecited at 18% per annum.
What is the total comprehensive income of the sales agency for the month of August?
a. P 91,425
b. P 93,225
c. P 92,955
d. P 58,425
SOLUTION:
Answer: C
Sales
Sales discount (P 58,200/ 97%) x 3%
Net sales
Cost and expenses:
Cost of sales
Salaries
Rent expense (P36,000 x 1/12)
Expenses
Samples (P 36,000 x 85%) x 1/5
P 268,000
1,800
366,200
P 124,000
21,600
3,000
17,925
6,120
Depreciation (P 40,000 x 18% x 1/12)
Net income
600
P 173,245
P 92,955
38. The home office in Makati shipped merchandise costing P 55,500 to Pasig branch, prepaid the freight
amounting to P 4,200. The home office transfers inventory to the branch at a 20% mark up above cost. Pasig branch
was subsequently instructed by the home office to transfer the merchandise to Alabang branch wherein the latter
paid freight of P 2,800. If the shipment was made directly from Makati to Alabang, the freight cost would have been
P 6,200.
Which of the following is true as a result of the interbranch transfer of merchandise?
a. The home office debits Alabang Branch Current for P 73,600
b. Alabang branch debits the Home Office for P 70,000
c. Pasig branch credits freight in for P 6,200.
d. The home office will credit Pasig Branch Current for P 70,800
SOLUTION:
Answer: D
Choice (d) is correct due to the following entries to record the interbranch transfer of merchandise:
Pasig Branch Books:
Home Office
Freight in
Shipment from home office
To record transfer of merchandise to Alabang
Alabang Branch Books:
Shipment from home office
Freight in
Cash
Home office
To record receipt of merchandise from Pasig
Home Office Books:
Alabang branch current
Excess freight
Pasig branch current
To record interbranch transfer of merchandise.
70,800
4,200
66,600
66,600
6,200
2,800
70,000
70,000
800
70,800
39. The following are some of the account balances on the books of the home office and its branch on December 31,
2016:
Home Office Books
Branch Books
Inventory, January 1,2016
P 20,000
P 58,000
Shipments from home office
150,000
Purchases
900,000
200,000
Shipments to branch
145,000
Allowance for overvaluation of branch inventory
52,500
Sales
1,200,000
720,000
Operating expenses
290,000
110,000
Per physical count, the ending inventory of the is P 42,000 including goods purchased from outsiders of P 27,700
while the ending inventory of the home office is P 120,000. Home office bills its branch for merchandise shipments
at 30% above cost.
What is the amount of the unrealized inventory profit in the books of the home office on December 31,2016?
a. P 9,000
b. P 7,600
c. P 12,000
d. P 3,300
SOLUTION:
Answer: C
The unrealized inventory profit balance on December 31 is the difference between the branch ending inventory at
billed price and cost. Computed as follows:
Branch ending invty. per physical count — from HO (P42,000 — P 27,700)
Shipment to transit:
Shipment from HO at BP (P 145,000 / 130%)
Shipment from HO per books
Correct branch ending inventory at billed price
Branch ending at cost (P52,000 / 130%)
Unrealized inventory profit, December 31, 2011
P 14,300
P 188,500
150,000
37,700
P 52,000
40,000
P 12,000
40. Using the data in No. 39, how much is the combined total comprehensive income on December 31,2016?
a. P 538 700
b. P 547,400
c. P 541,700
d. P 498,200
SOLUTION:
Answer: A
The combined net income is computed by preparing a combined income statement as follows:
Sales
Cost of sales:
Inventory, January 1 (Sch.1)
Purchases
Goods available
Inventory, December 31 (Sch.1)
Gross Profit
Expenses
Combined net income
P 1,920,000
P
69,000
1,100,000
1,169,000
187,700
981,300
938,700
400,000
P 538,700
Schedule 1:
Home office
Inventory at cost
January 1
December 31
P 20,000
P 120,000
Branch: Acquired from HO (Sch.2)
Acquired from outsiders (P 58,000 – P 39,000)
Total
Combined
Schedule 2:
Allow for overvaluation before adjustment
Overvaluation in the Shipments:
Shipment from HO at BP (P 145,000 x 130%)
Shipment to branch at cost
Overvaluation in the branch beginning inventory
30,000
19,000
49,000
P 69,000
P
P 52,800
P 188,500
145,000
P
43,500
9,000
Branch beginning inventory at cost (P 9,000 / 30%)
P 30,000
Branch ending inventory at cost (per No. 39)
P 40,000
40,000
27,700
67,700
187,700