Sunshine Joy R. Gino
BSMA 3102
Module 8
Home Office, Branch and Agency Accounting
MULTIPLE CHOICE: THEORY/PROBLEMS
1.After year-end adjustments but before elimination entries, the balance in the
“allowance for mark-up on shipments to branch”
a. is equal to zero
c.
represents
the
realized
mark-up
b. represents the unrealized mark-up d. represents profit
2.When shipments to branch are billed at other than cost, the individual profit of the
branch is not equal to its true profit. The difference​ ​pertains to the
a. unrealized mark-up
c. total mark-up
b. realized mark-up
d. errors committed
3.The combined profit of the entity is equal
a.
to the individual profits of the home office and the branch.
b.
to the individual profits of the home office and the branch after eliminating any
unrealized mark-up during the period.
c.
to the individual profit of home office plus the true profit of the branch.
d.
to the true profit of the home office plus its share in the profit of the branch.
4.Excess freight on inter-branch transfers of merchandise is
a.
charged as expense in the home office books.
b.
recorded as freight-in in the books of the recipient branch.
c.
charged as expense in the books of the recipient branch.
d.
not recorded.
5.Freight savings on inter-branch transfers of merchandise is
a.
recognized as gain in the home office books.
b.
recorded as a reduction to the cost of shipments.
c.
recognized as gain in the transferring branch’s books.
d.
not recorded.
Use the following information for the next two questions:
The trial balances of INTERIM TEMPORARY Co.’s home office and branch are shown
below:
INTERIM TEMPORARY Co.
Trial balance
December 31, 20x1
Home
office
Dr. (Cr.)
Cash
4,400,000
Accounts receivable
720,000
Inventory, beg.
2,600,000
Shipments from home office
Purchases
288,000
Freight-in
88,000
Shipments to branch
(920,000)
Investment in branch
3,308,000
Equipment
2,880,000
Accumulated
depreciation
- (288,000)
equipment
Furniture
360,000
Accumulated depreciation - furniture
(36,000)
Accounts payable
(288,000)
Accrued expenses
(180,000)
Share capital
(8,000,000)
(2,000,000)
Share premium
Retained earnings - beg.
(824,800)
Home office
Sales
(3,600,000)
Depreciation expense
672,000
Utilities expense
72,000
General overhead expense
28,800
Various operating expenses
720,000
Totals
-
Branch
Dr. (Cr.)
1,668,000
400,000
920,000
160,000
72,000
1,600,000
(160,000)
200,000
(20,000)
(160,000)
(100,000)
(3,308,000)
(2,000,000)
272,000
40,000
16,000
400,000
-
The home office and the branch have ending inventories of ₱1,080,000 and ₱600,000,
respectively.
6.How much is the total assets in the combined statement of financial position?
a. 13,440,000
b. 14,800,000
c. 14,340,000
d. 13,404,000
SOLUTION
INTERIM TEMPORARY Co.
Statement of financial position
As of December 31, 20x1
Assets
Cash
6,680,000
Accountable receivable
1,120,000
Inventory (1,080,000 home office + 600,000 1,680,000
branch)
4,480,000
Equipment
(448,000)
Accumulated depreciation- equipment
560,000
Furniture
(56,000)
Accumulated depreciation – furniture
Total assets
14,016
7.How much is the total profit in the combined statement of profit or loss?
a. 1,851,200
b. 1,960,200
c. 1,815,200
d. 1,720,200
SOLUTION
INTERIM TEMPORARY Co.
Working Paper for Combined Financial Statements
December 31, 20x1
Cash
Accounts
receivable
Inventory, beg.
Shipments from
home office
Purchases
Freight-in
Shipments to
branch
Investment in
branch
Home
office
Dr. (Cr.)
4,400,000
720,000
Branch
Dr. (Cr.)
1,668,000
400,000
2,600,000
-
920,000
288,000
88,000
(920,000)
160,000
72,000
3,308,000
Elimination
Combined
Dr. (Cr.)
Dr. (Cr.)
6,680,000
1,120,000
(920,000)
2,600,000
-
920,000
448,000
160,000
-
(3,308,000)
-
Equipment
Accum. Dep.
-equipment
Furniture
Accum. Dep. furniture
Accounts payable
Accrued expenses
Share capital
Share premium
Retained earnings
- beg.
Home office
Sales
Depreciation
expense
Utilities expense
General overhead
expense
Various operating
expenses
Totals
2,880,000
(288,000)
1,600,000
(160,000)
4,480,000
(448,000)
360,000
(36,000)
200,000
(20,000)
560,000
(56,000)
(288,000)
(180,000)
(8,000,000)
(2,000,000)
(824,800)
(160,000)
(100,000)
(448,000)
(280,000)
(8,000,000)
(2,000,000)
(824,000)
(3,600,000)
672,000
(3,308,000)
(2,000,000)
272,000
72,000
28,800
40,000
16,000
112,000
44,800
720,000
400,000
1,120,000
-
-
3,308,000
(5,600,000)
944,000
-
-
INTERIM TEMPORARY Co.
Statement of profit or loss
For the year ended December 31, 20x1
Sale
5,600,000
Cost of goods sold:
Inventory, beg.
2,600,000
Purchases
288,000
Freight – in
88,000
Total goods available for sale
2,976,000
Inventory, end. (1,080,000 + (1,680,000)
(1,296,000)
600,000)
Gross profit
4,304,000
Depreciation expense
(944,000)
Utilities expenses
(112,000)
General overhead expenses
(44,800)
Various operating expenses
(1,120,000)
Profit for the period
2,083,200
The combined profit can be reconciled as the sum of the individual profits of the home
office and the branch. The profit of the home office is computed as follow:
Sale
Cost of goods sold:
Inventory, beg.
Purchases
Shipments to branch
Freight – in
Total goods available for sale
Inventory, end.
Gross profit
Depreciation expense
Utilities expenses
General overhead expenses
Various operating expenses
Profit for the period
3,600,000
2,600,000
288,000
(920,000)
88,000
2,056,000
(1,080,000)
(976,000)
2,624,000
(672,000)
(72,000)
(28,800)
(720,000)
1,131,200
● P 1,131,200 profit of home office + P7200,000 profit of branch =​P 1,851,200
combined profit
8.AMNESTY PARDON Co. is currently preparing its combined financial statements. At
December 31, 20x1, the home office shows a ₱624,000 balance in its ​“Investment in
branch” ​account while the branch showed a ₱280,800 balance in its ​“Home office”
account. The following information has been gathered:
a.
The home office shipped merchandise worth ₱80,000 to the branch during
December 20x1 which the latter has received and recorded only in January 20x2.
b.
The home office collected ₱40,000 accounts receivable on behalf of the branch.
The branch did not yet receive the credit memo sent by the home office.
c.
The branch returned damaged merchandise worth ₱120,000 to the home office.
The home office did not yet receive the debit memo sent by the branch.
d.
A remittance of cash collections amounting to ₱160,000 was not yet recorded by
the home office.
e.
The home office allocated overhead cost of ₱20,000 to the branch which the
latter has recorded twice.
f.
Freight charge of ₱48,000 paid by the home office for shipments of merchandise
to the branch was recorded by the latter as ₱4,800.
How much is the adjusted balance of the “home office” account?
a. 324,000
b. 344,000
c. 354,000
d. 364,000
SOLUTION:
HOME OFFICE
BOOKS
Investment in branch
624,000
Unadjusted balance
a.
Shipment in transit
b. Collection of receivable
c. Return
of
damage (120,000)
merchandise
d. Unrecorded remittance
(160,000)
e. Allocation of cost recorded
twice
f. Mathematical
error
in
recording
Adjusted balance
344,000
BRANCH
BOOKS
Home office
280,800
80,000
(40,000)
(20,000)
43,200
344,000
9.ABASE HUMILIATE Co. is currently preparing its combined financial statements for
the year ended December 31, 20x1. As of this date, the ​“Investment in branch” ​account
has a balance of ₱380,000 while the ​“Home office” ​account has a balance of ₱528,000.
The following information has been gathered:
a.
The home office allocated unpaid utilities expenses amounting to ₱40,000 to the
branch which the branch did not record in full. Instead, the branch sent a wrong
adjusting memo to the home office reducing the charge by ₱10,000 and setting up a
liability for the remaining amount.
b.
The home office erroneously credited the branch for a return of shipment of
merchandise worth ₱100,000. The branch did not make any return of merchandise.
c.
The branch mistakenly received a copy of the home office correcting entry for
item (b) above dated January 3, 20x2 and entered a credit in favor of the home office on
December 31, 20x1.
d.
The branch mistakenly sent the home office a debit memo amounting to ₱12,000
for an apparent remittance of collections which did not happen. The home office did not
record the debit memo.
How much is the net adjustment to the “Home office” account? increase (decrease)
a. 100,000
b. 48,000
c. (48,000)
d. (52,000)
SOLUTION:
Unadjusted balances
HOME OFFICE
BOOKS
Investment branch
380,000
BRANCH
BOOKS
Home office
528,000
a.
b.
office
c.
d.
Allocated expense
Erroneous credit by home 100,000
Erroneous correcting entry
Erroneous debit memo
Net adjustments- Requirement (a)
40,000
(100,000)
12,000
100,000
(48,000)
Adjustment balance – Requirement 480,000
(b)
480,000
10.ABOMINABLE VERY BAD Co. has several branches. On December 31, 20x1, the
“Investment in Branch One” m
​ aintained by the home office shows a balance of
₱400,000 while the ​“Home office” account maintained by ​Branch One shows a balance
of ₱568,000. The following information was determined:
a.
Branch Two acquired equipment for ₱120,000 to be maintained in the books of
the home office. This was recorded by the home office as a transaction with Branch
One.
b.
Branch One acquired equipment for ₱160,000 to be maintained in its books. This
was not recorded by the home office.
c.
Branch Four remitted cash collections of ₱40,000 to the home office which the
latter failed to record.
d.
The home office erroneously charged Branch One for a debit memo of ₱48,000
received from Branch Five.
e.
Branch One reversed a previous debit memo from Branch Six amounting to
₱24,000. The home office decided that this charge is appropriately Branch Seven’s cost.
How much is adjusted balance of the “Home Office” account?
a. 568,000
b. 588,000
c. 628,000
SOLUTION
HOME OFFICE
BOOKS
Investment in Branch
Unadjusted balances
400,000
a.
Branch
Two’s 120,000
transaction
b.
Branch One’s acquisition c.
Branch
Four’s 48,000
remittance
d.
Branch
Five’s
debit
memo
e.
Inter – branch debit
memo
BRANCH
BOOKS
Home office
568,000
-
Adjusted balance
568,000
568,000
d. 658,000