Exercise 5: Home Office and Branch Accounting
EXERCISES
1. A branch store in Caloocan was established by Carlo Company on March 1. Merchandise was billed to
the branch at 125% of cost. Shipments of merchandise were as follows:
At billed price
March 5
P120,000
March 10
50,000
March 20
35,000
On March 22, the branch returned defective merchandise worth P3,050. March 31, the branch
reported a net loss of P6,200 and merchandise inventory of P85,000. In the home office books, the
cost of merchandise sold by branch was:
2. Barros Corporation’s shipments to and from its Brazil City branch are billed at 120% of cost. On
December 31, Brazil branch reported the following data at billed prices: Inventory, January 1, of
P33,600; shipments received from home office of P840,000; shipments returned of P48,000; and
inventory, December 31, of P36,000. What is the balance of the allowance for overvaluation of branch
inventory of December 31 before adjustments?
3. Fischer Company opened its Tuguegarao Branch on January 1. Merchandise shipments from home
office during the month, billed at 120% of cost, is P125,000. Branch returned damaged merchandise
worth P15,620. On January 31, the branch reported a net loss of P2,270 and an inventory of P84,000.
What is the net income(loss) of the branch to be taken up in the books of the Home Office?
4. The Quezon City Sales Company established a branch in Dumaguete 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 P185,000 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
P72,500. The total cost of goods available for sale by the branch at cost (net of overvaluation and
returns) amount to:
5. Charity Inc. established its first branch on May 1, 2008. During the first month of operation, the home
office shipped merchandise to the branch worth P138,000 which included a markup of 15% on cost.
Sales for cash were P80,000 while sales on account were P250,000. At month’s end, the branch
reported operating expenses of P38,000 and a closing inventory of P23,000 at billed price. As far as
the home office is concerned, the true branch net income for May 2008 is
6. The Gift Company has a branch in Dipolog City. During 2008, the home office shipped to the branch
merchandise billed at P150,000 including a markup of 20% on cost. The branch reports opening and
closing inventories of P90,000 and P120,000, respectively, while the home office has a closing
inventories of P210,000 which includes merchandise which are held on consignment valued at
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Exercise 5: Home Office and Branch Accounting
P10,000. Both location use the periodic inventory system. What closing inventory would be reported
in the combined statement of income for the year 2008?
7. The Manila Branch of the Great Company is billed for merchandise by the home office at 20% above
cost. The branch in turn prices merchandise for sales purposes at 25% above billed price. On February
16, all of the branch merchandise is destroyed by fire. No insurance was maintained. Branch accounts
show the following information:
Merchandise inventory, January 1 at billed price
P26,400
Shipments from home office (Jan. 1 – Feb. 16)
20,000
Sales
15,000
Sales returns and allowances
3,000
What was the cost of the merchandise destroyed by fire?
8. Nike Corporation operates a number of branches in the provinces. On December 31, 2011, its Davao
branch showed a Home Office account balance of P54,700 and the home office books showed an
Investment in Davao Branch account balance of P51,100. The following information may help in
reconciling both accounts:
 A P24,000 shipment, charged by Home Office to Davao Branch was actually sent to and
retained by Cebu Branch
 A P30,000 shipment, intended and charged to Aklan Branch was shipped to Davao Branch and
retained by the latter.
 A P4,000 emergency cash transfer from Cebu Branch was not taken up in the Home Office
books.
 Home Office collects a Davao Branch accounts receivable of P7,200 and fails to notify the
branch.
 Home Office was charged for P2,400 for merchandise returned by Davao Branch on December
30. The merchandise is in transit.
 Home office erroneously recorded Davao Branch’s net income for 2011 at P32,550. The
branch reported a net income of P25,350.
What is the adjusted balances of the Home Office and Davao Branch reciprocal accounts on
December 31, 2011?
9. On December 31, the Investment in Branch account in the home office books shows a balance of
P50,000. The following facts are ascertained:
 Merchandise billed at P12,500 is in transit on December 31 from the home office to the
branch.
 The branch collected a home office accounts receivable for P3,500. The branch did not notify
the home office of such collection.
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Exercise 5: Home Office and Branch Accounting

On December 30, the home office sent cash of P7,500 to the branch, but this was charged to
General expense; the branch has not received the cash as of December 31.
 Branch profit for December was recorded by the Home office at P2,400 instead of P2,040.
 The branch returned supplies of P1,500 to the home office but the home office has not yet
recorded the receipt of the supplies.
Assume all other transactions have been properly recorded.
What is the unadjusted balance of the Home Office account on the branch books on December 31?
10. Mama Inc. opened a sales agency in Sand Pedro Laguna in 2011. The following is a summary of the
transactions of the sales agency.
Sales order sent to home office
P120,000
Sales order filled by home office in 2011
95,000
Freight on shipment of agency
2,000
Collection, net of 10% discount
81,000
Selling expenses paid from the agency working fund
5,500
Administrative expenses charged to agency
5% of gross sales
Samples shipped to agency:
Cost
8,200
Inventory, December 31,2011
4,550
The company’s gross profit rate on agency sales is 30% excluding the freight cost on shipments to
agency.
What is the total comprehensive income of the agency?
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