CHAPTER 13
HOME OFFICE AND BRANCH ACCOUNTING: GENERAL PROCEDURES
True 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
True 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
False 3. Start-up costs incurred by a branch in the initial months of operations are appropriately
deferred and amortized in subsequent profitable accounting periods
False 4. 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
True 5. Separate financial statements of home office and branch do not meet the needs of
investors, creditors, or other outside users of financial statements.
False 6. 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.
False 7. 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.
False 8. The “shipments to branch” account is added to the home office’s purchases account in
determining home office cost of goods sold.
True 9. When inventory is received from the home office, a branch increases its home office
account.
True 10. Reciprocal home office and branch accounts are eliminated when home office and
branch financial statements are combined for external reporting.
False 11. 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.
True 12. 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.
False 13. 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, 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
True 14. There are three ways to reconcile the balance in the home office’s Branch Account with
the balance in the branch’s Home Office Account. One way 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 way would be to reconcile both the home office’s
branch balance and the branch’s home office balance to the adjusted true balance.
True 15. The incremental profitability of a branch office may be hidden if the home office
allocates too many fixed costs to the branch office
False 16. A major disadvantage of a centralized accounting system is that the profitability of
branch operations cannot be determined because branch operations are not accounted for in a
separate general ledger.
True 17. Home office allocations to a branch are not required under current standards
True 18. Income taxes can be allocated to a branch
True 19. Branch fixed assets can be carried on the home office’s books under a decentralized
accounting system
False 20. If branch fixed assets are recorded on the home office’s books, depreciation expense
would not be charged to branch operations
CHAPTER 14
HOME OFFICE AND BRANCH ACCOUNTING: SPECIAL PROCEDURES
TRUE 1. 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.
FALSE 2. If the home office bills shipment of merchandise to the branch at 25% above home
office cost and the judgment balance of the allowance for Overvaluation of Inventories: Branch
ledger account is 2,400 and amount of branch inventories at build prices is 81,600.
TRUE 3. If the branch managers are responsible for ordering merchandise from the home office
any exist freight costs incurred as a result of inter-branch shipments are absorbed by the
appropriate branch rather than by the home office.
TRUE 4. Freight cost 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.
FALSE 5. A markup of 16 2/3% on billed price is equal to the markup of 14 2/7% on cost of
merchandise shipped to the branch by the home office.
FALSE 6. If the home office bills merchandise shipments to the branch at prices above the home
office cost, the net income reported to the home office by the branch is overstated from a total
company point of view.
FALSE 7. In a combined balance sheet for home office and branch, the balance of the allowance
for overvaluation of inventories: branch ledger account is deducted from the balance of the
investment in branch account.
FALSE 8. A home office ships merchandise to its branch at the transfer price greater than cost.
When this merchandise is resold by the branch to outside entities the branch's profit will be
overstated.
TRUE 9. A closing entry prepared by a branch will adjust the loading account and record branch
profit or loss in the home office account.
TRUE 10. Unrealized profits from transactions between a home office and its branch are
eliminated in preparing combined financial statements for the enterprise.
FALSE 11. A home office records shipments to its branch at billing prices and adjusts the loading
account at year-end . When this approaches used, the loading account during the period will
always be zero.
TRUE 12. 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.
FALSE 13. Freight charges incurred by the branch office on merchandise inventory shipped from
the home office would be included in the branch cost of goods available-for-sale even if the
wrong merchandise was shipped from the home office.
TRUE 14. 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
into the merchandise's transfer price.
FALSE 15. It is equally probable that a "loading" account could be charged with an unrealized
inventory loss as it is that it could be charged with an unrealized inventory profit.
TRUE 16. As a general rule, the "loading" account will be credited for the unrealized profit
element of the merchandise shipped to the branches and debited for the amount of any realized
inventory profits.
TRUE 17. If the "Shipments from the Home Office" account and the "Shipments to the Branch
Office" account are kept on a reciprocal basis and home office charges of 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.
TRUE 18. 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 markup on this
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.
FALSE 19. When a branch receives merchandise a transfer prices that include a loading factor
and sells that merchandise, its cost of goods sold will be understated and its income will be
overstated.
20. 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
21. Amongst the various reasons given for the internal transfer of merchandise inventory at a
price above its cost are:
a)
b)
c)
d)
The equitable allocation of income amongst the various units of the business enterprise
Efficiency in pricing inventories
Concealment of the true profit margins from branch personnel
All of the above are considered valid reasons
22. 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)
b)
c)
d)
Unrealized inventory profits only
Unrealized inventory profits and overall branch profits but not branch losses
Unrealized inventory profits and overall branch profits and losses
Overall branch profits and losses but not unrealized inventory profits
23. 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 or 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
24. 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
a)
b)
c)
d)
Yes
No
No
Yes
Purchases Sent to Branch
Yes
Yes
No
No
25. In the year end general ledger closing procedures, which accounts are closed in arriving at
Cost of Sales?
Purchases Sent to Branch
a)
b)
c)
d)
Yes
No
No
Yes
Purchases from Home Office
Yes
Yes
No
No
26. 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
D. Which of the following accounts is a reciprocal account to the Investment in Branch account?
a. Branch Income
b. Equity in Home Office
c. Home office capital
d. None of the above
D. 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
a. Yes
b. No
c. No
d. Yes
Home office capital
Yes
Yes
No
No
D. 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 branch’s cumulative unremitted profits
c. The intracompany accounts are eliminated in preparing combined financial statements
d. The balance in the Investment in Branch account must equal the balance in the Branch Income
account
B. Which of the following would explain why the Investment in Branch account is less than the Hoome
Office Capital account?
a.
b.
c.
d.
A cash transfer to the branch is in transit
A cash transfer to the home office is in transit
An inventory shipment to the branch (at cost) is in transit
A home office has received and deposited a remittance from a branch customer but has not yet
notified the branch
e. None of the above
A. A home office, month-end allocation of previously recorded advertising expenses to a branch
requires the following entry on the home office’s books:
a.
b.
c.
d.
e.
Debit
Investment in Branch
Home Office Capital
Branch Income
Investment in Branch
None of the above
Credit
Advertising Expense
Advertising Expense
Home Office Capital
Accrued Liabilities
B. A home office, month-end allocation of previously recorded advertising expenses to a branch
requires the following entry on the branch’s books to record the allocation:
a.
b.
c.
d.
e.
Debit
Advertising expense
Branch income
Advertising expense
Home Office capital
None of the above
Credit
Accrued liabilities
Home Office capital
Branch income
Accrued liabilities
D. 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
C. The Western Branch of Rivas Company reported a net income of 60,000 for 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 60,000
b. Income: Western Branch 60,000
Income Summary
60,000
c. Investment in Western Branch 60,000
Income: Western Branch 60,000
d. Investment in Western Branch 60,000
Income Summary
60,000
C. 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.
b.
c.
d.
The home office debits Investment in Branch and credits Shipments in Transit to Branch
The branch debits Home Office and credits Shipments in Transit from Home Office
The home office debits Shipments in Transit to Branch and credits Investment Branch
The branch debits Shipments in Transit from Home Office and credits Home Office
A. The fiscal year of King Company which is located in Manila end on September 30. On September
30,20x4, the home office of King Company shipped merchandise costing 80,000 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 30,20x4 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 debit to Home Office Current and a credit to Inventories in the branch accounting records
d. Other journal entry
B. Among the journal entries (explanation omitted) in the accounting records of the home office of
Price Company was the following:
Office Equipment: Lang Branch 12,500
Investment in Lang Branch
12,500
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
B.
a.
b.
c.
d.
The Income: Branch ledger account is maintained in the accounting records of:
The home office only
The branch only
Both the home office and the branch
Neither the home office nor the branch
D.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 20,000 and the balance of the Home Office account in the
accounting records of the branch (after the branch recorded closing entries) is 25,500, the most likely
explanation for the discrepancy of 5,500 is a:
a.
b.
c.
d.
Remittance of cash is best described to the branch not recorded by the home office
Net income of branch not recorded by the home office
Net loss of branch not recorded by the home office
Collection by the home office of a branch note receivable not recorded by the branch
A.The Home Office ledger account in the accounting records of a branch is best described as:
a.
b.
c.
d.
A revenue account
An equity account
A deferred revenue account
None of the foregoing
D.The following journal entry (explanation omitted) appeared in the accounting records of Marty
Corporation’s only branch:
Operating expenses
600,000
Home Office
600,000
The journal entry indicates that:
a.
b.
c.
d.
The branch incurred operating expenses for the benefit of the home office
The home office incurred operating expenses for the benefit of the branch
The branch paid the home office for services rendered to the branch
None of the foregoing occurred
A.In a working paper for combined fianancial statements of home office and branch, the branch’s net
income is included in:
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
B.A debit to the Income Summary ledger account and a credit to the Home Office account appear in:
a.
b.
c.
d.
The accounting records of the home office to record the net income of the home office
The accounting records of the home office to record the net income of the branch
The accounting records of the branch to record the net income of the branch
Some other manner
D.The following journal entry (explanation omitted) appeared in the accounting records of the home
office of Silversmith Company:
Investment in Seaside Branch
Operating expenses
8,980
8,980
This journal entry indicates that:
a.
b.
c.
d.
The branch incurred operating expenses for the benefit of the home office
The home office incurred operating expenses for the benefit of the branch
The branch paid the home office for services rendered to the branch
None of the foregoing occurred
C.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.
b.
c.
d.
Is a valuation account for the home office’s Investment in Branch account
Always should have the same balance as the branch’s Shipments from Home Office account
Is a revenue account
Is a valuation account for the home office’s Purchases account
C.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.
b.
c.
d.
The home office only
The branch only
Both the home office and the branch
Neither the home office nor the branch
B. On January 31, 20x4, the home office of Wall Company collected a trade account receivable of Doris
Branch. The accounting for this transaction by Wall Company should include a:
a.
b.
c.
d.
Credit to Trade Accounts Receivable: Doris Branch in the accounting records of the home office
Debit to Cash in Transit in the accounting records of Doris Branch
Credit to Investment in Doris Branch in the accounting records of the home office
Debit to Receivable from Home Office in the accounting records of Doris Branch
B. If the home office of Mobile Company maintains the accounting records for the plant assets of the
branch, and the branch acquired equipment for 100,000, the appropriate journal entry for the branch is:
a.
b.
c.
d.
Debit the Home Office Current account and credit a plant asset account for 100,000
Debit the Home Office Current account and credit Cash for 100,000
Debit to plant asset account and credit the Home Office Current account for 100,000
Debit Cash and credit the home Office Current account for 100,000
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 25,000.
Whenever the sales agency needs more working capital it transmits the receipts for what it 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.
C. An operation such as the one described above most closely resembles a(n):
a.
b.
c.
d.
Voucher system
Petty cash system
Accounts receivable subsidiary ledger
Accounts payable subsidiary ledger
D. The primary advantages of the system described is that it:
a.
b.
c.
d.
Is adequate for effective control over agency expenses
Is adequate for measuring the contribution of agency operations to enterprise income
It is simple to establish and maintain
It provides a basis for determining if agency operations are being performed efficiently
A.Which of the following statements most correctly describes the types of information that a sales
agency would have to collect for the home office to properly determine the sales agency’s probability
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 balances of accounts receivable
D. Which of the following statements correctly describes the relationship between the accounting
systems used for 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 probability of the sales
agency but the branch accounting system can be set up to measure the probability of the branch
b. The sales agency accounting system can be set up to measure the probability of the sales agncy
but the branch accounting system cannot be set up to measure the probability 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.
B. In preparing the financial statements of the home office and its various branches:
a.
b.
c.
d.
Nonreciprocal accounts are eliminated but reciprocal accounts are combined
Both reciprocal and nonreciprocal accounts are eliminated
Both reciprocal and nonreciprocal accounts are combined
Reciprocal accounts are eliminated and nonreciprocal accounts are combined