CHAPTER 11 | HO BRANCH | MILLAN
CHAPTER 11 BOOK
TRUE OR FALSE
1. Unlike for a “sales agency,” a “branch” its own separate books of accounts and prepares its own
financial statements. TRUE
2. Sales transactions between the home office and its branch are taxable because the home office
and the branch are separate legal entities. FALSE
3. The “investment in branch” is an asset account in the branch’s individual financial statements.….
FALSE
4. The home office records inventory shipments to the branch by debiting the shipments to branch
account. FALSE
5. The branch nonetheless records the depreciation for an asset that it uses even if the asset is
carried in the home office books. TRUE
6. The balance in the “allowance for mark-up” account represents the home office’s unrealized
mark-up on shipments to the branch. TRUE
7. The branch records an allocated overhead expense from the home office as a debit to the home
office account. FALSE
8. A branch reported cash of P2, while the home office reported cash of P10. The total cash in the
combined financial statements, therefore, is P13. FALSE
9. The home office and branch report individual profits of P25 and P10, respectively. If the realized
mark-up on the inventory shipments to the branch billed above cost is P5, the combined profit
must be P30. FALSE
10. The branch reports ending inventory of P15, consisting of goods from the home office billed at
125% above cost. The related allowance account in the home office books must have a credit
balance of P3. TRUE
PROBLEM 2
1. Transactions between a home office and its branch are accounted for in reciprocal accounts. The
reciprocal account maintained in the branch books is called … Answer: HOME OFFICE
2. The branch records a debit memo received from the home as ... Answer: CREDIT TO HOME
OFFICE ACCOUNT
3. The freight on shipments to the branch paid by the home office is recorded by the home office
as … Answer: CREDIT TO CASH
4. The depreciation expense on equipment carried in the books of the home office but used by the
branch is recorded in the branch’s books as … ANSWER: DEBIT TO DEPRECIATION EXPENSE AND
CREDIT TO HOME OFFICE ACCOUNT.
5. Transactions between branches are recorded by the transacting branches … ANSWER: AS IF
EACH OF THEM IS TRANSACTING WITH THE HOME OFFICE
PRBOLEM 3
1. Entity A open sales agency in Cebu City and a working fund of P20,000 is established on imprest
basis. The first payment from the fund is P3,000 for rent. The transaction should be recorded by
the home office as follows: B. Dr. Rent, P3,000; Cr. Cash, P3,000
2-3. A branch’s trial balance at the end of a period is as follows:
Cash
Home Office
Shipments from Home Office
Accounts Receivable
Expenses
Sales
Debit
11,900
90,000
120,000
62,500
8,100
202,500
Dec. 31 inventory
Credit
112,500
202,500
30,00
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2. How much is the profit of the branch? ANSWER: 22,500
3. How much is the adjusted balance of the “Investment in Branch” account in the home office
books? ANSWER: 104,000
4. The following information pertains to shipments of merchandise from Home office to Branch
during 1991. (Amount: HO – 160K Intra-company Billing – 200K, Sales by Branch – 250K, Unsold
merchandise at Branch on December 31, 1991 – 20,000) In the combined income statement of
Home Office and Branch for the year ended December 31, 1991, what amount of the above
transactions should be included in sales? ANSWER: 250,000
5. After examining on a comparative basis, the interoffice account of the ABC Co. with its Branch
and the similar account carried on the latter’s books, the following discrepancies at the close of
the business on June 30, 20x1 were seen:
a. A charge for labor by the Home Office, P500 was recorded
b. A charge of P895 was made by the Home office for freight on merchandise, but the
amount was recorded by 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 net 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 charge 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, 20x1
correcting item (f) and entered a credit in favor of the Home Office as of June 30, 20x1.
At June 30, 20x1, the unadjusted balance of the Branch current account in the Home Office
books showed P175,520. At the beginning of the year interoffice accounts were in balance.
How much are the unadjusted and adjusted balances of the Home Office current account?
ANSWER: B. Unadjusted: 184, 279.50 – Adjusted 180, 520
6. The following information was determined during the reconciliation of the reciprocal accounts
of a home office and its branch:
a. The branch erroneously recorded the credit posting for a P6,800 allocated expense from
the home office as P8,600.
b. The branch erroneously recorded the debit posting for a P4,000 allocated expense from
the home office as P5,000.
c. The home office omitted the debit posting for a P7,000 cash remittance from the
branch.
d. The home office recorded twice the credit posting for a P5,000 credit memo from the
branch.
e. The branch erroneously omitted the credit posting for a P3,000 debit memo from the
home office.
f. The branch erroneously posted the credit posting for a P3,000 debit memo from the
home office as a debit.
How much is the difference between the unadjusted "Investment in branch" and "Home
office accounts? ANSWER: 4,200
7. The year-end balance of the "Investment in Dagupan Branch in the home office books has a
balance of P225,770. The following information was determined during the reconciliation:
CHAPTER 11 | HO BRANCH | MILLAN
a. Office equipment costing the home office P3,500 was recorded by the branch as P350.
b. Insurance premium of P675 charged by the home office was taken up twice by the
branch.
c. Freight charge on merchandise made by the home office for P1,125 was recorded in the
branch books as P1,215.
d. Home office credit memo representing a discount on merchandise for P800 was not
recorded by the branch.
e. The branch failed to take up a P700 debit memo from the home office representing the
share of the branch in advertising
f. The home office inadvertently recorded a remittance for P3,000 from its Cebu branch as
a remittance from its Dagupan branch
How much are the unadjusted and adjusted balances of the "Home office account as of
year-end? ANSWER: Unadjusted: 226, 485 – Adjusted: 228,700
8. The following were found in your examination of the interplant accounts between the Home
Office and the Bacolod Branch:
a. Transfer of fixed assets from Home Office amounting to P53,960 was not recorded by
the branch. Fixed assets used in the branch are required to be maintained in the books
of the branch.
b. P10,000 covering marketing expense of another branch was charged by Home Office to
Bacolod.
c. Bacolod recorded twice a P75,000 debit note for inventory transfers from Home Office.
d. Home office recorded cash transfer of P65,700 from Bacolod Branch as coming from
Tacloban Branch.
e. Bacolod reversed a previous debit memo from Samar Branch amounting to P10,500.
Home Office decided that this charge is appropriately Tacloban's Branch cost.
f. Bacolod recorded a debit memo from Home Office of P4,650 as P4,560.
How much are the net adjustments – Debit (Credit) – on the following accounts?
ANSWER: Bacolod Branch Current Account (75,700) – Home Office Current Account
(20.950)
9-10.
Use the following information for the next two questions:
ABC Co. bills its branch for merchandise at 140% of cost. At the end of its first month, the
branch submitted the following data:
Merchandise from home office (at billed price)
98,000
Merchandise purchased locally by branch
40,000
Inventory, Dec. 31 of which P7,000 are of local purchase
28,000
Net sales for the month
180,000
9. How much is the branch's ending inventory at cost? ANSWER: 22,000
10. How much is the branch's gross profit in so far as the home office is concerned? ANSWER:
92,000
11. Entity A bills its branch for merchandise shipments at 125% of cost. As of cut-off date, Dec. 31,
20x0, the following data were available:
Merchandise, Dec. 1
Additions during Dec.
Merchandise, Dec. 31
From home office
(@ billed price)
300,000
450,000
420,000
From outside purchases
120,000
360,000
150,000
CHAPTER 11 | HO BRANCH | MILLAN
The branch returned P15,000 merchandise to the home office. acquired at billed price. How
much is the amount of the allowance for overvaluation account that was realized in Dec.?
ANSWER: 63,000
12. Entity X bills its branch for merchandise shipments at 140% of cost. The branch reporting the
following:
From home office (@billed price)
Merchandise, Jan 1
7,560
Shipments received
28,280
Merchandise, Jan. 31
8,400
What should be the balance of the allowance account for overvaluation of the branch inventory
at January 31? ANSWER: 2,400
13. The following information pertains to a home office and its branch for the year 20x1:
Home Office
365,000
90,000
220,000
13,700
35,000
10,000
3,300
Sales
Shipments to branch
Purchases from outsiders
Advertising expenses
Salaries and Commission Expense
Rent Expense
Miscellaneous Expense
Shipments from home office
Inventory, beg.
Home Office
Branch
From outsiders
From HO billed @ 20% above cost
Inventory, end
Home Office
Branch:
From Outsiders
From HO billed @ 20x1 billing rate
Branch
174,500
35,000
2,500
9,500
2,000
500
112,500
85,000
9,500
42,000
65,000
6,500
30,000
How much is the combined profit? ANSWER: 174,000
14. Information on a home office and its branch is as follows:
Inventory, beg.
Purchases
Shipments from home office
Shipments to branch
Branch inventory allowance
Sales
Inventory, end
Home Office
12,000
150,000
75,000
19,750
115,00
14,000
Branch
8,000
30,000
93,750
176,500
10,350
CHAPTER 11 | HO BRANCH | MILLAN
The branch’s ending inventory incudes P4,350 from external purchases. From the home office
viewpoint: (1) what is the branch’s true cost of sales; and (2) how much is the understatement
of the branch’s profit? Answer: (1) 102,850 ; (2) 18,550
15. Information relating to two branches is as follows:
Inventory, Jan.1, 20x1
Imprest Branch Fund
Inventory, Dec. 31, 20x1
Accounts Receivable, Jan. 1, 20x1
Merchandise from Home Office
Accounts Receivable, Dec. 31, 20x1
Cash Collections
Sales
Cash Expenses
Branch A
21,000
2,000
19,000
55,000
61,000
70,000
85,000
100,000
21,000
Branch B
19,000
1,500
12,000
43,500
47,000
53,500
70,000
80,000
14,300
All Sales, collections and expenses are handled at the branch. All cash received from sales and
collections are sent directly to the home office. Expenses are paid by the branch from the
imprest fund and immediately reimbursed by the home office and credited to the Home Office
account. All expenses paid by the branch are recorded in the books of the branch. How much
are the balances of the Home Office accounts on Jan. 1, 20x1? ANSWER: Branch A: 78,000 –
Branch B: 64,000
16. A branch’s individual statements of profit or loss is as follows:
Sales
Cost of Sales
Shipments from home office
Local Purchases
Total
Inventory, end
Gross profit on sales
Expenses
Profit
300,00
280,000
30,000
310,000
(50,000)
(260,000)
40,000
(35,000)
5,000
Shipments to the branch are billed at 140% of cost. The branch's ending inventory is P50,000, of
which P6,600 are from local purchases. Markup on local purchases is 20% over cost. The branch
failed to record a P2,500 allocated expense from the home office. What are the amounts of the
branch's (1) ending inventory to be included in the combined financial statements and (2) true
profit, respectively? ANSWER: 37,600; 70,100
17. The following information pertains to a home office and its branch for the year 20x1:
Sales
Purchases from Outsiders
Shipments to branch
Shipments from HO @ 125% billed price
Expenses
Inventory, beg.
-Home Office
-Branch:
From Outsiders
From HO billed @ 120% above cost
Home Office
250,000
200,000
30,000
40,000
Branch
75,000
15,000
32,500
10,000
80,000
7,500
24,000
CHAPTER 11 | HO BRANCH | MILLAN
Inventory, end
-Home Office
-Branch:
From Suppliers
From Home Office
55,000
5,500
21,000
How much is the merchandise in-transit at the year end (at billed price) and how much is the
combined cost of good sold? ANSWER: 5,000; 241,200
18. Information relating to a hoe office and a branch as of Dec. 31, 20x1 is as follows:
Debits
Inventory, Jan. 1
Branch
Purchases
Freight-in from home office
Sundry expense
Credits
Home office
Sales
Sakes to branch
Allowance for markup – Jan. 1
•
•
Home Office
23,000
58,300
190,000
52,000
Branch
11,550
105,000
5,500
28,000
155,000
110,000
1,000
53,300
140,000
-
The branch gets all of its merchandise from the home office. The home office bills the
goods at cost plus a 10% markup. At Dec. 31, 20x1, a shipment with a billed value of
P5,000 was still in transit. Freight on this shipment was P250.
Inventories on Dec. 31, 20x1, excluding the shipment in transit:
Home Office
30,000
Branch @ billed price (excluding 520 freight)
10,400
How much are (1) the individual profit of the home office and (2) the true profit of the
branch, respectively? ANSWER: 20,000 ; 10,470
19. Entity X has several branches located in key cities in the south namely, Cebu, Mactan, Iloilo,
Bacolod, Davao, and Cagayan de Oro. It authorizes transfers of cash and inventories among
branches. The head office ships goods (P10,000 cost) to Cebu branch paying freight of P600. The
home office authorizes the transfer of goods from Cebu branch to Davao branch where the
latter is charged for the cost of the goods (P10,000) and freight charge (1200) for the transfer. If
the shipment had been made by the home office directly to the Davao branch, the freight
charge would have been P900. The transfer resulted to difference in freight charge which should
be disposed of as follows: ANSWER: P100 savings.
20. Entity A's home office is located in Bontoc while its two branches are located in Samoki and
Tadian. The home office ups goods, billed at cost of P100,000, to the Tadian Branch, and pays
freight of P10,000. Subsequently, the home office instructs Tadian Branch to ship the goods to
Samoki Branch. Tadian Branch pays freight of P11,000. Had the home office shipped the goods
directly to Samoki Branch, the freight would have been only P2,000. Which of the following
statements is incorrect? ANSWER: Samoki Branch recognizes lost of P19,000.
CHAPTER 12 | HO BRANCH ACCOUNTING | GUERRERO
THEORIES
1. Which one of the following is not a reciprocal account?
a. Horne office account
b. Investment in Branch
c. Inter-company accounts
d. Investment in subsidiary stock
2. When an asset is transferred to a branch from the home office, which of the following occurs?
a. Only a memo entry is made
b. A credit to Home Office account.
c. A debit to Home Office account
d. A credit to Investment in Branch account
3. Which of the following statements is correct?
a. A sales agency normally accounts for its operations on its own set of books.
b. Branches normally maintain only minimum accounting records.
c. A sales agency generally operates with a greater degree of autonomy than does a
branch.
d. A branch generally operates with a greater degree of autonomy than does a sales
agency
4. Which of the following statements is incorrect regarding branch accounting?
a. A branch's Home Office account appears in the asset section of a balance sheet
prepared for the company as a whole.
b. A branch's Home Office account appears in the equity section of the branch's separate
balance sheet.
c. Most branches maintain a complete set of books which includes a self-balancing set of
accounts.
d. Sales agencies usually do no keep a complete self-balancing set of accounts.
5. Of the following two statements, which one(s) is (are) correct, if any? A transfer of merchandise
from the home office to one of its branches should be recorded with a(n): I. Decrease in the
branch's Home Office account. II Increase in the home office's Investment in Branch account
a. I and II.
b. I only
c. II only
d. Neither I nor II.
6. A branch's Home Office account is a(n):
a. Asset
b. Asset and Liability
c. Asset and Capital account.
d. Liability or Capital account.
CHAPTER 12 | HO BRANCH ACCOUNTING | GUERRERO
7. A home office's Investment in Branch account is a[n):
a. Asset
b. Contra liability
c. Unrealized income
d. Liability
8. Remittances from a branch to its home office are recognized by the home office as: ANSWER:
INCOME- NO; AN INCREASE IN INVESTMENT IN BRANCH – NO
9. When a home office pays expenses of a branch and apportions the expense against branch
income without notifying the branch, the following accounts increase: HOME OFFICE – NO ; INV.
IN BRANCH – YES
10. When a home office pays the expenses of a branch and notifies the branch of the expenditure,
the following accounts increase: HOME OFFICE – YES ; INV. IN BRANCH – YES
11. Maganda, Inc. has a branch operation located in Cebu. On the home office financial record,
Maganda reports Investment in Cebu Branch account with a P78,000 debit balance. At that
same time, the branch operation is reporting a Home Office account with an P81,000 credit
balance. Which of the following statements is true?
a. Since two different sets of records are being kept, these two accounts are
b. The difference indicates that inventory may be in transit from the home office designed
to agree. to the branch.
c. The difference indicates that cash may be in transit from the branch to the home office.
d. Cash may have been collected by the home office for the branch but not yet reported
to the branch.
12. Malakas, Inc. operates a branch in Davao. On the home office financial records at the end of
2013, Malakas reports Investment in Davao Branch account with a P167,000 debit balance. The
branch operation reports on the same data a Home Office account with a P162,000 credit
balance. Which of the following statements is true?
a. Since two different sets of records are being kept, these two accounts are not designed
to agree
b. The difference indicates that cash may be in transit from the branch to the home
office.
c. Cash may have been collected by the home office for the branch but not yet reported to
the branch.
d. The difference indicates that the home office might have assigned a P6,000 expense
allocation to the branch that was incorrectly recorded by the branch as P11,000.
PROBLEMS
1. Papa Inc. of Makati opens a sales agency in Bacolod City and a working fund of P50,000 is
established on imprest basis. The first payment from the fund is P5,000 for rent of the store
CHAPTER 12 | HO BRANCH ACCOUNTING | GUERRERO
space. What is the entry in the books of the home office transactions? A. DR. RENT EXPENSE –
BACOLOD AGENCY 5,000, CR. CASH 5,000
2. QC Company had an agency in Iloilo City. During the year, the transactions of the agency, the
transactions of the agency are summarized below:
Sales
Disbursements:
Purchases
Salaries
Rent
Supplies
Other Expenses
P 868,000
800,000
140,000
40,000
20,000
10,000
The agency had P200,000 receivables and P100,000 payables as of the end of the period. Also,
there are inventories on hand of P180,000 and unused supplies of P12,000. The agency was set
up as an experiment for one year and would be closed if losses were incurred. The agency
should be. ANSWER: D. CONTINUED WITH THE PERIOD’S PROFIT OF P50,000
3. On June 1, 2013, Makati Company established a sales agency in Fairview, Quezon City. Upon the
establishment of the sales agency the Makati Office sent merchandise samples costing P8,000
and a cash working fund of P3,000 to be maintained on the imprest basis. During the month of
June, the sales agency reported to the home office sales orders. These were billed at P70,000 of
which P40,000 was collected. The sales agency paid expenses of P2,800 but was reimbursed by
the home office. On June 30, 2013, the sales agency samples were valued at P6,000. It was
estimated that the gross profit on goods shipped to fill agency sales orders averaged 40% of
cost. What is the net income of the sales agency for the month ended June 30, 2013? ANSWER:
15,200
4. On January 2, 2013, Jose Company established a sales agency in Pasig City. During the year the
following transactions occurred:
a.
b.
c.
d.
e.
f.
Transfer of P10,000 worth of merchandise to Pasig Agency to establish a working fund.
Receipts of sales orders from the agency, P100,000
Collection of agency accounts by the home office, P70,000
Home Office disbursement representing agency expenses, P9,000
Replenishment of the agency working fund upon receipt of expense vouchers for
P4,500.
Cost of goods sold identified with the agency sales, P72,000.
What is the net income (loss) of the agency for the year, 2013? ANSWER: 14,500
5. If all fixed assets are kept on the home office books, and the branch purchased equipment for
P50,000 cash, the appropriate journal entry for the branch is a debit to: ANSWER: A. HOME
OFFICE ACCOUNT AND A CREDIT TO CASH FOR P50,000
CHAPTER 12 | HO BRANCH ACCOUNTING | GUERRERO
6. The home office allocates monthly depreciation to the branch on the branch’s fixed assets kept
on the home office books. The April depreciation amounts to P7,500. The branch should record
this allocation by the following entry: ANSWER: A. DR. DEPRECIATION EXPENSE – 7,500; CR.
HOME OFFICE - 7,500
7. The collection of a P5,000 branch receivable by the home office should be recorded by the
branch with the following entry: ANSWER: C. HOME OFFICE – 5,000; CR. ACCOUNTS
RECEIVABLE – 5,000
8. Luzon Corporation starts a branch operation in a nearby town. Merchandise costing P80,000 is
shipped to this branch along with equipment costing P50,000. During the initial year, the home
office assigns P8,000 in expenses to the branch. The branch sells 70 percent of the inventory
that it received for 80,000 and remits P40,000 in cash to the home office. What is the correct
Home Office account balance on the records of the branch? Closing entries have not been
made. ANSWER: A. 98,000
9. Miguel Corporations operates a branch in Cebu. In October, the home office shipped P34,000
merchandise to this branch. Although the home office made the correct journal entry, the
branch credited its Home Office account for P43,000. In November, the branch collected P1,000
on an accounts receivable for the home office. The home office was properly notified but
debited Investment in Branch account for P4,000. At the end of the year, the home office paid
and recorded a P6,000 expense for the branch but the branch has not yet made the appropriate
entry. Also, at the year’s end, the branch conveyed P25,000 in cash to the home office but the
home office has no yet made the necessary entry. What corrections are needed? ANSWER: D.
The home office needs to credits its Investment in Branch account for P28,000 and the branch
needs to debit its Home Office account for P3,000.
10. Manila Company, Inc. has been operating a branch in Cavite for a year. Shipments are billed to
the branch at cost. The branch carries its own accounts receivables, makes its own collections
and pays its own expenses. On December 31, 2013, the branch books show the following
balances:
Cash
Home Office
Shipments from Home Office
Accounts Receivable
Sales
Expenses
P 8,500
35,000
135,000
25,000
147,000
13,500
The branch inventory on December 31, 2013 as P18,500. On January 1, 2014, what are the
balance of the following accounts in the books of the Home Office? ANSWER: A. Investment in
Branch - 52,000; Shipments to Branch - 0
CHAPTER 12 | HO BRANCH ACCOUNTING | GUERRERO
11. On December 31, 2013, the branch manager of Jenna Company in Iloilo City submitted the
following data to the home office in Manila.
Petty Cash Fund
Sales
Shipments from Home Office
Accounts Receivable, Jan. 1, 2013
Inventory, Jan. 1, 2013
Inventory, Dec. 31, 2013
Expenses
P 6,000
390,000
270,000
86,000
74,000
82,000
96,000
All cash collected on accounts receivable amounting to P378,000 were remitted to the home
office. What is the balance of the Home Office account on: (1) Jan. 1, 2013; (2) Jan. 1 2014?
ANSWER: B. 2013 – 166,000; 2014 – 186,000
12. Just before the books are closed on December 31, 2013, the trial balances for the home office
and branch contained the following account balances:
Investment in Branch
Home Office
38,600
21,320
Your examination of the accounts revealed the following information:
1. On Dec. 26, the branch remitted P10,400 in cash to the home office that was not received
until Jan. 3.
2. Merchandise that was billed to the branch at P7,280 was in transit at December 31.
3. A cash payment of P400 on an open accounts receivable was received by the home office.
The account, however, was carried on the books of the branch, the home office did not
notify the branch of the cash collection.
What is the adjusted balance of the reciprocal accounts on December 31, 2013? ANSWER: D.
28,200
13. A reconciliation of the Investment in Tarlac Branch account of Manila Company and the Home
Office account carried in the books of the branch shows the following discrepancies at
December 31, 2013:
1. A credit for merchandise allowance for P3,000 was taken by the branch as 3,600.
2. A charge by the branch of P5,500 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 P9,000 covered by a debit memo from the home office as
share in advertising expenses.
The Investment in Tarlac Branch account in the home office books has a debit balance of
P430,000 at December 31, 2013. The reciprocal accounts were in agreement at the beginning of
CHAPTER 12 | HO BRANCH ACCOUNTING | GUERRERO
the year. What is the unadjusted balance of the Home Office account in the books of the branch
on December 31, 2013? ANSWER: A. 414,900
14. On December 31, 2013 the Investment in Branch account on the home office books of the Lady
Company shows a balance of P84,000, and the Home Office account on the books of the branch
shows a balance of P97,350. The following data are determined in accounting for the difference.
1. Merchandise billed at P6,150 was shipped by the home office to the branch on December
28. The merchandise is in transit and had not been recognized on the books of the branch.
2. The branch collected a home office accounts receivable of P25,000, but failed to notify the
home office of this collection.
3. The home office recorded incorrectly the branch net income at P11,250. The branch
reported net income of P12,150.
4. The home office was charged P6,400 when the branch returned merchandise to the home
office on December 31. The merchandise is in transit.
What is the reconciled amounts of the reciprocal accounts on December 31? ANSWER: A.
103,500
15. Candy Corporation, operates a number of branches in Metro Manila. On June 30, 2013, its Nova
branch showed a Home Office account balance of P27,350 and the home office books showed
Investment in Nova Branch account balance of P25,550. The following data were discovered in
reconciling the two reciprocal accounts:
1. AP12,000 shipment, charged by the home office to Nova branch, was actually sent to and
retained by QC branch.
2. AP15,000 shipment intended and charge to Bulacan branch was shipped to Nova branch.
3. The home office collects a Nova branch accounts receivable of P3,600 and fails to notify the
branch.
4. The home office was charged for P1,200 for merchandise returned by Nova branch on June
28. The merchandise is in transit.
5. The home office erroneously recorded Nova branch's net income for May at P16,275. The
branch reported a net income of P12,675.
What is the reconciled amount of the Home Office and Investment in Nova Branch accounts?
ANSWER: A. 23,750
16. On December 31, 2013, the Investment in Branch account on the home office's books has a
balance ofP85,000. In analyzing the inter-company transactions recorded in each of these
accounts for December, you discover the following discrepancies:
1. A P10,000 branch remittance to the home office initiated on December 27, 2013, was
recorded on the home office books on January 4, 2014.
2. A home office merchandise shipment to the branch on December 29, 2013 was recorded by
the branch on January 5, 2014. The cost of this merchandise is P20,000.
3. The home office incurred P12,000 of advertising expenses and allocated P5,000 of this
amount to the branch on December 15, 2013. The branch has not recorded this transaction.
CHAPTER 12 | HO BRANCH ACCOUNTING | GUERRERO
4. A branch customer erroneously remitted P3,000 to the home office. The home office
recorded this cash collection on December 23, 2013. Meanwhile, back at the branch, no
entry has been made yet.
5. Merchandise costing P43,000 was sent to the branch by the home office on December 10,
2013. The billing was at cost, but the branch recorded the transaction at P34,000.
Compute the following balances as of December 31, 2013: ANSWER: C. 44,000; 75,000
17. A reconciliation of the Investment in Branch account in the home office of Makati company and
the Home Office account carried on the branch books showed the following discrepancies at
December 31, 2013:
a. Collection of branch accounts receivable by the home office, P8,000: The branch was
not notified.
b. Shipment in transit to branch on December 31, 2013, P32,000.
c. Acquisition of furniture by the branch, P12,000. The fixed asset accounts is to be
maintained on the home office books. The home office had not been notified of such
acquisition. D
d. Return of excess merchandise by the branch but not received yet by the home office,
P15,000.
e. Cash remittance by the branch on December 31, 2013 was in transit, P5,000.
f. The balance of the home office account in the books of the branch on December 31,
2013'is P440,000.
Compute the following balances on December 31, 2013: ANSWER: A. 496,000; 464,000
CHAPTER 13 | HOME OFFICE AND BRANCH ACCOUNTING | GUERRERO
Multiple Choices-Theoretical
1. A home office ships inventory to its branch at an amount above cost. By year-end, 75 percent of
the inventory shipped to the branch..
ALLOWANCE FOR OVERVALUATION OF BRANCH INVENTORY
BRANCH INCOME
2. Based on number 1 information, how is the realized inter-company profit determined?
(Billed price less cost) x 75 percent
3. The home office ships merchandise to its branch above cost. What journal entry should the
branch make to record receipt of the shipment?
SHIPMENT FROM HOME OFFICE
HOME OFFICE
4. The home office ships merchandise to the branch at an amount above cost. How should the
Investment in Branch account be debited? At billed price
5. The Allowance for Overvaluation of Inventory accounts is debited by the home office:
In a journal entry to close the account at the end of an accounting period
6. When a home office ships merchandise to Branch A which is later shipped to Branch B. The
additional freight charges to ship merchandise from branch A to Branch B should:
Treated as an expense on the Home Office books
7. When the home office ships merchandise to the branch above its cost, the cost of goods sold on
the branch income statement is:
Overstated the difference between the unadjusted and post-closing balance in the allowance
for overvaluation in branch inventory account on the home office books
8. When the home office ships merchandise to the branch above its cost, the net income on the
income statement prepared by the branch is:
Understated by the difference between the unadjusted and the post-closing balance in the
Allowance for Overvaluation account on the home office books
9. The unadjusted balance in the Allowance for Overvaluation account at year-end represents:
The mark-up on the merchandise available for sale by the branch for the year
10. The Allowance for Overvaluation account is:
Credited to Branch Income account for the realized portion of the mark-up
11. A company has several branch operations that sell merchandise transferred from the home
office. This inventory is transferred at billed price of 20 percent more than cost.
The unrealized gain on any remaining inventory is eliminated for financial reporting purposes
12. A company sells inventory from its home office and also from a branch operation in a nearby
city. At the end of the fiscal year, what happens to the Investment in Branch account (on the
home office books) and the Home Office account (on the branch books) when financial
statements for the company as whole are being produced?
The Home Office account is eliminated but the Investment in Branch account is reported
separately
CHAPTER 13 | HOME OFFICE AND BRANCH ACCOUNTING | GUERRERO
Multiple Choices-Computational
1. The home office ships merchandise to the branch at 20 percent above cost. How should a
shipment costing P60,000 be recorded by the home office?
INVESTMENT IN BRANCH 72,000
ALLOW. FOR OVERVALUATION OF BR. INV. 12,000
SHIPMENTS TO BRANCH
60,000
2. The home office ships merchandise to its branch at 20 percent above cost. The branch’s books
show a beginning inventory of home office merchandise of 30,000 and shipments from home
office 180,000. What is the balance before closing in the Allowance for Overvaluation of Branch
Inventory account? P35,000
3. The home office ships merchandise to the branch at 25 percent above cost. If the balance
before closing in the Intracompany Inventory Profit account if 66,000 and Shipments from Home
Office amounted to 300,000, what was the cost of the branch’s beginning inventory? P24,000
4. The home office ships merchandise to the branch at 50 percent above cost. On it books the
branch shows a beginning inventory of home office merchandise amounting to 15,000 and
shipments from home office of 110,000. Its ending inventory of home office merchandise is
5,000. What amount should the home office adjust the allowance for overvaluation of branch
inventory account. P40,000
5. Power Corporation shipped inventory to its Bacolod branch, costing P375,000 plus freight.
Power bills inventory to its branches at 120 percent of original cost, plus the actual amount of
shipping charges. At the end of the year, the Bacolod branch had resold 50 percent of the
inventory from the home office. Shipping costs paid by Power were P2,000. P188,500
6. Using the data in Q5, at what amount should the branch’s inventory from the home office be
reported in the statement of financial position of Power Corporation as a whole? P157,250
7. Oro Corporation has a branch in Cebu. The branch reported income of P130,000 for 2013. The
branch has a balance in its Home Office account at the end of the year, after closing, of
P765,000. Branch income has not been recorded by Oro’s home office. During the year, Oro
shipped inventory to the branch at a price of P160,000; Oro’s original cost was P90,000. All but
45 percent of the inventory has been resold to unrelated parties by year-end. P635,000
8. A branch’s ending inventory of merchandise shipped by the home office and purchased from
outside vendors amounts to P50,000. The post-closing balance in the Unrealized Gross Profit in
Branch Inventory account is P6,000 due to the home office practice of shipping merchandise at
20% above cost. The merchandise purchased from outside vendors contained in the ending
inventory of the branch amounts to. P14,000
9. During 201x, Jose Corporation transferred inventory from its home office to its Laguna branch at
a billed price of P110,000. The inventory originally cost the company P90,000. The home office
reported sales and cost of goods sold of P1,400,000 and P590,000, respectively. The Laguna
branch reported sales and cost of goods sold of P675,000 and P300,000, respectively. All of the
CHAPTER 13 | HOME OFFICE AND BRANCH ACCOUNTING | GUERRERO
inventory had been sold by year-end. What is the cost of goods sold to be reported in the 201x
combined statement of comprehensive income? P870,000
10. Merchandise shipped to a branch for P30,000, which includes a 20% mark-up on cost, was
returned by the branch. To record the receipt of the returned merchandise the home office
should make the following entry:
SHIPMENT TO BRANCH
25,000
ALLOW. FOR OVERVALUATION OF BR. INV. 5,000
INVESTMENT IN BRANCH
30,000
11. The Simon Company always ships merchandise to a branch outlet at a 30 percent mark-up
above cost. During 201x, this branch received P182,000 in such shipments while also acquiring
goods from outside vendors at cost of P96,000. Half of the branch’s December 31, 201x,
inventory of P57,200 came from home office acquisitions. At the beginning of 201x, the branch
held merchandise with a transfer price of P49,400. All of this inventory had been purchased
directly from the home office. At the end of 201x, what is the adjusted balance in Simon’s
Allowance for Overvaluation in Branch Inventory account? P6,600
12. Lakas, Inc., starts a branch operation to sell more of its merchandise. Inventory costing P60,000
is shipped to this branch at a billed price of P90,000. During the initial year, the home office pays
P17,000 in expenses for the branch. The branch sells 80 percent of the inventory that it received
for P110,000 and remits P70,000 in cash to the home office. What is the correct Home Office
account balance on the records of the branch? Closing entries have not been made. P37,000
13. Lamp starts a branch operation on January 1, 201x. Inventory costing P72,000 is shipped to this
branch at a transfer price of P100,000. Freight is an additional P6,000. The branch sells 70
percent of this inventory for P110,000 and remits P70,000 in cash to the home office. On Lamp’s
financial statements for this period, what is the appropriate Cost of Goods Sold figure? P54,600
14. A branch operation buys most of its inventory from outside parties. However, this year the
home office transferred merchandise costing P50,000 to the branch for P80,000. At the end of
the year, 20 percent of this merchandise was still held by the branch. Although the inventory
was correctly counted and reported, the branch did not tell the home office that this portion of
the remaining goods came from transfers. Consequently, the home office assumed that all of
the transferred merchandise had been sold to outside parties. What is the resulting impact on
the net income reported for the company as a whole? The net income figure would be P6,000
overstated
15. The following balances are from the books of the Bicol Co. and its Naga City branch as if
December 31, 201x:
Debit
Sales
Shipments from Home Office
Inventory, January 1
Expenses
P151,200
28,350
90,000
Credit
P270,000
CHAPTER 13 | HOME OFFICE AND BRANCH ACCOUNTING | GUERRERO
The Naga City branch purchases all of its merchandise from the home office. Its December 31
inventory was P25,200. The home office bills the branch at 40% above its cost. Before closing,
what is the balance of the Shipment to Branch Account on the Home Office Books? P108,000
16. Using the data on Q15, what is the branch profit as far as the home office is concern? P69,750
17. The Liberty Company established a branch store in Makati on June 1, 201x. The branch is to
receive substantially all merchandise for resale from the home office. During the remainder of
201x, shipments to the branch amounted to P180,000 which included a 20% mark-up cost. The
branch purchased P45,000 additional merchandise for cash and reported unsold merchandise of
P60,000 at year-end. The branch made sales of P292,500, paid expenses of P72,000 and
remitted to the home office all sales proceeds. The allowance for overvaluation of branch
inventory account on the home office books showed a balance of P7,500 after adjustment.
What is the branch inventory on December 31, 201x at cost? P52,500
18. Presented below are items taken from the unadjusted trial balances of Progressive Company
and its branch on December 31, 2013.
Home Office Books
Branch Books
Shipments to branch
P300,000
Allowance for overvaluation of
99,900
branch inventory
Shipments from home office
P390,000
Merchandise Inventory, January 1
54,600
Merchandise Inventory, December 31
48,750
Sales
540,000
Expenses
51,000
It is the company’s policy to bill all branches for merchandise shipments at 30% above cost. How
much of the branch inventory on January 1 represents purchases from outsiders? P11,700
19. The Ventures Corporation decided to open a branch store in Manila. Shipments of merchandise
to the branch totaled P108,000 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 operations for the period ended
December 31, 2013.
Sales on account
P148,000
Sales on cash basis
44,000
Collections of accounts
120,000
Expenses paid
76,000
Expenses unpaid
24,000
Purchase of merchandise for cash
52,000
Inventory on hand, December 31 (80% from home office)
60,000
Remittances to home office
110,000
How much is the ending inventory at cost? P52,000
CHAPTER 13 | HOME OFFICE AND BRANCH ACCOUNTING | GUERRERO
20. Using the data in Q13-19, what is the branch comprehensive income under the generally
accepted accounting principles? P2,000
21. The following information are taken from the books and records of Pacific Company and its
branch. The balances at December 31, 2013, the second year of the company’s operations are:
Home Office Books
Branch Books
Sales
P400,000
Expenses
100,000
Shipments to branch
P200,000
Allowance for Overvaluation of
57,500
branch inventory
The branch obtains all of its merchandise from the office. The home office ships the
merchandise at 125 percent of its cost. The ending inventory of the branch is P40,000 at the
billed price. What was the billed price of the branch beginning inventory? P37,500
22. Using the data in Q13-21, the branch net income as far as the home office is concern is:
P102,000
23. The following information are extracted from the books and records of Pinoy Company and its
branch. The balances are at December 31, 2013 the fourth year of the company’s operations.
Home Office Books
Branch Books
Sales
P200,000
Shipments to branch
P60,000
Shipments from home office
80,000
Purchases
30,000
Expenses
60,000
Inventory, January 1, 2013
20,000
Allowance for overvaluation of
24,000
branch inventory
There are no shipments in transit between the home office and the branch. Both shipments
accounts are properly recorded. The ending inventory at billed price includes merchandise
acquired from the home office in the amount of P20,000 and P6,000 acquired from vendors for
a total of P26,000. How much of the branch beginning inventory was acquired from outsiders?
P4,000
24. Using the data in Q13-23, what is the true branch net income according to the generally
accepted accounting principles? P55,000
25. The following information are extracted from the books and records of Phil Corporation and its
branch. The balances are at December 31, 2013, the third year of the corporation’s existence.
Home Office Books
Branch Books
Sales
P600,000
Expenses
200,000
Shipments from home office
360,000
CHAPTER 13 | HOME OFFICE AND BRANCH ACCOUNTING | GUERRERO
Allowance for Overvaluation of branch
inventory
P72,500
The branch acquires all of its merchandise from the home office. The inventories of the branch
at billed prices are as follows:
January 1, 2013
P75,000
December 31, 2013
84,000
What is the percentage of profit on cost that the home office uses to bill merchandise shipped
to branch? 20%
26. The following account balances were taken from the books and records of Bulacan Company
and its branch on December 31, 2013.
Home Office Books
Branch Books
Sales
P460,000
P400,000
Shipments to branch
300,000
Merchandise inventory, January 1
48,000
32,000
Purchases
600,000
120,000
Shipments from home office
375,000
Allowance for overvaluation of
79,000
branch inventory
Merchandise inventory, December 31
56,000
41,400
The ending inventory of the branch includes P17,400 acquired from outsiders. What is the entry
to adjust the realized profit from sales made by the branch?
ALLOWANCE FOR OVERVALUATION OF BRANCH INVENTORY 74,200
BRANCH INCOME SUMMARY
74,200
27. The partial closing entries of the Home Office and its Branch at June 30, 2013 are as follows:
Home Office
Sales
300,000
Inventory 6/30
60,000
Shipments to Branch
80,000
Inventory 6/1
40,000
Purchases
160,000
Expenses
120,000
Branch
Sales
150,000
Inventory 6/30
10,000
Shipments from Home
100,000
Office
Inventory 6/1
12,000
Expenses
30,000
What is the combined cost of goods sold? P141,600
CHAPTER 13 | HOME OFFICE AND BRANCH ACCOUNTING | GUERRERO
28. Using the data in Q13-27, what is the combined comprehensive income of the home office and
branch? P158,400
29. The following data were taken from the records of Luzon Corporation of Manila and its Rizal
branch for 2013:
Home Office Books
Branch Books
Sales
P530,000
P157,500
Inventory, January 1
57,500
22,250
Purchases
410,000
Shipments to branch
105,000
Shipments from home office
126,000
Inventory, December 31
71,250
29,250
Expenses
191,000
50,750
In 2013, Manila office billed the Rizal branch at 120% of cost which was lower by 5% than last
year’s. What is the combined comprehensive income? P56,075
30. The Visayas Company operates a branch in Mindanao. Operating data from the home office and
the branch for 2013 are presented below:
Home Office Books
Branch Books
Sales
P512,000
P157,000
Purchases
420,000
40,000
Shipments to branch
60,000
Shipments from home office
80,000
Expenses
120,000
25,000
Inventories, January 1:
Home Office
160,000
Branch:
Acquired from outsiders
15,000
Acquired from home office at
billed price of 22 ½ above
49,000
cost
Inventories, December 31:
Home Office
110,000
Branch:
Acquired from outsiders
11,000
Acquired from home office
52,000
What is the combined comprehensive income (loss) of the home office and the branch? P9,000
31. A Manila Company maintains several branches that market the products that it produces.
Merchandise is billed to the branches at cost, the branches paying freight charges from the
home office to the branch. On November 15, 2013, Branch No. 1 ships parts of its stock to
Branch No. 3 upon authorization of the home office. Originally, Branch No. 1 had been billed for
CHAPTER 13 | HOME OFFICE AND BRANCH ACCOUNTING | GUERRERO
this merchandise at P16,000 and had paid freight charges on the shipment from the home office
of P3,500. Branch No. 3 upon receiving the merchandise, pays freight charges on the shipment
from Branch No. 1 of P2,500. If the shipment had been made from the home office directly to
Branch No. 3, the freight cost to Branch No. 3 would have been P4,000. What is the entry of the
home office record the excess freight due to inter-branch transfer?
INVESTMENT IN BRANCH 3
17,500
EXCESS FREIGHT
2,000
INVESTMENT IN BRANCH 1
19,500
32. Tiger, Inc. owns a branch in Bicol. As of the end of the current year, the home has an Investment
in Bicol Branch account with a P77,000 debit balance. At the same time, the branch is reporting
a Home Office account with a P61,000 credit balance. An investigation uncovers the following:
• During the year, the home office shipped merchandise costing P16,000 to the branch at
a billed price of P28,000. The branch accidentally recorded the shipment as P38,000.
• At the year’s end, the home office assigned P14,000 in expenses to the branch, the
branch recorded this allocation as P19,000.
• Also at the year’s end, the branch transferred P31,000 in cash to the home office. The
office has not yet recorded this money.
What is the reconciled balance of the reciprocal accounts? P46,000
Questions 33 & 34 are based on the following data:
The following partial transactions took place between the home office and its two branches, Bacolod
Branch and Cebu Branch
• Upon the instruction of the home office, Cebu Branch affected a fund transfer of
P25,000 to Bacolod Branch.
• Bacolod Branch collected a Cebu Branch’s accounts receivable of P35,000 less 2%
discount.
• Cebu Branch paid P250,000 representing the traveling expenses of Mr. Jay Ayala, a
senior vice-president, when the latter attended the regional conference in Canada. Of
the amount paid, 60% was charged to the home office, 25% to Bacolod Branch and the
balance to Cebu Branch.
• Home office shipped merchandise costing P200,000 to Cebu Branch. Freight of P3,000
was paid by the home office. It is the policy of the company to bill its branches at 25%
above cost.
• Upon the instruction of the home office, Cebu reshipped the above merchandise to
Bacolod Branch. Freight of P1,500 was paid by Bacolod Branch. Had the goods been
shipped directly to Bacolod Branch, the freight would have been only P4,200
33. What is the balance of the Investment in Cebu Branch account in the home office books?
P271,800
34. What is the balance of the Home Office account in the books of Bacolod branch? P374,500
HOME OFFICE, BRANCH & AGENCY: THEORIES (DAYAG)
GENERAL PROCEDURES
1. A branch that maintain a general ledger is said to use a(n) accounting system?
DECENTRALIZED
2. The investment in Branch accounting has a balance that equals the account of the branch?
HOME OFFICE CURRENT
3. On the Home Office’s books, the earnings of a branch are recorded in an account called?
BRANCH INCOME SUMMARY
4. Income taxes pertaining to branch earnings are usually recorded on the books of the:
HOME OFFICE
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.
S1: TRUE; S2: TRUE
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
debt to the Investment in Branch ledger account and a credit to the Equipment: Branch account.
S1: FALSE; S2: FALSE
7. Statement 1: Separate financial statements of home office and branch do not meet the need of
investors, creditors, or other outside users of financial statements.
Statement 2: In a working paper for combined financial statements of home office and the
branch, the balance of the Shipments to Branch ledger account is eliminated against the balance
of the investment in Branch account.
S1: TRUE; 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 Shipment from
Home Office accounts.
Statement 2: The “shipment to branch” account is added to the home office’s purchases
account in determining home office cost of goods sold.
S1: FALSE; S2: FALSE
HOME OFFICE, BRANCH & AGENCY: THEORIES (DAYAG)
9. Statement 1: When inventory is received form 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.
S1: FALSE; S2: FALSE
10. S1: 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.
S2: 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 home office’s Branch
Account.
S1: TRUE; S2: FALSE
11. S1: 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.
S2: 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.
S1: TRUE; S2: FALSE
12. S1: The incremental profitability of a branch office may be hidden if the home office allocates
too many fixed costs to the branch office.
S2: A major disadvantage of 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.
S1: FALSE; S2: TRUE
13. S1: Home office allocations to a branch are not required under current standards.
S2: Income taxes can be allocated to a branch.
S1: FALSE; S2: FALSE
14. S1: Branch fixed assets can be carried on the home office’s books under a decentralized
accounting system.
S2: If branch fixed assets are recorded on the home office’s books, depreciation expense would
not be charged to branch operations.
S1: FALSE; S2: TRUE
HOME OFFICE, BRANCH & AGENCY: THEORIES (DAYAG)
15. Which of the following accounts is a reciprocal account to the Investment in Branch account?
HOME OFFICE CAPITAL
16. In preparing combined financial statements, which of the following accounts are eliminated
(brought to a zero balance) in the combining process?
BRANCH INCOME/LOSS (YES); HOME OFFICE CAPITAL (YES)
17. A control feature in a decentralized accounting system is
THE BALANCE IN THE INVESTMENT IN BRANCH ACCOUNT MUST EQUAL THE BALANCE IN THE
HOME OFFICE CAPITAL ACCOUNT
18. Which of the following would explain why the investment in branch account is less than the
Home Office Capital account?
A HOME OFFICE HAS RECEIVED AND DEPOSITED A REMITTANCE FROM A BRANCH CUSTOMER
BUT HAS NOT YET NOTIFIED THE BRANCH
19. A home office, month-end allocation of previously recorded advertising expenses to a branch
requires the following entry on the home office’s books:
DEBIT (INVESTMENT IN BRANCH); CREDIT (ADVERTISING EXPENSE)
20. 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:
NONE OF THE ABOVE
21. The Shipments to Branch ledger account in the accounting records of the home office of a
business enterprise:
INDICATES THAT THE HOME OFFICE USES THE PERIODIC INVENTORY SYSTEM
22. The Western Branch of Riva Company reported a net income of P60, 000 for the month of
January.
DR: INVESTMENT IN WESTERN BRANCH – 60, 000
CR: INCOME-WESTERN BRANCH – 60, 000
23. Both a home office and a branch use the periodic inventory system.
THE BRANCH DEBITS SHIPMENTS IN TRANSIT FROM HOME OFFICE AND CREDIT HOME OFFICE
24. The fiscal year of King Company which located in Manila ends on September 30.
A DEBIT TO INVENTORIES AND A CREDIT TO HOME OFFICE CURRENT IN THE BRANCH
ACCOUNTING RECORDS
HOME OFFICE, BRANCH & AGENCY: THEORIES (DAYAG)
25. Among the journal entries (explanation omitted) in the accounting records of the home office of
Price Company was the following:
THE BRANCH ACQUIRES OFFICE EQUIPMENT, WHICH IS CARRIED IN THE ACCOUNTING
RECORDS OG THE HOME OFFICE
26. The income: Branch ledger account is maintained in the accounting records at:
THE HOME OFFICE ONLY
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:
NET INCOME OF BRANCH NOT RECORDED BY THE HOME OFFICE
28. The Home Office ledger account in the accounting records of a branch is best described as:
AN EQUITY ACCOUNT
29. The following journal entry (explanation omitted) appeared in the accounting records of Marty
Corporation’s only branch:
THE HOME OFFICE INCURRED OPERATING EXPENSES FOR THE BENEFIT OF THE BRANCH
30. In a working paper for a combined financial statements of home office and branch, the branch’s
net income is included in:
THE DEBIT COLUMN OF THE BRANCH INCOME STATEMENT SECTION AND THE CREDIT
COLUMN OF THE BRANCH STATEMENT OF RETAINED EARNINGS SECTION
31. A debt to the Income Summary ledger account and a credit to the Home Office account appear
in:
THE ACCOUNTING RECORDS OF THE BRANCH TO RECORD THE NET INCOME OF THE BRANCH
32. The following journal entry (explanation omitted) appeared in the accounting records of the
home office of Silversmith Company:
THE HOME OFFICE INCURRED OPERATING EXPENSES FOR THE BENEFIT OF THE BRANCH
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:
IS A VALUATION ACCOUNY 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:
NEITHER THE HOME OFFICE NOR THE BRANCH
HOME OFFICE, BRANCH & AGENCY: THEORIES (DAYAG)
35. On January 31, 20x4, the home office of Wall Company collected a trade account receivable of
Doris Branch.
CREDIT TO INVESTMENT IN DORIS BRANCH IN THE ACCOUNTING RECORDS OF THE HOME
OFFICE
36. If the home office of Mobile Company maintains the accounting records for the plant assets of
its branch, and the branch acquired equipment for P100, 000, the appropriate journal entry for
the branch is:
DEBIT THE HOME OFFICE CURRENT ACCOUNT AND CREDIT CASH FOR P100, 000
37. An operation such as the one described above most closely resembles a(n):
PETTY CASH SYSTEM
38. The primary advantages of the system described is that it:
IT IS SIMPLE TO ESTABLISH AND MAINTAIN
39. Which of the following statements most correctly describes the types of information that sale
agency would have to collect for the home office to properly determine the sales agency’s
profitability?
ONLY AGENCY SALES, COST OF SALES, OPERATING EXPENSES AND THE ACTUAL/AVERAGE
AMOUNT OF FIXED ASSETS LOCATED AT THE AGENCY LOCATIONS.
40. Which of the following correctly describes the relationship between the accounting systems
used for a sales agency when compared to the accounting systems used for a branch office:
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 SEPARTAE SEGMENT OF THE COMPANY’S
ENTIRE ACCOUNTING SYSTEM.
41. In preparing the financial statements of the home office and its various branches:
RECIPROCAL ACCOUNTS ARE ELIMINATED AND NONRECIPROCAL ACCOUNTS ARE COMBINED
SPECIAL PROCEDURES
42. 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.
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 price is P81, 600.
S1: TRUE; S2: FALSE
HOME OFFICE, BRANCH & AGENCY: THEORIES (DAYAG)
43. S1: If branch managers are responsible for ordering merchandise form 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.
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.
S1: TRUE; S2: TRUE
44. S1: A mark-up of 16 2/3% on billed price is equal to a mark-up of 14 2/7% on cost of
merchandise shipped to the branch by the home office.
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 form a total
company point of view.
S1: FALSE; S2: FALSE
45. S1: 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.
S2: A home office ships merchandise to its branch at a transfer price greater than cost.
S1: FALSE; S2: FALSE
46. S1. A closing entry prepared by a branch will adjust the loading account and record branch profit
or loss in the home office account.
S2: Unrealized profits from transactions between a home office and its branch are eliminated in
preparing combined financial statement for the enterprise.
S1: TRUE; S2: TRUE
47. S1: A home office records shipments to its branch at billing prices and adjusts the loading
account at year-end.
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 include any initial unrealized profit.
S1: FALSE; S2: TRUE
48. 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
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.
S1: FALSE; S2: TRUE
HOME OFFICE, BRANCH & AGENCY: THEORIES (DAYAG)
49. S1: 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.
S2: As a general rule, the ”loading” will be credited for the unrealized profit element of
merchandise shipped to the branches and debited for the amount of any realized inventory
profits.
S1: FALSE; S2: TRUE
50. 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 the shipments,
there will be no need to adjust the loading account at the end of the period for any realized
inventory profits.
S2: If the “Shipments form 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.
S1: TRUE; S2: TRUE
51. The Allowance for Overvaluation of Inventories: Branch ledger account of the home office is
debited:
IN SOME OTHER CIRCUMSTANCES
52. Amongst the various reasons given for the internal transfer of merchandise inventory at a price
above its cost are: D
ALL OF THE ABOVE ARE CONSIDERED VALID REASONS:
The equitable allocation of income…
Efficiency in pricing inventories
Concealment of the true profit margins from branch personnel
53. A branch office is allowed to make sales, carry inventory for resale to customers, and incur
normal operating expenses.
UNREALIZED INVENTORY PROFITS ONLY
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.
ALL THE SITUATIONS WOULD NORMALLY BE CONSIDERED UNRESONABLE:
Requiring the branch to ship some of its inventory…
Charging a cost to the branch for freight charges…
Charging freight charges to a branch for inventory shipped…
55. In preparing combined financial statements, which of the following accounts are eliminated
(brought to a zero balance) in the combining process?
BRANCH INCOME/LOSS (YES); PURCHASES SENT TO BRANCH (NO)
HOME OFFICE, BRANCH & AGENCY: THEORIES (DAYAG)
56. In the year end general ledger closing procedure, which accounts are closed in arriving at Cost of
Sales?
PURCHASES SENT TO BRANCH (YES); PURCHASES FROM HOME OFFICE (NO)
57. The general ledger entry to adjust the Intracompany Profit Deferred account at the end of an
accounting period.
RESULTS IN AN ENTRY IN THE COMBINING PROCESS THAT IS ESSENTIALLY A RECLASSIFICATION
ENTRY
DAYAG | HO BRANCHH
1. The national home company ships and bills merchandise to its provincial branch at cost.
ANSWER: Net Profit of the Branch: P14,400 – Branch Current Account: P104,400
2. On December 31, 20x6, the following data are in the records of the Cebu City branch of
the Clair Company. ANSWER: TOTAL REMITTANCE = P262,300
3. 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: ANSWER: B. 93,560
4. Leila’s Co.’s Clark branch submitted the following data for 20x6, its first year of
operations. ANSWER: D. 71, 995
5. The following information pertains to shipments of merchandise from Home Office to
Branch during 20x6 ANSWER: A. P250,000
6. Barros Corporation’s shipments to and from its Brazil City branch are billed at 120%
cost. ANSWER: B. 137,600
7. The Cindy owns the Highest Crown in Dipolog City and a branch in Dapitan City.
ANSWER: B. 240,000
8. The Aparri Branch of Cagayan Products, Inc. buys merchandise from third parties and
receives merchandise from the home office for which it is billed at 20% cost. ANSWER:
B. 2,470,000 – 350,000
9. Fischer Company opened its Tuguegarao Branch on January 1. Merchandise shipments
from home office during the month billed at 120% cost, is P125,000. ANSWER: D. 1,960
10. The Robert Corporation established its Bulacan branch in January 20x6. During its first
year of operations, home office shipped to its Bulacan branch merchandise. ANSWER:
D. 192,000
11. The Clark branch of Freeport Corporation submitted the following trial balance as of 30
June 20x6: ANSWER: D. 108,900
12. The Quezon City Sales Company established a branch in Dumaguete City early last
year. It shipped merchandise and billed the branch for P300,000. ANSWER: A.
P416,250
13. The home office of Glendale Company. Which uses the perpetual inventory system, bills
shipments of merchandise to the Montrose Branch at a markup of 25% on the billed
price. ANSWER: C. P120,000
14. Tillman Textile Company has a single branch in Bulacan. On March 1, 20x6, the home
office accounting records included on Allowance for Overvaluation of inventories.
ANSWER: D. P46,000 DEBIT
DAYAG | INSTALLMENT
15. Charity, Inc. established its first branch on May 1, 20x6. During the first month of
operations, the home office shipped merchandise to the branch worth. ANSWER: D.
P192,000
16. Jaimee Marketing Co. opened a branch in San Fernando City at the beginning of 20x6.
The branch extends credit, makes collections, pay expenses from cash receipts and
acquires goods exclusively from the home office. ANSWER: D. 22,750 NET INCOME
17. The account balances shown below were taken from the trial balances submitted to
BonApetit Corporation by its Alabang branch… ANSWER: D. 41,350
18. The Gift Co. has a branch in Dipolog City. During 20x6, the home office shipped to the
branch merchandise billed at P150,000 including a markup at 20% on cost. ANSWER:
B. 300,000
19. Hope Corporation started operating a branch on May 1, 20x6 with a shipment of
merchandise billed at P250,000. Additional shipments during the month were billed at
P125,000 ANSWER: A. (9,500)
20. Espana Branch was billed by Home Office for merchandise at 140% of cost. At the end
of its first month, Espana branch submitted among other things. ANSWER: B. 92,000 –
22,000
21. 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. ANSWER; D. 30,000
22. The home office bills its Aklan branch at 12% of cost. During the year 20x6, good costing
P300,000 were shipped to the branch. ANSWER: C. 56,000 – 70,000
23. Lacoste Philippines has two merchandise outlets, its main store in manila and its cebu
city branch. For control purposes, all purchases are made by the main store, and
shipments to the cebu city branch are at cost plus 10%... ANSWER: C. (1) P6,320; (2)
P15,600
24. The Best Co. bills merchandise shipments in its Cavite City branch at 125% of cost. The
branch, in turn, sells the merchandise it receives from the home office at 25% above the
billing price. ANSWER: A. P120,000
25. On August 31, 20x6, a fire destroyed totally the rented “bodega” or stockroom of Isabela
Company. The following are some of the data of the company. ANSWER: B. 115,900
26. Lobster Trading bills its Iloilo City branch for shipments of goods at 25% above cost. At
the close of business on October 31, 20x6, a fire gutted the branch warehouse and
destroyed 60% of the merchandise stock stored therein. ANSWER: B. 21,600
DAYAG | INSTALLMENT
27. Trial balances for the home office and the branch of the Tony Co. shows the following
accounts before adjustment, on December 31, 20x6. The home office policy of billing the
branch for merchandise is 20% above cost. ANSWER: D. 9,000 – 36,000
28. Masaya Commercial Corp. Maintains a branch in Iloilo City. Selected account balance
taken from the books of Masaya and its Iloilo branch as of December 31, 20x6 are as
follows: ANSWER: A. (1) P102,850; (2) P18,550
29. Selected balances from the Legaspi Company’s Branch A and Branch B are as follows:
ANSWER: D. 78,000 – 64,000
30. Pangasinan Branch of Malate Company, at the end of its first quarter of operations
submitted the following income statement: ANSWER: A. (1) P37,600; (2) P70,100
31. The income statement submitted by the Pampanga Branch to the Home Office for the
month of December, 20x6 is shown below. After effecting the necessary adjustments the
true net income of the branch was ascertained to be 156,000. ANSWER: B. (1) 140%;
(2) P24,000
32. The following information are extracted from the books and records of Rona Company
and its branch. The balances are at December 31, 20x6 of the company’s operations.
ANSWER: D. (1) P24,700; (2) P20,800
33. Best Buy Ventures operates a branch in Cebu City. Selected accounts taken from the
May 31, 20x6 statements of the Best Buy and its branch follow… ANSWER: C. P37,100
34. The Bicol Corporation operates a branch in Naga City. The information from the
December 31, 20x6 trial balance are as follows: ANSWER: C. P64,400
35. The Dumaguete City branch of Silliman Enterprises, Negros, was billed for merchandise
shipments from the home office at cost plus 25% in 20x5 and cost plus 20% in 20x6.
ANSWER: B. (1) (4,900): (2) 22,430
36. The Quezon City branch of Asser Enterprises, Manila, was billed for merchandise
shipments from home office at cost plus 25% in 20x5 and cost plus 20% in 20x6.
ANSWER: B. (1) 8,230; (2) 38,250
37. Selected accounts from the December 31, 20x6 trial balance of Betty Star Co. and its
branch follow: ANSWER: C. (1) P32,000; (2) P76,000
38. The Kester Store operates a branch in Cebu. Operating data for the home office and the
branch for 20x6 are as follows ANSWER: D. 174,000
39. The Iloilo Co. operates a branch in Davao. There are shipments in transit from home
office to the branch. ANSWER: A. (1) P5,000; (2) P241,200
DAYAG | INSTALLMENT
40. Betzier Company branch in Malate began operations on January 1, 20x6. During the first
year of operations, the home office shipped merchandise to the Malate branch that cost
250,000 at billed price of 300,000 ANSWER: D. NO YEAR-END ADJUSTING ENTRY
FOR THE FREIGHT CHARGE
41. Tagum Supply Company is engaged in merchandising both at its Home office in Manila
and of its Branch in Davao City ANSWER: B (1) 20,000; (2) 10,470
42. The Brazil Corporation operates a branch in Mactan, Cebu. Trial balance of the home
office and Mactan Branch at December 31, 20x6 is reproduced below: ANSWER: A.
P55,940
43. Swift Corporation, operates a number of branches in Metro Manila. On June 30, 20x6, its
San Lorenzo branch showed a Home Office account balances of 27,350 and the Home
Office books showed a Sn. Lorenzo branch account balance of 25,550 ANSWER: B.
P23,750
44. On December 31, 20x6, the investment in Branch account on the home office’s books
has a balance of 102,000, in analyzing the activity in each of these accounts for
December, you find the following differences ANSWER: D. 52,800 – 90,000
45. Lakers Trading Co. operates a branch in Dagupan City ANSWER: D. 226, 485 –
228,770
46. The following were found in your examination of the interplant accounts between the
Home Office and the Bacolod Branch… ANSWER: A. P(75,700); P20,950
47. After examining on a comparative basis the interoffice account of the Bulacan Company
with its suburban Branch and the similar account carried on the latter’s books…
ANSWER: B. (1) 184,279.50; (2) 180,520
48. Video and Company has several branches located in the cities in the south namely,
Dipolog, Dumaguete, Cebu, Bacolod, and Cagayan de Oro… ANSWER: D P1,000
SAVINGS.
49. Aca Inc. has several branches. Goods costing 10,000 were transferred by the head
office to Cebu branch with the latter paying 600 for freight cost… ANSWER: D.
CHARGED TO THE HEAD OFFICE
50. On December 3, 20x6, the home office of Kathy Office Supply Comoany recorded a
shipment of merchandise to its Davao Branch as follows… ANSWER: D. DR.
SHIPMENTS FROM HOME OFFICE 29,000, DR. FREIGHT-IN 1,000, CR. HOME
OFFICE 30,000
51. Using the same information in No. 50, what amounts should the 60% of the merchandise
remaining unsold… ANSWER: C. (1) P18,000: (2) P15,600
DAYAG | INSTALLMENT
52. Using the same information in No. 50, what is the entry on the books of Baguio Branch
for the January 5, 20x7 transfer, assuming that the freight cost of the merchandise from
the home office to Baguio branch would have been P600: ANSWER: B. DR.
SHIPMENTS 14,500, DR. FREIGHT IN 1,100, CR. HOME OFFICE 15,600
53. Using the same information in No. 50, 51, and 52, what is the entry on the books of
Davao Branch ANSWER: C. DR. HOME OFFICE – 15,000, CR. CASH (FOR FREIGHT
CHARGES) – 500, CR. INVENTORY – 15,000
54. Using the same information in No. 50, 51, and 52, what is the entry on the home office
books ANSWER: C. DR. BRANCH CURRENT – BAGUIO – 15,100, DR. EXCESS
FREIGHT – 400, CR. BRANCH CURRENT – DAVAO - 15,500
55. Lipton Company had an agency in Antipolo. For the period just ended, the agency
transactions showed the following: ANSWER: C. CLOSE WITH THE PERIOD’S
OPERATIONAL LOSS OF P9,000.
56. The JJ Company Inc. opened an agency in Makati in 20x6. The following is the summary
of the transactions of the agency. ANSWER: C. 40,390; 5,994
57. Happy Inc. opens a sales agency in Davao City, and a working fund for 20,000 is
established on the imprest basis. ANSWER: A. NO ENTRY
58. Sad Co. has a sales agency in Cebu. Agency revenues and expenses are recorded in
separate agency accounts, with the operating results of both the agency and the home
office generated at each month-end ANSWER: D. DR. ADVERTISING EXPENSE –
CEBU AGENCY – 10,000 , CR. CASH – 10,000