HOME OFFICE AND BRANCH ACCOUNTING DRILLS Problem 1 Dasma Company established a sales agency in Malolos. Given the following transactions, give the appropriate journal entries 1 A working fund of P20, 000 is established 2 Shipped merchandise to Malolos agency for use as samples P3, 000 3 Fill sales orders from Malolos Agency, P150, 000 4 Cost of goods sold identified with agency sales, P90, 000 5 Replenishment of working fund of the agency, P25, 000 6 Close revenue and expense accounts of the agency 7 Close Malolos Agency Income to Income Summary account Required: Prepare the necessary journal entries. Problem 2 On January 1, 2020, Steve Corporation establishes branch in Pangasinan for an initial cash investment of P488,000. Home office and branch are using the perpetual inventory system with the latter having a beginning inventory amounting to P12,000. The following are the other transactions during the 1st Quarter of 2020. a. The branch acquires inventory of P200,000 on account, half of which is charges to the home office. b. The branch acquires equipment for P120,000 cash. The equipment will be carried in the books of the branch. c. The home office transfers old equipment with carrying amount of P60,000 and accumulated depreciation of P300,000 to the branch. The branch will carry this equipment in its books. d. The branch makes total cash sales of P600,000. Unsold goods at the end of the period amounted to P20,000. e. The branch remits P80,000 cash to the home office. f. The branch pays other expenses of the P150,000. Total depreciation for the period is P10,000. The home office allocates P25,000 expense to the branch representing the branch’s share in the maintenance costs of the company’s management information systems. Required: 1. Provide the entries in each of the books of the home office and the branch. Provide also the closing entries. 2. Reconcile the reciprocal accounts at the end of the period. 3. Prepare the statement of financial position and statement of profit or loss of the branch. Page 1 of 5 MSMC PROBLEMS #1 The Bignay Branch of Valenzuela Products, Inc. buys merchandise from outsiders and receive merchandise from the home office for which it is billed at 20% above cost. Below are excerpts from the trial balances and data on the home office and Bignay Branch for the month of April, 2020: HOME OFFICE: Cr. Allowance for overvaluation of branch merchandise Cr. Shipment to Branch BRANCH: Dr. Beginning inventory Shipments from home office Purchases Month-end additional data: Ending inventory of branch From Home Office, billed price of From outsiders, at cost 462,500 1,062,500 1,800,000 1,275,000 512,500 1,825,000 1,462,500 362,500 The total cost of goods sold of the Bignay Branch at cost (net of overvaluation) for the month just ended amounted to: a. b. c. d. P1,762,500 P1,543,750 P1,731,250 P2,312,500 #2 The following information are taken from the books and records of SWIFT Company and its branch. The balances are at December 31, 2020, the second year of the company's operations. Home Office Branch Office Books Books Sales P500,000 Expenses 125,000 Shipment to Branch P250,000 Branch inventory allowance 71,875 The branch obtains all its merchandise from the home office. The home office ships the merchandise at 125% of its cost. The ending inventory of the branch is P50,000 at the billed price. The true income of the branch is: a. P68,281.25 b. P127,500 c. P140,000 d. P52,500 Page 2 of 5 MSMC #3 Profit and loss data for Taft Company and its Ermita Branch for 2020 follows: Sales Inventory, January 1 (at cost) Inventory, January 1: Acquired from Home Office (billed price H.O. P1,060,000 115,000 Branch P315,000 - 50,000 820,000 110,000 35,000 120,000 Acquired from Outsiders (at cost) Purchases Shipments to Branch (at cost) Shipments from Home Office (at billed price 132,000 Inventory, December 31 (at cost) 142,000 Inventory, December 31: Acquired from Home Office (billed price) 66,000 Acquired from Outsiders (at cost) Operating Expenses 200,000 70,000 100,000 Records show that the Ermita Branch was billed for merchandise shipment as follows: In 2019, cost + 25%; In 2020, cost + 20%. The combined net income of the home office and the branch for the year ended December 31, 2020 is: a. P212,000 b. P247,000 c. P225,000 d. P269,000 Page 3 of 5 MSMC #4 A reconciliation of the Inv. In Branch account in the head office of #CPA Company and the Home Office account carried on the books of its #Dream branch showed the following discrepancies at December 31, 2020. a) Collection of branch account receivable by the home office, P800. The branch was not notified. b) Shipment in transit to branch on December 31, 2020, P3,200. c) Acquisition of furniture by the branch, P1,200. The furniture account is to be maintained on the home office books. The home office had not been notified of the acquisition. d) Return of excess merchandise by the branch but not received yet by the home office, P1,500. e) Cash remittance by the branch on December 31, 2020, P500. This was still in transit. The Home Office account on the branch books has a credit balance of P44,000 at December 31, 2020. COMPUTE: (1) the unadjusted balance of the Inv. in Branch account on the home office books at December 31, 2020; (2) the adjusted balance of the reciprocal accounts on December 31, 2020. a. (1) P49,600; (2) P47,200 b. (1) 49,600; (2) 46,400 c. (1) 47,400; (2) 40,000 d. (1) 50,100; (2) 46,000 #5 The home office in CEBU shipped merchandise costing P55,500 to its DUMAGUETE branch, prepaid, the freight amounting to P4,200. The home office transfers merchandise to the branch at a 20% mark-up above cost. DUMAGUETE branch was subsequently instructed to transfer the merchandise to the company’s BACOLOD branch wherein the latter paid P2,800 for freight cost. If the shipment was made directly from CEBU to BACOLOD, the freight cost would have been P6,200. How much is the excess of freight? a. P3,400 b. P800 c. P2,000 d. P6,200 Page 4 of 5 MSMC #6 The Batangas Corporation operates a branch in Lipa City. The Home Office ships merchandise to the branch at 125% of its cost. Selected information from the December 31, 2020 trial balance are as follows: Home Office Books Branch Office Books Sales Shipments to branch Purchases Shipments from Home Office P600,000 200,000 350,000 Inventory, January 1 100,000 Allowance for Overvaluation of branch Inventory 58,000 Expenses 120,000 Inventory at December 31, 2020: Home Office Branch Office P300,000 250,000 40,000 50,000 P30,000 60,000 The combined net income of the home office and the branch after adjustment is: a. P326,000 b. P500,000 c. P496,000 d. P280,000 #7 April Boy Commercial Corp. maintains a branch in Iloilo City. Selected balances taken from the books of Teardrops and its Bacolod City branch as of December 31, 2020 are as follows: Home Office Branch Office Merchandise Inventory, Jan 1 P 12,000 P 8,000 Purchases 150,000 30,000 Shipments from Home Office 93,750 Shipments to Branch 75,000 Branch Inventory Allowance 19,750 Sales 115,000 176,500 Merchandise Inventory, Dec 31 14,000 10,350 P4,350 of the branch's ending inventory came from purchases from suppliers other than the home office. As far as the home office is concerned, the cost of sales of the branch was: a. P 97,120 b. P121,400 c. P102,850 d. P131,850 Page 5 of 5 MSMC
