ACCOUNTING 7 Instructions: Choose the most correct answer for each of the following questions. Write the letter of your choice in CAPITAL in the FIRST PAGE OF THE GREEN BOOK PROVIDED. Questions 1 & 2 are based on the following information. On February 14, 2012, Therese Company established a sales agency in Tagbilaran. Upon establishment of the sales agency, the home office sent samples costing P8,000 and a working fund of P3,000 to be maintained on the imprest basis. During the six months period, the sales agency reported to the home office sales orders. These were billed at P70,000 of which of P40,000 was collected) the sales agency paid expenses of P5,800 but was reimbursed by the home office. On August 15, 2012, the sales agency samples were valued at P2,000. It was estimated that the gross profit on goods shipped to fill sales order averaged 40% of cost. 1. The cost of sales of the sales agency for the six months period is a. P42,000 c. P48,000 b. P44,000 d. P50,000 2. The net income of the sales agency for the six months period is a. P16,200 c. P10,200 b. P14,200 d. P8,200 3. A branch’s ending inventory of merchandise shipped by the home office and purchased from outside vendors amounts to P 50,000. The post-closing trial balance in the Unrealized Gross Profit in Branch Inventory account is P 6,000 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: a. P 38,000 b. P 18,000 c. P 30,000 d. P 14,000 Questions 4 and 5 are based on the following information. The income statement submitted by Loon Branch to the Home Office for the month of December 31, 2013 follows: Sales Cost of Sales: Inventory, December 31, 2013 Shipments from Home office Purchased locally by branch Total Inventory, December 31, 2013 Gross Margin Operating Expenses Net Income for the month P600,000 P80,000 350,000 30,000 P460,000 100,000 360,000 P240,000 180,000 P 60,000 The Branch inventories consisted of: Merchandise purchased from home Local purchases Total 12/1/2012 P70,000 P10,000 P80,000 12/31/2012 P84,000 P16,000 P100,000 After effecting the necessary adjustments, the Home Office ascertained the true net income of the Branch to be P156,000. 4. At what percentage of cost did the home office bill the branch for merchandise shipped to it? a. 100% c. 120% b. 140% d. 150% 5. What is the balance of the Allowance for Overvaluation in the branch inventory at December 31, 2013? a. P10,000 c. P16,000 b. P24,000 d. P34,000 Questions 6 and 7 are based on the following information. The following information is extracted from the books and records of Elaine Company and its branch. The balances are at December 31, 2012 of the company’s operations. Home Office Branch Sales P260,000 Shipments to branch P 78,000 Shipments from home office 104,000 Purchases 39,000 Expenses 78,000 Inventory, January 1, 2012 26,000 Allowance for overvaluation of branch inventory 31,200 However, no shipments in transit between home office and the branch were made. Both shipments accounts are properly recorded. The ending inventory includes merchandise acquired from the home office in the amount of P26,000 and P7,800 acquired from outsiders acquired from the home office in the amount of P26,000 and P7,800 acquired from outsiders for a total of P33,800. 6. What is the realized profit in branch inventory? a. P21,000 b. P31,200 c. P22,533 d. P24,700 7. What is the amount of branch merchandise beginning inventory that was acquired from the home office? a. P14,000 c. P15,600 b. P19,000 d. P20,800 Questions 8 and 9 are based on the following information. Auto Supply Company is engaged in merchandising both at its home office in Cebu City and its branch in Toledo City. Selected accounts taken from the trial balances of the home office and the branch as of December 31, 2012 follow: Debits Inventory, January 1, 2012 Toledo Branch Purchases Freight in from home office Sundry Expenses Credits Home Office Sales Sales to branch Allowance for Overvaluation of branch inventory January 1, 2012. Cebu City P 23,000 58,300 190,000 52,000 P155,000 110,000 Toledo Branch P 11,550 105,000 5,500 28,000 P 53,300 140,000 at 1,000 Additional information: The Toledo City branch gets all of its merchandise from the home office. The home office bills the goods at cost plus a 10% mark-up. At December 31, 2012, a shipment with a billed value of P5,000 was still in transit. Freight on this shipment was P250 and is to be treated as part of the inventory. Inventories on December 31, 2012, excluding the shipment in transit, follow: Home office, at cost………………………………….……….. P30,000 Branch, at billed price (excluding freight of P520…… 10,000 8. What is the net income of the home office from own operations? a. P30,470 c. P21,000 b. P20,000 d. P30,470 9. What is the net income of the branch in so far as the home office is concerned? a. P870 c. P1,500 b. P10,470 d. P12,000 10. Durable Textile Company has a single branch in Bohol. On March 1, 2012, the home office accounting records included an Allowance for Overvaluation of Inventories – Bohol Branch ledger account with a credit balance of P32,000. During March, merchandise costing P36,000 was shipped to the Bohol Branch and billed at a price representing a 40% markup on the billed price. On March 31, 2012, the branch prepared an income statement indicating a net loss of P11,500 for March and ending inventories at billed prices of P25,000. What is the amount of adjustment for allowance for Overvaluation of Inventories to reflect the true branch net income? a. P39,257 debit c. P39,333 debit b. P46,000 credit d. P46,000 debit Questions 11 and 12 are based on the following information. Yul Trading Corp. operates a branch in Talisay City. At the close of business on December 31, 2012, Talisay Branch account in the home office books showed a debit balance of P225,770. The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were ascertained: 1. An office equipment costing the home office P3,5000 was picked up by the branch as P350. 2. Insurance premium of P675 charged by the home office was taken up twice by the branch. 3. Freight charges on merchandise made by the home office for P1,125 were recorded in the branch book as P1,215. 4. Home office credit memo representing a discount on merchandise for P800 was not recorded by the branch. 5. The branch failed to take up a P700 debt memo from the home office representing the share of the branch in the advertising. 6. The home office inadvertently recorded a remittance for P3,000 from the Cebu branch as a remittance from its Talisay branch. 11. What is the balance of the Home Office account before adjustment as of December 31, 2012? a. P225,000 c. P228,485 b. 225,770 d. 226,485 12. What is the adjusted balance of the Home Office account as of December 31, 2012? a. P225,000 c. P225,770 b. 226,485 d. 228,770 Questions 13 and 14 are based on the following information. PTT Corporation retails merchandise through its home office store and through a branch store in a distant city. Separate ledgers are maintained by the home office and the branch. The branch store purchases merchandise from the home office (at 120% of home office cost), as well as from outside supplies. Selected information from the December 31, 2012 trial balances of the home office and branch is as follows: Home Office Branch Sales P120,000 P50,000 Shipments to branch 16,000 ---Purchases 70,000 11,000 Inventory, January 1, 2012 40,000 30,000 Shipments from home office Expenses Unrealized profit in branch inventory ----28,000 7,200 19,200 2,000 ----- Additional information: The entire difference between the shipment accounts is due to the practice of billing the branch at cost plus 20%. The December 31, 2012 inventories are P40,000 and P20,000 for the home office and the branch, respectively. (The branch purchased 16% of its ending inventory from outside supplies.) Branch beginning and ending inventories include merchandise acquired from home office is inventoried at 120% of home office cost. 13. What is the realized profit in branch inventory? a. P4,000 c. P2,800 b. 7,200 d. 4,400 14. What is the net income of the branch as far the home office is concern? a. P50,200 c. P10,600 b. 15,000 d. 12,200 Questions 15 and 16 are based on the following information. Kulas Corporation has one branch operation located 500 miles away from the home office. The branch office sales merchandise which is shipped to it from the home office. The merchandise is transferred at cost but the branch pays reasonable freight charges. The branch office makes sales and incurs and pays operating expenses. At the end of the current accounting period the true adjusted balance for the home office account on the branch’s books and the branch office account on the home office’s books is P500,000. The following items may or may not be reconciling items. The current year is 2012. 1) The home office has shipped merchandise to the branch office which cost P10,000 and which incurs P500 freight charges paid by the home office but charged to the branch. This merchandise is received by the branch on January 5, 2012. 2) The branch has transmitted P17,000 in cash back to the home office as a partial payment on such purchased merchandise. This cash is received by the home office on January 6, 2012. 3) The branch office returns some defective merchandise to the home office. The cost of the returned merchandise is P750. The branch office pays P25 of freight costs which will be charged back to the home office. 4) On December 1, 2012, the home office sends a check for P25,000 to replenish the branch’s charged back to the home office. 5) The branch pays an advertising expense of P800 that should have been paid by the home office since it applied to advertising fees incurred by the home office of its own benefit. 6) The home office allocated P12,000 of general and administrative expenses to the branch. The branch had not entered the allocation as of the end of the year. 7) The home office pays insurance premiums on the branch store. The amount paid by the home office is P1,000 but the branch erroneously records it as P776.00 15. What is the unadjusted balance of the Home Office account? a. P481,425 c. P500,000 b. 452,276 d. 518,575 16. What is the unadjusted balance of the Branch account? a. P433,701 c. P518,575 b. 500,000 d. 452,276 Questions 17 through 20 are based on the following information. Selected information from the trial balances for the home office and the branch of Lalay Company at December 31, 2012 is provided. The branch acquires merchandise from the home office and outside suppliers. Home Office Branch Sales P60,000 P30,000 Shipments to branch 8,000 Allowance for overvaluation of branch inventory 3,600 Shipments from home office 10,000 Purchase (outsiders) 35,000 5,500 Merchandise inventory 12.01.12 20,000 15,000 Expenses 14,000 6,000 Additional information: Merchandise inventory, December 31, 2012: Home office P20,000 Branch (P7,500 from home office and P2,500 from outsiders) 10,000 17. The billing rate of home office to branch for merchandise shipments is a. 120% of cost c. 130% of cost b. 125% of cost d. 135% of cost 18. How much of the December 1 inventory of the branch represent purchases from outsiders and goods shipped from home office a. Home office, P5,000 and Outsiders, P10,000 c. Home office, P8,000 and Outsiders, P7,000 b. Home office, P15,000 and Outsiders, P00,000 d. Home office, P12,000 and Outsiders, P3,000 19. The net income reported by the branch is a. P4,500 b. P5,600 c. P3,500 d. P2,500 20. The combined net income for Home office and branch operations is a. P22,500 c. P25,100 b. P24,600 d. P21,500 21. Clang-clang Corporation’s home office ships merchandise to its Toledo branch at a billing price of 125% of cost. During 2012 the home office makes the following entry: Toledo Branch 75,000 Shipments to Toledo branch 75,000 At year-end 2012, P12,000 of this merchandise remains at Toledo branch inventory. The entry to adjust the branch income in the books of the home office will include a. Debit to Allowance for overvaluation of branch inventory, P12,600 b. Credit to Toledo branch account, P2,400 c. Debit to Shipments to Toledo branch, P12,600 d. Credit to Toledo branch inventory, P2,400 22. May Corporation operate two stores: the Head Office store and Rose branch. On December 31, 2012, the Rose Branch account in the home office books has a balance of P340,000. Both stores use a standard 120% markup on cost. However May’s home office ships merchandise to the branches at cost. Rose’s ending inventory includes P20,000 of merchandise received from home office Rose branch remitted P15,000 to home office on December 30, 2012. The Home office will not receive the remittance until January 4, 2013. The Home office allocated P5,000 general expenses to each of the branches but Rose branch have not yet recorded the expenses at year-end) Rose branch paid P2,000 for advertising “after Christmas” sales that were to be allocated equally between the two stores. The Home office has not recorded its share in the expenses. The unadjusted balance of the Home office account in the books of Rose branch is a. P324,000 c. P323,000 b. P319,000 d. P318,000 Questions 23 & 24 are based on the following information. On December 31, 2012, the home office account on the branch books shows a balance of P9,735. The following reconciling data are determined in accounting for the difference. a. Merchandise billed at P615 shipped by the home office to the branch on December 28 is still in transit. b. The branch collected a home office accounts receivable of P2,500, but failed to notify the home office of this collection. c. The home office recorded the branch net income for November at P1,125. This was in error, as the branch reported net income was P1,215. d. The home office was charged P640 when the branch returned merchandise to the home office on December 31. The merchandise is in transit. 23. The unadjusted balance of Branch account is a. P9,735 b. P10,350 c. P10,990 d. P8,400 24. The adjusting entry to correct branch net income for November is a. Debit, Branch profit and loss P90 and Credit, Branch account P90 b. Debit, Home office account P90 and Credit, Branch profit and loss P90 c. Debit, Branch account P90 and Credit, Branch profit and loss P90 d. Debit, Branch profit and loss P90 and Credit, Home office account P90 25. BONUS ---NOTHING FOLLOWS--- CHAPTER 4 ACCOUNTING FOR BRANCHES; COMBINED FINANCIAL STATEMENTS HIGHLIGHTS OF THE CHAPTER 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. A branch is a unit of a business enterprise located some distance from the home office. A branch generally caries a stock of merchandise obtained from the home office, makes sales, approves customers’ credit, and makes collections on trade accounts receivable. The merchandise of a branch may be obtained exclusively from the home office, or a portion may be purchased from outside suppliers. The cash receipts of the branch may be deposited in a bank account of the home office; branch expenses then are paid from an imprest cash fund provided by the home office. The imprest cash fund is replenished periodically by the home office. Alternatively, a branch may maintain its own bank account. Certain units or segments of a business enterprise may be operated as divisions. A division may consist of either a series of branches or one or more corporations. When a segment is operated as a corporation, it is known as a subsidiary of the parent company. Costs of organizing a new branch and operating losses during the initial period of operations should be recognized as expenses, not as deferred charges, per AICPA SOP 98-5. The accounting records for branches may be centralized in the home office or may be decentralized so that each branch maintains a complete set of accounting records. If the accounting records are centralized in the home office, each branch prepares daily reports and documents that are used as sources for journal entries in the accounting records of the home office. If a branch maintains its own accounting records, some transactions or events relating to the branch may be recorded by the home office. Periodic financial statements are provided by the branch to the home office so that combined statements may be prepared. The accounting records of a branch include a Home Office ledger account that is credited for assets and services provided by the home office, and for branch net income. The Home Office account is debited for any assets and services provided by the branch to the home office or to other branches, and for branch net losses. The Home Office account thus is an ownership equity-type account representing the net investment of the home office in the branch. A home office maintains a reciprocal ledger account, Investment in Branch, which is debited for the assets and other services provided to a branch, and for net income of the branch; it is credited for the assets and services received from the branch, and for branch net losses. A home office generally charges its branches for expenses (such as insurance, interest, property taxes, advertising, and depreciation) incurred for the benefit of the branch. Such expenses must be allocated to branch operations to measure the profitability of each branch. Merchandise shipped by a home office to branches may be billed at home office cost, at home office cost plus a markup, or at branch retail selling price. A shipment of merchandise to a branch is not a sale. Billing at home office cost attributes the entire gross profit on merchandise sold by a branch to the branch. When merchandise is billed at a price above home office cost (or at branch retail selling price), the valuation assigned to branch inventory at the end of the accounting period must be reduced to cost when combined financial statements are prepared. If merchandise is billed to a branch at a price above home office cost and the perpetual inventory system is used, the home office debits Investment in Branch for the billed price of the merchandise, credits Inventories for the cost of the merchandise, and credits Allowance for Overvaluation of Inventories: Branch for the excess of the billed price over cost. The branch debits Inventories and credits 11. 12. 13. 14. 15. Home Office at billed prices of merchandise; sales by the branch are debited to Cost of Goods Sold and credited to Inventories at billed prices. A separate income statement and balance sheet for each branch may be prepared for use by enterprise management. The income statement has no unusual features if merchandise is billed to a branch at home office cost. However, if merchandise is billed at a price above cost, the branch trial balance must be adjusted by the home office so that cost of the merchandise sold by the branch is stated at cost to the home office. A combined balance sheet for home office and branch shows the financial position of the business enterprise as a single entity. In the working paper for combined financial statements, the assets and liabilities of the branch are substituted for the Investment in Branch ledger account included in the adjusted trial balance of the home office. This is accomplished by elimination of the balances of the Home Office and Investment in Branch reciprocal ledger accounts. If a home office and branch use the periodic inventory system, the home office debits Investment in Branch for the billed price of the merchandise shipped, credits Shipments to Branch for the home office cost of the merchandise shipped, and credits any excess of billed price over cost to Allowance for Overvaluation of Inventories: Branch. The branch debits Shipments from Home Office and credits Home Office at billed price. At the end of the accounting period, the home office reduces (debits) Allowance for Overvaluation of Inventories: Branch for the amount of overvaluation applicable to the branch’s cost of goods sold and credits the amount of the reduction to the Realized Gross Profit: Branch Sales ledger account. At the end of an accounting period, the balance of the Investment in Branch ledger account may not agree with the balance of the Home Office account. In such cases the reciprocal ledger accounts must be reconciled and brought up to date before combined financial statements are prepared. If the home office operates more than one branch, certain transactions, such as merchandise shipments, may take place between branches. Such interbranch transactions usually are cleared through the Home Office ledger account. For example, if Arlo Branch ships merchandise with a cost of $400 to Boone Branch and the periodic inventory system is used, the following journal entries (explanations omitted) are required: Accounting records of Arlo Branch: Home Office Shipments from Home Office Accounting records of Boone Branch: Shipments from Home Office Home Office Accounting records of home office: Investment in Boone Branch Investment in Arlo Branch 16. 400 400 400 400 400 400 The transfer of merchandise from one branch to another does not justify increasing the carrying amount of inventories by the additional freight costs incurred because of the indirect routing. Excess freight costs incurred as a result of such transfers are recognized as operating expenses of the home office because the home office makes the decision to transfer the merchandise. QUESTIONS True or False 1. T 2. F 3. T 4. F 5. F 6. F 7. T 8. F 9. F 10. F 11. F 12. F 13. T 14. T 15. F 16. F F 17. F 18. For each of the following statements, circle the T or the F to indicate whether the statement is true or false. T F 1. In a centralized accounting system for branches, the branch accounting records are maintained by the home office. T F 2. Both the Home Office ledger account and the Investment in Branch account are displayed in the combined financial statements for the home office and the branch. T F 3. The combined net income for the home office and branches would be the same when the home office bills merchandise to branches at home office cost as when the home office bills branches at amounts above home office cost. T F 4. In most cases, a branch is operated more as a cost center than as a profit center. T F 5. A branch imprest cash fund is displayed under the heading Investments in the combined balance sheet of the home office and the branch. T F 6. The Investment in Branch ledger account is displayed as a noncurrent asset in the separate balance sheet of the home office, and the Home Office account is displayed as a long-term liability in the separate balance sheet of the branch. T F 7. The fiscal year for the home office must coincide with the fiscal year for the branch to facilitate the preparation of combined financial statements. T F 8. A net loss reported by a branch is recorded by the home office by a debit to the Investment in Branch ledger account. T F 9. If branch trade accounts receivable are carried in the home office accounting records, doubtful accounts expense of the branch is recorded by the home office by a debit to Branch Loss and a credit to Investment in Branch. T F 10. If merchandise is billed to a branch at a price above home office cost, the net income reported to the home office by the branch is overstated. T F 11. Separate financial statements for an enterprise’s home office and branches generally are prepared for use by creditors and government agencies. T F 12. In a working paper for combined financial statements of a home office and branches, the balance of the Shipments to Branch ledger account is eliminated against the balance of the Home Office account. T F 13. In a separate balance sheet for a home office, the balance of the Allowance for Overvaluation of Inventories: Branch ledger account is deducted from the balance of the Investment in Branch ledger account. T F 14. The beginning inventories of a branch are reduced to home office cost in the working paper for combined financial statements by a debit to Allowance for Overvaluation of Inventories: Branch and a credit to beginning inventories when the periodic inventory system is used. T F 15. The perpetual inventory system is impractical for a home office with many branches. T F 16. If a remittance of cash by a branch has not been recorded by the home office, the balance of the branch’s Home Office ledger account exceeds the balance of the home office’s Investment in Branch account. T F 17. Freight costs on merchandise shipments from Cody Branch to Dana Branch in excess of normal freight costs from the home office to Dana Branch should be recognized as operating expenses of Dana Branch. T F 18. If a new branch is expected to be profitable starting with the second year of operations, a loss incurred by the new branch in the first year should be deferred and recognized as expense over a period of three to five years. Completion Statements Fill in the necessary words or amounts to complete the following statements. 1. 2. 3. 4. 5. 6. A ____________________ is a unit of a business enterprise that sells merchandise at a location some distance from the _______ ____________________. A branch generally is operated as a ____________________ of the home office; however, a ____________________ may be organized as a subsidiary corporation. The Home Office ledger account and the Investment in Branch ledger account are _______________ ledger accounts whose balances must be _______________ when _______________ financial statements for the home office and branch are prepared. If a home office bills merchandise to branches at a price above home office cost, the markup on the unsold merchandise is not ____________________ and is eliminated for combined financial statements for the home office and its branches. If the Norco Branch remits cash to the home office of Lepore Company and a decentralized accounting system is used, the Norco Branch debits the __________ __________ ledger account and credits Cash; the home office debits Cash and credits the ____________________ _______ ____________________ account. Some operating expenses incurred by the home office relate to branch operations and are _______________ to the branch by a debit to the ____________________ _______ ____________________ ledger account and a credit to the ____________________ ____________________ account in the accounting records of the home office. If shipments of merchandise by a home office to branches are billed at 33 1/3% above home office cost, _______% of the amount of the ending inventories of the branch is reported in the Allowance _______ ____________________ _______ ____________________: ____________________ ledger account in the accounting records of the home office. Multiple Choice Choose the best answer for each of the following questions and enter the identifying letter in the space provided. Multiple Choice 1. d 2. a 3. b 4. d 5. c 6. c [($39,500 x 0.20) – $1,500 = $6,400] ____ 1. In accounting for branch transactions, it is improper for the home office to: a. Credit cash received from a branch to the Investment in Branch ledger account. b. Maintain Common Stock and Retained Earnings ledger accounts for only the home office. c. Debit shipments of merchandise to the branch from the home office to the Investment in Branch ledger account. d. Credit shipments of merchandise to the branch to the Sales ledger account. ____ 2. The Home Office ledger account in the accounting records of the Tahoe Branch had a credit balance of $12,000 at the end of April, and the Investment in Branch account in the accounting records of the home office had a debit balance of $15,000. The most likely reason for the discrepancy in the two ledger account balances is: a. Merchandise shipped by the home office to the branch had not been recorded by the branch. b. The home office had not recorded the branch net income for April. c. The branch had just collected home office trade accounts receivable in the amount of $3,000. d. The branch had not yet recorded the home office net income for April. ____ 3. Jayhawk Company has numerous branches in the state of Kansas. The home office purchases merchandise and makes shipments to branches from a central warehouse at the request of branch managers. Which of the following would be an improper accounting practice? a. The Investment in Branch ledger account is debited in the accounting records of the home office when merchandise is shipped to a branch, and the Shipments to Branch account is credited (assume use of the periodic inventory system). b. The home office debits Trade Accounts Receivable and credits Sales when merchandise is shipped to a branch. c. Cash received from a branch is credited to the Investment in Branch ledger account by the home office. d. Only the home office maintains a Common Stock ledger account and a Retained Earnings account. ____ 4. Neither the Palmer Branch nor the home office of Rupert Company had completed any intracompany transactions during the last half of May, yet the credit balance of the branch’s Home Office ledger account on May 31 was larger than the debit balance of the home office’s Investment in Palmer Branch account. The most likely reason for this discrepancy is: a. The home office reported a net loss for the month of May. b. The branch reported a net loss for the month of May. c. The branch returned merchandise to the home office. d. The branch reported a net income for the month of May. ____ 5. Which of the following ledger accounts is displayed in the combined financial statements for a home office and branch? a. Shipments to Branch b. Home Office c. Dividends Declared d. Allowance for Overvaluation of Inventories: Branch ____ 6. The home office of Irby Company bills merchandise to branches at 25% above home office cost. Information taken from the accounting records of Kipp Branch is as follows: Beginning inventories (at billed prices) Shipments from home office (at billed prices) Ending inventories (at billed prices) Net loss for accounting period $17,000 42,500 20,000 1,500 The net income or net loss of Kipp Branch, based on home office cost of branch merchandise, is: a. $7,900 net income b. $9,400 net loss c. $6,400 net income d. $7,000 net income e. Some other amount SHORT EXERCISES 1. Below is a partial list of ledger accounts of the Vista Branch of Santee Company, followed by a series of transactions. By placing the appropriate account number in the space provided, indicate the accounts that are debited and credited in the accounting records of the branch to record each transaction. The branch uses the perpetual inventory system. 1 Cash 6 Sales 2 Trade Accounts Receivable 7 Cost of Goods Sold 3 Inventories 8 Operating Expenses 4 Trade Accounts Payable 9 Income Summary 5 Home Office 10 All other ledger accounts Transactions a. Received cash from home office. b. Recognized operating expenses (paid in cash) for the accounting period. c. Sales were made on account for the accounting period; recognized cost of goods sold for the period. d. Collections on trade accounts receivable were made. e. Payments by branch to suppliers were made. f. Branch remitted cash to home office. g. Revenue and expense ledger accounts were closed at the end of the accounting period. (Prepare a journal entry and assume that total revenue exceeds total expenses.) h. Closed Income Summary ledger account and notified home office that a net income was earned in the latest accounting period. Vista Branch ledger accounts debited Vista Branch ledger accounts credited 2. The home office of Quilly Company bills Leone Branch at 25% above home office cost for all merchandise shipped to the branch. During January, 2002, the home office shipped merchandise to the branch at a billed price of $24,000. The branch inventories on January 1 and January 31, 2002, were as follows: Jan. 1 Jan. 31 Merchandise received from home office (at billed prices) $27,600 $32,000 Merchandise purchased from outsiders 12,400 12,000 Total branch inventories $40,000 $44,000 The home office uses the periodic inventory system. In the space below, prepare all journal entries (including adjustments) in the accounting records of the home office for January, 2002 to record the foregoing information. Quilly Company Home Office Journal Entries 2002 3. The Investment in Subble Branch ledger account of the home office of Darcy Company and the Home Office account of the branch for the month of January, 2002, are below and on page 44. Investment in Subble Branch Balance, Jan. 1 Shipment of merchandise Expenses allocated to branch 61,000 Cash received from branch 6,200 Collection of branch note receivable 1,150 4,500 2,000 Home Office Cash remitted to home office Merchandise returned to home office Balance, Jan. 1 61,000 4,500 Shipment of merchandise 6,200 Collection of 195 home office trade account receivable 180 a. Complete the reconciliation of the reciprocal accounts in the space below. Investment in Subble Branch ledger account Home Office ledger (in home office account (in branch accounting records) accounting records) Balances prior to adjustment $ $ Add: Less: Adjusted balances $ $ b. In the spaces below, prepare a single journal entry for both the home office and the branch to bring each set of accounting records up to date (assume that both use the perpetual inventory system). Darcy Company Home Office Journal Entry 2002 Jan. 31 Subble Branch Journal Entry 2002 Jan. 31 CASE In your audit of the financial statements of Wallis Company, which has a single branch in Iowa, for the fiscal year ended January 31, 2002, you review the following home office ledger account: Date 2002 Jan. 2 16 31 Allowance for Overvaluation of Inventories: Iowa Branch Explanation Debit Credit Shipment of merchandise costing $10,000 at a 20% markup on billed price, to stock the branch for its opening. Shipment of merchandise costing $40,000 at a 20% markup on billed price, to replenish the branch inventories. Reduction of balance by unrealized markup in the branch’s ending inventories of $3,000 at billed prices. 600 Balance 2,000 2,000 cr 8,000 10,000 cr 9,400 cr a. Describe the errors in the journal entries posted to the foregoing ledger account. b. Describe, but do not prepare, the journal entry required to correct the foregoing ledger account on January 31, 2002. SOLUTIONS TO QUESTIONS, SHORT EXERCISES, AND CASE: CHAPTER 4 QUESTIONS True or False 1. T 2. F 3. T 4. F 5. F 6. F 7. T 8. F 9. F 10. F 11. F 12. F 13. T 14. T 15. F 16. F F 17. F 18. Completion Statements 1. Branch, home office, profit center, division. 2. Reciprocal, eliminated, combined. 3. Realized. 4. Home Office, Investment in Branch. 5. Allocated, Investment in Branch, Operating Expenses. 6. 25%, for Overvaluation of Inventories: Branch. Multiple Choice 1. d 2. a 3. b 4. d 5. c 6. c [($39,500 x 0.20) – $1,500 = $6,400] SHORT EXERCISES 1. Transactions a. Received cash from home office. b. Recognized operating expenses (paid in cash) for the accounting period. c. Sales were made on account for the accounting period; recognized cost of goods sold for the period. d. Collections on trade accounts receivable were made. e. Payments by branch to suppliers were made. f. Branch remitted cash to home office. g. Revenue and expense ledger accounts were closed at the end of the accounting period. (Prepare a journal entry and assume that total revenue exceeds total expenses.) h. Closed Income Summary ledger account and notified home office that a net income was earned in the latest accounting period. Vista Branch ledger accounts debited 1 8 Vista Branch ledger accounts credited 5 1 2, 7 1 4 5 6, 3 2 1 1 6 7, 8, 9 9 5 2. 2002 Quilly Company Home Office Journal Entries Investment in Leone Branch Shipments to Leone Branch Allowance for Overvaluation of Inventories: Leone Branch To record shipments to branch at 25% above home office cost. 24,000 19,200 4,800 Allowance for Overvaluation of Inventories: Leone Branch Realized Gross Profit: Leone Branch Sales To reduce allowance amount by which ending inventories exceed home office cost. Billed price Cost Markup* Beginning inventories $27,600 $22,080 $ 5,520 Add: Shipments from home office 24,000 19,200 4,800 Available for sale $51,600 $41,280 $10,320 Less: Ending inventories (32,000) (25,600) (6,400) Cost of goods sold $19,600 $15,680 $ 3,920 *A markup of 25% on cost is equal to a markup of 20% on billed price. 3. a. Balances prior to adjustment Add: Collection of home office trade account receivable by branch Expenses allocated to branch by home office Less: Merchandise returned to home office by branch Collection of branch note receivable by home office Adjusted balances b. 2002 Jan. 31 Investment in Subble Branch ledger account (in home office accounting records) $61,850 3,920 3,920 Home Office ledger account (in branch accounting records) $62,685 180 1,150 (195) (2,000) $61,835 $61,835 Darcy Company Home Office Journal Entry Inventories Trade Accounts Receivable Investment in Subble Branch To adjust Investment in Subble Branch ledger account. 195 180 15 Subble Branch Journal Entry 2002 Jan. 31 Operating Expenses Home Office Notes Receivable To adjust Home Office ledger account. 1,150 850 2,000 CASE a. The two credits to the Allowance for Overvaluation of Inventories: Iowa Branch are of incorrect amount. A 20% markup on billed price is a 25% markup on home office cost; therefore, the January 2, 2002, credit should be $2,500 ($10,000 x 0.25 = $2,500), and the January 16 credit should be $10,000 ($40,000 x 0.25 = $10,000). The January 31 journal entry should be a debit of $11,900, or 20% of branch cost of goods sold of $59,500 ($10,000 + $2,500 + $40,000 + $10,000 – $3,000 = $59,500). b. The ending balance of the Allowance for Overvaluation of Inventories: Iowa Branch should be $600 ($3,000 x 0.20 = $600). Therefore, the January 31, 2002, journal entry to correct the balance of that account is a debit to Investment in Iowa Branch, $2,500 (the aggregate understatement of the billed prices of the two merchandise shipments to the branch: $500 + $2,000 = $2,500); a debit to Allowance for Overvaluation of Inventories: Iowa Branch, $8,800 ($9,400 – $600 = $8,800); and a credit to Realized Gross Profit: Iowa Branch Sales, $11,300 ($11,900 – $600 = $11,300). HOME OFFICE,BRANCH AND AGENCY ACCOUNTING 1.Lacoste Philippines has two merchandise outlets, its main store in Manila and in Cebu City branch. For control purposes, all purchases are made by the main store, and shipmentsto the Cebu City branch are at cost plus 10%. On January 01, 2016, the inventories of the main store and Cebu City branch were P13,600 and P3,960, respectively. During 2016, the main office purchased merchandize costing P40,000 and shipped 40% of these to the Cebu City branch. At December 31, 2016, the following journal entry was made to prepare the Cebu City branch books for the next accounting period: Sales 32,000 Inventory 4,840 Inventory 3,960 Shipments from the main store 17,600 Expenses 10,480 Main store 4,800 [1]what was the actual branch income of 2016 on a cost basis, assuming the use of the provisions of the PAS, and [2] if the main store has P11,200 worth of inventory on hand at the end of 2016, the total inventory that should appear on the combined balance sheet at December 31, 2016? a. [1] P4,800 [2] P15,600 c. [1] P6,320 [2] P15,600 b. [1] d. [1] 6,480 [2] 6,320 [2] 15,160 16,040 Ans: C [1] actual branch income: Sales……………………………………………………………………………..32,000 Less: Costs of Goods Sold Inventory, Jan. 1, at billed price…………………..P 3,960 Shipments from Main store, at billed price……… 17,600 Cost of goods available for sale, at billed Price………………………………………..P 21,560 Less: inventory, December 31, at billed Price ………………………………………. 4,840 Cost of goods sold at billed price………………....P 16,720 Multiplied by: cost ratio ……………………………. 100/110 15,200 Gross Profit……………………………………………………………………P 16,800 Less: Expenses………………………………………………………………. 10,480 True Branch Net Income…………………………………………………….P 6,320 (c) [2] Ending Inventory at Cost: Home office……………………………………………….P 11,200 Branch: (P4,840 x 100/110)……………………………. 4,400 Combined ending inventory at cost……………………P 15,600 (c) 2.Barros Corporations shipments to and from its Brazil City branch are billed at 120% of cost. On December 31, Brazil branch reported the following data at billed prices: inventory, January 1 of 33,600; shipments received from home office of 840,000; shipment returned of 48,000; and inventory; December 31, of 36,000. What is the balance of the allowance for over valuation of branch inventory on December 31 before adjustments? a. 5,600 b. 137,600 c. 6000 d. 145,600 ANS:B Inventory, January 1 Add: Shipments from office, net o returns (840,000-48,000) Cost of goods available for sale Multiplied by: Mark up Allowance for overvaluation before adjustments 33,600 792,000 825,600 20/120 137,600 3.Philippine Overseas Corporation has operated a branch in Jordan for one year . shipments are billed to the branch at cost. The branch carries its own expenses. The transactionsfor the year are given effect to in the trial balance below: Accounts Debit Credit Cash P4,200 Home office Current P17,500 Shipments From Home Office 67,680 Accounts Receivable 12,800 Expenses 6,820 Sales 74,000 P91,500 P91,500 The branch reported on inventory on December 31, 20x5 of P9,180. The net profit of the Jordan Branch for 20x5 was: a. P8,680 c.P6,718 b. P9,180 d. Some other answer. ANSWER: A Sales P 74,000 Less: Cost of goods sold: SFHO Less: Inventory, ending Gross profit Less: Expenses Net Profit P67,680 9,180 58,500 P 15,500 6,820 P 8,680 4.The Clark branch of Freeport Corp. submitted the following trial balance as of 30 June 2016: Cash Accounts Receivable Shipments from home office Home-office current Sales Expenses Total Debit P 28,600 173,800 462,000 __ 29,700 P694,100 Credit P324,500 369,600 ________ P694,100 Clark reported an ending inventory of P138,600, Shipments are billed at a mark-up of 40% on cost. What is the real net income of Clark Branch? a. P70,000 b. P92,400 c. P100,000 d. P108,900 ANS: D Sales Less: Cost of Goods Sold Shipments from Home Office, at cost (P462,000 x 100/140) P330,000 Less: Ending Inventory, at cost (P138,600 x 100/140) 99,000 Gross Profit Less: Expenses Real Net Income of the Branch P369,600 231,000 P138,600 29,700 P108,900 5.Tillman Textile Co. has a single branch in Bulacan. On march 1, 2016, the Home Office accounting records included an Allowance for Overvaluation of Inventories-Bulacan Branch ledger account with a credit balance of P32,000. During March, merchandise costing P36,000 was shipped to the Bulacan Branch and billed at a price. On March 31, 2016, the branch prepared an income statement indicating a net loss of P11,500 for march and ending inventories at a billed prices of P25,000. What is the amount of adjustment for Allowance for Overvaluation of Inventories to reflect the true branch net income? a. b. c. d. P39,257 debit P46,000 credit P39,333 debit P46,000 debit ANS: D Merchandise Inventory, March 1, 2016 Add: Shipments (P36,000/60% = 60,000 x 40%) Note: Mark-up is based on billed price Cost of Goods available for sale Less: Merchandise inventory, March 31, 2016 (25,000 x 40%) Overvaluation of CGS/Realized the Gross Profit on Branch Sales P32,000 24,000 P56,000 10,000 P46,000 6. As you begin to audit the books of the FIL-EM Company. YOU notice a discrepancy between the balance in the Investment in Branch (P136,020 Dr.) and the Home Office (P175,400 Cr.) accounts. The followmg Information is available: A. The home office bills goods shipped to the branch at 150% of cost. At the beginning of the year, branch inventory was stated at P7S,000 after the annual physical count, and the home office unrealized profit account had a credit balance of PS,000. You find that a shipment with a billed value of P60,000 made toward the end of the prior year had not been recorded by the home office. B. On December 31 of the year under review, the branch mailed to the home office a check for 925,000 and a notice that the branch had collected P4,380 on a home office account receivable. These items had not been recorded by the home office. . C. The branch was opened during the preceding year and its operating loss of P42,800 for the year was capitalized by the branch as a start-up costs by the following entry: Start-up Cost (Intangible Asset) 42,800 Income Summary ' 42,800 The account is not being amortized by the branch, and no entry was made by the home office to record the net loss. How much must be the adjusted balance of reciprocal accounts A. P175,400 B. P192,600 25 of 5 C. P115,400 D. P132,600 Answer: D Investment ln Branch Home Office Unreconciled balance P136,020 P175,400 1) Unrecorded shipment 60,000 2) Unrecorded remittance ( 25,000) 2) Accounts collected 4380 3) Net loss ( 42,800) ( 42,800) Adjusted balance P132,600 P132,600 7. On September 1, 2014, Ricky Company established two branches: Naga and Cebu City branches. The home office transferred P80,000 worth of cash and P 350,000 worth of inventory to its Naga branch and instructed Naga to transfer 3/4 of the goods and cash received to Cebu City. In addition, on November 1, 2014, shipments from home office were received by Naga amounting to P125,000 and the branch paid freight costs amounting to P6,500. 3/5 of the said shipments were sold to outsiders. On December 1, 2014, Naga transferred half of the remaining November shipments from the home office to Cebu City, with Cebu City branch paying freight costs of P 2,500. Had the merchandise been shipped from the home office to Cebu City branch, only P 1,900 worth of freight would have been incurred. How much is the balance of the Cebu City branch account in the home office books? a. 349,400 b. 348,800 c. 206,200 d. 346,900 Answer: D Solution: Branch Current - Naga 9/1 430,000 9/1 (322,500) 11/1 125,000 12/1. (26,300) Balance 206,200 Branch Current - Cebu, City 9/1. 322,500 12/1. 24,400 Balance 346,900 8. The Ray Company was organized in 2014. Shortly after opening its doors to the public t the main store, Ray Company establish branch in another city. At the end of the second year of operations, the home office received the following condensed income statement from the branch: Revenues Cost of Goods Sold Gross Margin Selling and Administrative expenses 140,000 110,000 30,000 25,000 Net Income 5,000 The management at the home office questioned the accuracy of these figures and assigned you the task of verifying the branch data. Your review of the records uncovered the following facts: 1. The beginning of the year balance in Unrealized Profit to Branch was 6,000 2. During the period, the home office shipped goods to the branch taht had cost the main store P75,000. However, your review of the branch receiving reports revealed that a number ofshipments from the home office had been recorded twice by the branch accountant. 3. The branch is billed a uniform 25% above costand receives inventory only from te home office. 4. The branch ending inventory was correctly reported at a billed price of P21,750. 5. When reconciling reciprocal accounts, you found that the branch had not recorded 2,000 og services performed by the home office and billed to the branch. All other selling and adminitrative expenses were correctly reported by the branch. Compute the correct net income of the branch. a. 31,400 b. 33,400 c. 25,400 d. 11,000 Answer: A. Correct Net Income Revenue 140,000 26 of 5 COGS Beg. Inv. at cost (60,000/25%) 24,000 Add: Shipments at cost 75,000 Less: End. Inv. at cost (21,750/125%) (17,400) Gross Margin Selling and Admin. Exp (25,000+2,000) Net Income (81,600) 58,400 (27,000) 31,400 9. The after closing balances of Denise Corporation's home office and its branch at January 1,2014 were as follows: Home Office Branch Cash P 7,000 P 2,000 Accounts Receivable-net 10,000 3,500 Inventory. 15,000 5,500 Plant Assets, net 45,000 20,000 Branch 28,000 Total Assets P 105,000 P 31,000 Accounts Payable P 4,500 P 2,500 Other liabilities 3,000 500 Unrealized Profit- Branch inv. 500 Home Office 28,000 Capital Stock 80,000 Retained Earnings 17,000 Total Equities P 105,000 P 31,000 A summary of the operations of the home office and branch for 2014 follows: Home Office sales: P 100,000, including ,P 33,000 to the branch. A standard 10% mark up on cost applies to all sales to the branch. Branch sales to iys customers totaled P 50,000. Purchases from outside entities: Home Office, P 50,000; Branch P 7,000 Collections from sales: Home Office P 98,000 (including P 30,000 from branch); Branch Collections; P 51,000 Payments on account; Home Office, P 51,000; Branch P 4,000 Operating expenses paid; Home Office, P 20,000; Branch P6,000 Depreciation on Plant Assets; Home Office, P 4,000; Branch P 1,000 Home Office expenses allocated to the branch, P 2,000 At December 31,2014, the Home Office inventory is P 11,000 and the Branch inventory is P 11,000 and the Branch inventory is P 6,000 of which P 1,050 was acquired from outside suppliers. The combined net income amounted to a. 0 b. 4,550 c. 21,000 d. 25,550 Answer: D. Sales Cost of Sales (20,000+57,000-16,000) Gross Profit Operating Expenses (26,000+5,000) Consolidated Net Income 117,500 (60,450) 56,550 (31,000) 25,550 10. Rea Company operates a branch in Pangasinan. Shipments are billed to the branch at cost. The branch carries its own accounts receivable, makes its own collections and pays its own expenses. On December 31, 2015, the branch books shows the following balances: Cash P 6,500 Home Office 33,000 Shipments from Home Office 133,000 Accounts Receivable 23,000 Sales 145,000 Expenses 11,500 The branch inventory on December 31, 2015 is P 16,500. What is the balance of the investment in Branch account in the books of the Home Office on January 1, 2016? a. P 33,000 b. P 52,000 c. P 50,000 d. P 53,000 27 of 5 Answer: c. P 50,000 Solution: Home Office Net Income: Sales Shipments from Home Office Inventory, End Gross Profit Less: Expenses Investment in Branch P 33,000 P 145,000 P 133,000 ( 16,500) 116,500 28,500 (11,500) 17,000 P 50,000 11. Capistrano Corporation ships merchandise to its branch at 25% above cost. On its books the branch shows a beginning inventory of home office merchandise amounting to P 20,000 and shipments from Home Office of P 115,000. Its ending inventory of Home Office Merchandise is P 10,000. What amount should the home office, Capistrano Corporation adjust the allowance for overvaluation of branch inventory account? a. P 20,000 b. P 25,000 c. P 100,000 d. P 50,000 Answer: b. P 25,000 Solution: Home Office Merchandise, beg. Shipments from Home Office P 20,000/ 125%= P 16,000 115,000/ 125%= 92,000 Less: Home Office Merchandise, end. 10,000/ 125%= 8,000 P 4,000 23,000 P 27,000 (2,000) P 25,000 12. The Best acoustic. bills merchandise shipments its Cavite City branch at 125% of cost. The branch, in turn, sells the merchandise it receives from home office at 25% above the billing price. On August @, 2016, all the branch' s merchandise stock was destroyed by fire. The branch record that were recovered showed the following: Inventory, Jan 1, 2016. Shipments received from home office, January to July(at billed price Purchase at cost, from outside sources, all resold at a 20% mark-up Sales Sales returns and allowances P165,000 110,000 10,200 169,000 3,750 The Best Co. will file an insurance claim. How much is the estimated cost of the merchandise destroyed by fire? a. P120,000. b. P130,000. c. P140,000 d. P 150,000 Answer: A Inventory, Jan. 1, at billed price. P165,000 Shipments received from home office at billed price 110,000 Cost of good available for sale at billed price. P275,000 Less: cost of good sold, ffrom home office at billed price Sales. P169,000 Less: sales return and allowance. 3,750 Sales price of merchandise purchased from outsiders (P7,500 x 120%). 9,000 Net sales of merchandise acquired from home office. P156,250 Multiplied by: Intercompany cost ratio. 100/125 125,000 Inventory, Aug. 1, 2016, at billed price. P150,000 Multiplied by cost ratio. 100/150 Merchandise inventory at cost destroyed by fire. P120,000 28 of 5 13. The home office of Irby Company bills merchandise to branches at 20% above home office cost. Information taken from the accounting records of Kipp Branch is as follows: Beginning Inventories (at billed prices) P17,000Shipmnlents from home office P42,500Ending inventories P20,000Net loss P 1,500 The net income or net loss of Kipp Branch, based on home office cost of branch merchandise, is: a. P7,900 net income b. P9,400 net loss c. P6,400 net income d. P7,000 net income Answer: C Cost of sale Mark up%. Total Less: net loss Net income P39,500 20% P 7,900 1,500 P 6,400 For question no. 14-15 Ruby Corporation shipped inventory to its Licab branch, costing P375,000 plus freight. Ruby bills inventory to its branches at 120% of original cost, plus the actual amount of shipping charges. At the end of the year, the Licab branch had resold 50% of the inventory from the home office. Shipping cost paid by Ruby were P2,000. 14. What amount should the inventory will be reported in the branch statement of financial position? a. P197,500 b. P188,500 c. P377,000 d. P287,500 Ans. B Cost Add: shipping cost Total Multiply by : P375,000 P2,000 P377,000 50% P188,500 15. Using the data above, what amount should the branch inventory from the home office be reported in the financial position of Ruby Corp. As a whole? a. P157,250 b. P188,500 c. P198,500 d. P377,000 Ans. A Cost Divided by: Add: shipping cost Total Less: Resold P375,000 120% P312,500 P2,000 P314,000 P157,250 P157,250 16. On July 31, 2013, the home office in Manila establishes a sales agency in Bulacan. The following assets are sent to the agency: Cash (working fund to be operated under the imprest system) P22, 000 29 of 5 Samples of merchandise 36, 000 During the month of August, the following transactions occurred: The sales agency submits sales order of P272, 000, sales per invoice was billed at P268, 000. Cost of sales to customers is P124, 000. Collections during the month amount to P58, 200, net of 3% discount. Home office disbursements chargeable to the agency are as follows: Furniture P40, 000. Salaries for the month 21, 600 Annual rent of office space 36, 000 On August 31, the sales agency working fund is replenished. Paid vouchers submitted by the sales agency amounting to P17, 925. Samples are useful until December 31, 2013, which at this time, are believed to have a salvage value of 15% of cost. Furniture is depreciated at 18% per annum. What is the total comprehensive income of the sales agency for the month of August? a. P91, 425 b. P93, 225 c. P92, 955 d. P58, 425 Ans.: C Solution: Sales Sales discount(P58, 200 ÷ 97%) x 3% Net sales Cost of expenses: Cost of sales Salaries Rent expense(P36, 000 x 1/12) Expenses Samples(P36, 000 x 85%) x 1/5 Depreciation(P40, 000 x 18% x 1/12)60 Net income P268, 000 1800 266, 200 P124, 000 21, 600 3000 17, 925 6, 120 173, 245 P92, 955 17. The account balances shown below were taken from the trial balances submitted to Bon-Apetit Corporation by its Alabang Branch: 2015 2016 Petty cash fund P1500 P1500 Accounts receivable 43, 800 49,140 Inventory37, 170 Sales 173, 180 195, 120 Shipments from home (140% of cost) 107, 450 136, 080 Expenses 51, 260 57, 930 Accounts written off 1, 220 1, 920 All branch collections are remitted to the home office. All branch expenses are paid out of the petty cash fund. When the petty cash fund is replenished, the branch debits appropriate expense accounts and credits Home Office Current. The petty cash is counted every December 31, and its composition was as follows: 12/31/1512/31/16 Currency and coinsP580P860 Expense vouchers920640 The branch inventory on December 31, 2016 was P41, 370. The correct branch net income for 2016 was: a. P3, 390 b. P3, 670 c. P41, 070 d. P41, 350 Ans.: D Solution: Sales Less: Cost of goods sold: Inventory, 1/1/16, at cost (37, 170 x 100/140) Add: Shipments, at cost (P136, 080 x 100/140) Cost of goods available for sale Less: Inventory, 12/31/16, at cost(P41, 370 x 100/140) Gross profit Less: Expenses(P57, 930 + P1, 920* – P280** ) Correct branch net income P195, 120 26,550 97,200 P123, 750 29,550 30 of 5 94,200 100, 920 59, 570 P41, 350 *Direct write-off was used in recording doubtful accounts since there is no allowance account given in the trial balance. **There was P280 reduction on unreimbursed petty cash expense vouchers, incidentally, the entry for the adjustment would be: Petty cash 280 Expense 280 18.A branch’s ending inventory of merchandise shipped by the home office and purchased from outside vendor’s amounts to P100,000. The post closing balance in the unrealized gross profit in branch inventory account is P12,000 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: a. 38,000 b. 30,000 c. 14,000 d. 28,000 Ans. D Unrealized gross profit 12,000/ 20% = Unrealized gross profit Total Inventory cost Branch Ending Inventory Less: Inventory cost Total branch ending inventory 60,000 12,000 72,000 100,000 72,000 28,000 19. Items below are taken from the unadjusted trial balance of Anjie Company and its branch on December 31,2015. Home office books Branch books Shipment to branch 500,000 Allowance for overvaluation of branch inventory 99,900 Shipments from home office 590,000 Merchandise Inventory, Jan.1 64,500 Merchandise Inventory, Dec.31 48,750 Sales 600,000 Expenses 81,000 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 outsides? a. 11,700 b. 42,000 c. 12,870 d. 27,600 Ans. D Inventory, Jan.1 Less: (99,900-(590,000-500,000) (9,900/30%) Total Inventory 64.500 9,900 33,000 27,600 20. On December 3, 2016. the home or recorded a shipment of merchandise to its Davao Branch as follows, Davao Branch ...................................................... 30,000 Shipments to Branch ............................... 25,000 Unrealized Profit in Branch inventory………4,000 Cash (for freight charges)…………………….1,000 The Davao branch sells 40% of the merchandise to outside entities during the rest of December 2016. The books at the home office and Kathy Office Supply are closed on December 31 of each year. On January 5, 2017 , the Davao branch transfer 'half of the original shipment to the Baguio branch, and the Davao branch pays P500 as the shipment. 31 of 5 At what amount should the 60% of the merchandise remaining unsold at December 31, 2016 be included in (1) inventory of the Davao branch at Decmbr 31, 2016 and (2) the published balance sheet of Kathy office supply Company at December 31, 2016 shows inventory at: A. (1)P15,600(2) P18,000 B. (1)P17,400(2) P15,000 C. (1)P18,000(2)P15,600 D. (1)P18,400(2)P16,000 ANSWER: C [1] Inventory of Davao branch at December 31, 2016: Shipment from home office at billed price………………………………….. P 29,000 Multiplied by: ending inventory……………………………………………… 60% P 17,400 Add: freight in (1000 x 60%) ………………………………………………… 600 P 18,000 (c) [2] inventory at published (external reporting) balance sheet at cost: Shipment at cost……………………………………………………………… P 25,000 Multiplied by: ending inventory……………………………………………… 60% P 15,000 Add: freight in (1000 x 60%) ………………………………………………… 600 P 15,600 (c) 21. Macoy starts a branch operation on January 1, 2013. Inventory costing P 72,000 is shipped to this branch at a transfer price of P 100,000. Freight is an additional P6,000. The branch sells 70 percent of this inventory for P 110,000 and remits P 70,000 in cash to the home office. On Macoy's financial statements for this period, what appropriate Cost of Goods Sold figure? a. P 50,400 b. P 54,600 c. P 70,000 d. P 74,200 Answer: b Shipment to branch, at cost Ending inventory, at cost (P72,000 x 30%) Cost of goods sold Freight (P6000 x P50,400/P72,000) Total P 72,000 (21 600) P 50,400 P 4,200 P 54,600 22. Power Corporation shipped inventory to its Bacolod branch, costing P 375,000 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 P 2,000. What amount should the inventory be reported in the branch's statement of financial position? a. P 187,500 b. P 188,500 c. P 226,000 d. P 377,000 Answer: b Shipment to branch, at billed price Shipping cost Total cost Sold (50%) Inventory P 375,000 P 2,000 P 377,000 P 188,500 P 188,500 23. Lobster Trading bills its Nueva Ecija branch for shipments of goods at 25% above cost. All the close of business on October 31, 20x6, a fire gutted the branch warehouse and destroyed 60% of the merchandise stock stored therein. Therefore, the following data were gathered: January 1 inventory, at billed price Shipments from home office to Oct. 31 Not sales to Oct. 31 If undamaged merchandise recovered are marked to sell for P30,000, the estimated cost of the merchandise destroyed by fire was: a. P14,400 c. P24,000 b. 21,600 d. 27,500 32 of 5 Ans: b Inventory, January 1 at billed price Add: Shipments from home office, at billed price Cost of Goods Available for Sale at billed price Divided by: Cost of Goods Available for sale at sales price: Net Sales Add: Inventory before the fire: Undamaged merchandise Divided by: Recovery Percentage Percentage of Billing Price to Selling Price P 50,000 130,000 P180,000 P225,000 P 30,000 40% 75,000 Estimated cost of merchandise destroyed by fire: Inventory before the fire at selling price (P30,000/40%) x: % of damaged merchandise Damaged merchandise at selling price x: % of Billing Price to Selling Price Damaged Merchandise at Billed Price x: Cost Ratio Cost of Merchandise destroyed by fire 300,000 60% P 75,000 60% P 45,000 60% P 27,000 100/125 P 21,600 24.On August 31, 20x6, a fire destroyed totally the rented “bodega” or stockroom of Adobo Company. The following are some of the data of the company: Merchandise Inventory, Dec. 31, 20x5 For the period Jan. 1 – Aug. 31, 20x6: Purchases Freight In Purchases returns Sales Sales returns and allowances P110,000 560,500 5,600 10,200 695,000 7,500 Using a 20% gross profit rate, the cost of the merchandise lost in the fire was: a. P 90,700 c. P88,400 b. 115,900 d. 63,200 Ans: b Merchandise inventory, 12/31/20x5 Add: Net Purchases Purchases Add: Freight-in Total Less: Purchase returns Cost of Goods Available for Sale Less: Cost of Goods Sold: Net Sales (P695,000 – P7,500) x: Cost Ratio Merchandise inventory, 8/31/20x6 loss due to fire P110,000 P560,500 5,600 P566,100 10,200 555,900 P665,900 P687,500 80% 550,000 P115,900 25. The Lewis Co. bills merchandise shipments in its Quezon City branch at 120% of cost. The branch, in turn, sells the merchandise it receives from the home office at 20% above the billing price. On July 31, 2016, all of the branch’s merchandise stock was destroyed by fire. The branch records that were recovered showed the following: Inventory, January 1, 2016 (at billed price)……………….. P330,000 Shipments received from home office, January to June (at billed price)………………………. 220,000 Purchases, at cost, from outside sources, All re-sold at a 25% mark-up………………………….. 15,000 Sales………………………………………………………….. 338,000 Sales return and allowances………………………………... 7,500 The Lewis Co. will file an insurance claim. How much is the estimated cost of that merchandise destroyed by the fire? a. P290,792 b. P259,792 c. P232,166 d. P230,166 33 of 5 ANSWER: (c) Inventory, January 1, at billed price………………………………………. Shipments received from home office at billed price…………………… Cost of goods available for sale at billed price………………………….. Less: Cost of goods sold, from home office at billed price Sales…………………………………………………….. P338,000 Less: Sales return and allowances………………….. 7,500 Sales price of merchandise purchased from outsiders (P15,000 x 125%)………… 18,750 Net sales of merchandise acquired From home office………………………………………. P311,750 Multiplied by: Intercompany cost ratio……………………… 100/120 Inventory, July 31, 2016, at billed price…………………….. Multiplied by: Cost ratio………………………………………. Merchandise inventory at cost destroyed by fire………….. P330,000 220,000 P550,000 259, 792 290,208 100/120 P232,166 26. Pascual Branch was billed by Home Office for merchandise at 140% of cost. At the end of its first month, Pascual branch submitted among other things the following data: Merchandise from Home Office (at billed price)…………… P196,000 Merchandise purchased locally by branch…………………. 80,000 Inventory, December 31 of which P14,000 are of Local purchase………………………………………….. 56,000 Net sales for month…………………………………………… 360,000 The branch inventory at cost and the gross profit of the branch as far as the home office is concerned are: a. b. c. d. Gross Profit P184,000 P184,000 P140,000 P154,000 Ending Inventory of Branch at Cost P154,000 P176,000 P176,000 P140,000 ANSWER: (b) Net sales Less: Cost of good sold: Purchases Shipments from home office, at cost (P196,000 x 100/140) Cost of goods available for sale Less: Inventory, December 31 [(P56,000 – P14,000) x 100/140 + 14,000] Gross profit P360,000 P 80,000 140,000 P220,000 P 44,000 (b ) 176,000 P184,000 (b) 27. Ryder Corporation has one branch operation located 500 miles away from the home office. The branch office sells merchandise which is shipped to it from the home office. The merchandise is transferred at cost but the branch pays reasonable freight charges. The branch office makes sales and incurs and pays operating expenses. At the end of the current accounting period the true adjusted balance for the home office account on the branch’s books and the branch office account on the home office’s books is P500,000. The following items may or may not be reconciling items. The current year is 20x4. The home office has shipped merchandise to the branch office which cost P1O, 000 and which incurs P500 freight charges paid by the home office but charged to the branch. This merchandise is received by the branch on January 5, 20x5. The branch has transmitted P17, 000 in cash back to the home office as a partial payment on such purchased merchandise. This cash is received by the home office on January 6th, 20x5. The branch office returns some defective merchandise to the home office. The cost of the returned merchandise is P750. The branch office pays P25 of freight costs which will be charged back to the home office. On December 1, 20x4, the home office sends a check for P25,000 to replenish the branch’s working capital. The check is received on January 4, 20x5. 34 of 5 The branch pays an advertising expense of P800 that should have been paid by the home office since it applied to advertising fees incurred by the home office for its own benefit. The home office allocated P12,000 of general and administrative expenses to the branch. The branch had not entered the allocation as of the end of the year. The home office pays insurance premiums on the branch store. The amount paid by the home office is P1,000 but the branch erroneously records It as P776.00 Compute the unadjusted balances for the branch and home office accounts as of December 31, 20x4. Home Office Current P481,425 P500,000 P452,276 P518,575 a. b. c. d. Branch Current P433,701 P500,000 P518,575 P452,276 ANSWER: C Unadjusted balance (SQUEEZED) Add (deduct) adjustments: In transit Remittance Returns Cash in transit Expenses - HO Expenses - Branch Error Adjusted balance Home Office Books (Branch Current - Dr. Bal) P518,575 Branch Books (Home Office Current - Cr. Bal) P452,276 10,500 (17,000) ( 775) 25,000 ( 800) P500,000 12,000 224 P500,000 28. At December 31, 20x5, the following information has been collected by Maxwell Company's office and branch for reconciling the branch and home office accounts. The home office's branch account balance at December 31, 20x5 is P590,000. The branch’s home office account balance is P506,700. On December 30, 20x5, the branch sent a check for P40,000 to the home office to settle its account. The check was not delivered to the home office until January 3, 20x6. On December 27, 20x5, the branch returned P15,000 of seasonal merchandise to the home office for the January clearance sale. The merchandise was not received by the home office until January 6, 20x6. The home office allocated general expenses of P28,000 to the branch. The branch had not entered the allocation at the year-end. Branch store insurance premiums of P900 were paid by the home office. The branch recorded the amount at P600. The correct balance of the reciprocal account amounted to: a. P575,000 b. P535,000 c. P534,700 d. P501,000 ANSWER: B Unadjusted balance Add (deduct) adjustments: Remittance Returns Error by the branch Expenses - Branch Adjusted balance Home Office Books (Branch Current - Dr. Bal) P590,000 Branch Books (Home Office Current - Cr. Bal) P506,700 (40,000) (15,000) P535,000 35 of 5 300 28,000 P535,000 29.Tarlac Branch of Quezon City Company, at the end of its first quarter of operations, submitted the following statement of comprehensive income: Sales P300,000 Cost of sales: Shipments from Home Office P280,000 Local Purchases 30,000 Total P310,000 Inventory at end 50,000 Gross Margin on Sales 260,000 P40,000 Expenses 35,000 Comprehensive Income P5,000 Shipments to the Branch were billed at 140% of cost. The branch inventory as at September 30 amounted to P50,000 of which P6,600 was locally purchased. Markup on local purchases is 20% over cost. Branch expenses incurred by Head Office amounted to P2,500. On September 30, the inventory at cost and the net income realized by the home office from the Tarlac branch operation are: Branch inventory at cost Net income realized a. P37,600 b. P50,000 c. P31,600 d. P37,600 P72,600 P55,000 P 5,000 P70,100 Answer: D Acquired from Home Office: Billed price (P50,000-P6,600) P43,400 Divide by billing percentage on cost 140% Local Purchases P31,000 6,600 Branch inventory at cost (September 30) P37,600 Branch net income (P5,000 - P2,500 expenses) P2,500 Add: Overvaluation of Branch Cost of Sales: Shipment from Home Office: Billed price Cost (P280,000/140%) P280,000 200,000 P80,000 Less: Inventory end Billed price(P50,000 – P6,600) P43,400 Cost (P43,400/140%) 31,000 Branch net income realized by Home Office 12,400 67,600 P70,100 36 of 5 30. Nariza Company opened its Tuguegarao branch on January 1. Merchandise shipments from home office during the month, billed at 120% of cost, is P125,000. Branch returned damaged merchandise worth P15,620. On January 31, the branch reported a net loss of (P2,270) and an Inventory of P84,000. What is the net income (loss) of the branch to be taken up in the books of the Home Office? a. (P1,690) b. P6,500 c. (P2,270) d. P1,960 ANSWER: D Rationale Net income (loss) per branch books Add: Realized profit from sale made by branch/ Overvaluation of cost of goods sold: Beginning Inventory Add: Shipments Less: Returns Cost of goods available for sale at billed price Less: Ending Inventory, at billed price P(2,270) P 125,000 15,620 P109,380 84,000 Cost of goods sold at billed price Multiplied by: Mark-up Adjusted Branch Net Income P25,380 20/120 P1,960 31. The ZG Corp. established its Bulacan Branch in January 2016. During its first year of operations, home office shipped to its Bulacan branch merchandise worth P130,000 which included a mark up of 15% on cost. Sales on account totalled P250,000 while cash sales amounted to P80,000. Bulacan reported operating expenses of P38,000 and ending inventory of P15,000, at billed price. In so far as the home office is concerned, the real net income of Bulacan is: a. P82,000 b. P147,000 c. P177,000 d. P192,000 ANSWER: D Rationale Sales (P250,000 + P80,000) Less: Cost of goods sold: Shipments from office P130,000 Less: Ending Inventory 15,000 Cost of goods sold at billed price P115,000 Multiplied by: Cost ratio 100/115 Gross Profit Less: Operating Expenses Net Income of the branch in so far as the Home office is concerned P330,000 100,000 P230,000 38,000 P192,000 32. Selected accounts from the December 31,2016 trial balance of Sarang Trading Co. And it’s Baguio Branch follow: Debits Manila Baguio Branch Inventory, January 1,2016 P 25,000 P 11,550 Baguio branch 58,300 Purchases 200,000 105,000 Freight in from home office 5,500 Expenses 40,000 27,500 Credits Home office P P 53,300 Sales 160,000 150,000 Sales to branch 110,000 Allowance for overvaluation of branch inventory at Jan. 1,2016 1,000 - 37 of 5 Additional Information: 1. The Baguio City branch gets all of its merchandise from the home office. The home office bills the goods at cost plus a 10% mark-up. At December 31,2016 a shipment with a billed amount of P5,000 was still in transit. Freight on this shipment was P300 and is to be treated as part of the inventory. 2. Inventories on December 31,2016, excluding the shipment in transit, follow: Home office, at cost P30,000 Branch. At billed price(excluding freight of P520) 10,000 Compute the (1)net income of the home office from own operations, and (2)the net income of the branch in so far as home office is concerned. a. (1)P25,000; (2) P 770 b. (1)P20,000; (2) P10,470 c. (1)P20,000; (2) P 770 d. (1)P25,000; (2) P20,970 SOLUTION: ANS: D (1) Net income of the home office from own operations: Sales Less: Cost of goods sold: Inventory, January 1,2016 Add: Purchases Cost of goods available for sale Less: Shipments to branch at cost Cost of goods available for home office Sale Less: inventory, December 31,2016 Gross Profit Less: Expenses Net Income (2) True Branch Income: P160,000 P 25,000 200,000 P225,000 100,000 P125,000 30,000 Sales Less: Cost of goods sold: Inventory, Jan.1,2016, at cost (P11,550-P1,000 mark-up) Add: Purchases from home office, at cost (P105,000+ P5,000 in transit) x 100/110 Freight-In (P5,500+P300 freight-in transit) Cost of goods available for sale Less: Inventory, Dec. 31,2016, at cost from Home Office:(P10,400 + P5,000) X 100/110 P14,000 Add: Freight-In (P520+P300) 820 Gross Profit Less: Expenses Net Income of the branch in so far as the Home Office is concerned 95,000 P 65,000 40,000 P 25,000 P150,000 P 10,550 100,000 5,800 P116,350 14,820 101,530 P 48,470 27,500 P 20,970 33. On December 31,2016, the Investment in Branch account on the home office’s books has a balance of P175,000. In analyzing the activity in each of these accounts for December, you find the following differences: 1. A P14,000 branch remittance to the home office initiated on December 28,2016, was recorded on the home office books on January 2, 2017. 2. A home office inventory shipment to the branch on December 27,2016 was recorded by the branch on January 4,2017; the billing of P26,000 was at cost. 3. The home office incurred P13,500 of advertising expenses and allocated P5,500 of this amount to the branch on December 15,2016. The branch has not recorded this transaction. 4. A branch customer erroneously remitted P3,600 to the home office. The home office recorded this cash collection on December 23,2016. Meanwhile, back at the branch, no entry has been made yet. 38 of 5 5. Inventory costing P51,600 was sent to the branch by the home office on December 11,2016. The billing was at cost, but the branch recorded the transaction at P40,800. Compute the balance as of December 31,2016: Unadjusted Balance Adjusted Of The Home Office Account Balance Of The Reciprocal Account a. P84,300 P143,000 b. P122,300 P 96,000 c. P151,200 P139,200 d. P122,300 P161,000 Solution: ANS: D Unadjusted balance(s), December 31,2016 Add (deduct); adjustments: 1. Branch remittance not yet recorded by the home office in 2016 2. Shipments not yet recorded by the Investment in Branch Account P175,000 Home Office Current P122,300* ( 14,000) Branch in 2016 3. Unrecorded branch expenses 26,000 5,500 4. Branch customers’ remittance recorded by the home office nut not yet recorded by the branch 5. Erroneous recording of branch shipments (P51,600 – P40,800) Adjusted Balance(s) December 31,2016 ( 3,600) P161,000 10,800 P161,000 *The P52,800 is computed by simply working back with P90,000 adjusted balance as the starting point 34. Nueva Ecija Branch of Malabon Company, at the end of its first quarter of operations has the following income statement: Sales...................................................................................................... Cost of Sales: Shipments from Home Office ......................................................P285,000 Local Purchases.......................................................................... 50,000 Total......................................................................................... P335,000 Inventory end.......................................................................... 80,000 Gross profit on sales............................................................. Expenses.............................................................................. Net Income.............................................................................. P650,000 255,000 P395,000 150,000 P245,000 Shipments to the branch were billed at 140% of cost. The branch inventory at September 30 amounted to P50,000 of which P6,600 was locally purchased . Mark up on local purchases, 20% over cost. Branch expenses incurred by head office amounted to P2,500 not yet recorded by the branch. In the combined income statement, true branch net income: A.P245,000 B.P314,029 C.P311,529 D.P314,029 Answer: C Branch net income as reported................................................................................. P245,000 Add(Deduct): 39 of 5 Overvaluation of cost of goods sold/realized profit From sales made by branch: Shipments from home office...........................P285,000 Less:Ending inventory,at billed price (50,000-6600)........................................... 43,400 Cost of goods sold from home office at Billed price..............................................P 241,600 Multiplied by: Mark-up.................................... 40/140 Unrecorded branch expenses............................................. 69,029 (2,500) True Branch Net Income......................................................... P 311,529(C) i .35.Which represents the proper journal entry for a periodic inventory system that should be made on the books of the home office when goods that cost the home office $100,000 to manufacture are shipped to a branch at a transfer price of $125,000 and the billed price is not recorded in the shipments to branch account? A. Branch office $100,000 Shipments to branch B. Branch office $100,000 $125,000 Shipments to branch C. Branch office $125,000 $125,000 Shipments to branch $100,000 Unrealized profit D. Shipment to branch 25,000 $100,000 Unrealized profit 25,000 Shipments from home office $125,000 ii 36.Which represents the proper journal entry for a periodic inventory system that should be made on the books of the branch when goods that cost the home office $100,000 to manufacture are shipped to the branch at a price of $125,000? A. Shipments from home office $100,000 Home office B. Shipments from home office $100,000 $125,000 Home office C. D. Shipments from home office $125,000 $125,000 Unrealized profit $ 25,000 Home office 100,000 Shipments to branch $100,000 Unrealized profit 25,000 Shipments from home office $125,000 40 of 5 41 of 5 i .35.REQUIRED: The home office journal entry to reflect merchandise shipments at cost plus a markup. DISCUSSION: (C) When goods are shipped from a home office to a branch at a transfer price that reflects original cost plus a markup, the branch must record the shipment at the transfer price. The home office most often reflects the shipments to branch at original cost. To maintain a reciprocal relationship between the home office and the branch office accounts, an unrealized profit in branch inventories account reflects the markup. Answers (A) and (B) are incorrect because neither reflects the unrealized profit. Answer (A) is incorrect because the branch office should be recorded at $125,000. Answer (B) is incorrect because the shipments to branch should be recorded at original cost of $100,000. Answer (D) is incorrect because it is the work sheet entry necessary to eliminate this intercompany transaction in the preparation of the financial statements. Answer () is incorrect because ii .36.REQUIRED: The journal entry on the branch book s to reflect the receipt of merchandise shipments at a transfer price that reflects cost plus a markup. DISCUSSION: (B) In a periodic system, when merchandise is received by a branch from the home office, the merchandise should be reflected as a shipment from the home office in the amount of the transfer price, with a corresponding entry to the home office account to indicate the equity of the home office in the net assets of the branch. Answer (A) is incorrect because the shipments should be reflected at the transfer price. Answer (C) is incorrect because the home office equity should be reflected at the transfer price. Answer (D) is incorrect because it is the worksheet entry used to eliminate this intercompany transaction in the preparation of the enterprise’s financial statements. 37. 1A gain should be reported on an acquisition if: a. The fair value of the consideration paid is less than the book value of the net assets acquired. b. The fair value of the consideration paid plus the present value of any earnings contingency is less than the book value of the net assets acquired. c. The fair value of the consideration paid is less than the fair value of net assets acquired plus the fair value of identifiable intangibles acquired. d.The fair value of the consideration paid plus the present value of any earnings contingency is less than the fair value of identifiable net assets acquired. ANS: D 38. In accounting for branch transactions, it is improper for home office to, A. Credit cash received from a branch to the investment in Branch ledger account. B. Maintain common stock and retained earnings ledger accounts for only the home office C. Debit shipments of merchandise to the branch from the home office to the Investment in Branch Ledger account. D. Credit shipments of merchandise to the branch to the sales ledger account. Answer: D 39.Aca, Inc. has several branches. Goods costing P10,000 were transferred by the head office to Cebu Branch with the latter paying P600 for freight cost. Subsequently, the head office authorized Cebu Branch to transfer the goods to Davao branch for which the was billed fot the P10,000 cost of the goods and freight charge of P200 for the transfer. If the head office had shipped the goods directly to Davao branch, the freight charge would have been P700. The P100 difference in freight cost would be disposed of as follows: a. Considered as savings b. Charged to Cebu Branch c. Charged to Davao Branch d. Charged to the Head Office ANS: D In arriving at the cost of the merchandise inventory at the end of the period, freight charges are properly recognized as part a part of the cost. But a branch should not be charged with excessive freight charges when, because of indirect routing, excessive cost are incurred. Under such circumstances, the branch acquiring the goods should be charged for no more than the normal freight from the usual shipping point. The office directing the interbranch transfers are responsible for the excessive cost should absorb the excess as an expense because it represents management mistakes or inefficiencies. 40.Jayhawk Company has numerous branches in the state of Kansas. The home office purchases merchandise and makes shipments to branches from a central warehouse at the request of branch managers. Which of the following would be an improper accounting practice? a. The Investment in Branch ledger account is debited in the accounting records of the home office when merchandise is shipped to a branch, and the Shipments to Branch account is credited (assume use of the periodic inventory system). b. The home office debits Trade Accounts Receivable and credits Sales when merchandise is shipped to a branch. c. Cash received from a branch is credited to the Investment in Branch ledger account by the home office. d. Only the home office maintains a Common Stock ledger account and a Retained Earnings account. Answer: B