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
2.
The net income of the sales agency for the six months period is
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:
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
12/1/2012
P70,000
12/31/2012
P84,000
Local purchases
P10,000
P16,000
Total
P80,000
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?
5.
What is the balance of the Allowance for Overvaluation in the branch inventory at December 31, 2013?
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?
7.
What is the amount of branch merchandise beginning inventory that was acquired from the home office?
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
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 January 1, 2012.
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?
9.
What is the net income of the branch in so far as the home office is concerned?
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?