Republic of the Philippines
Mindanao State University- General Santos City
Accountancy Program
First Semester, SY 2020-2021
HOME OFFICE AND BRANCH
ACCOUNTING THEORIES AND PROBLEMS
A Final Requirement
Presented to the Faculty of
Mindanao State University-General Santos City
Business Administration and Accountancy
Accountancy Department
In Partial Fulfilment of
The Requirements for the Accounting for Special Transactions
Bachelor of Science in Accountancy
ELLAINE MAE MELECIO
JOYCE AVES
KEZHA CALDERON
MARK LOYD DEFENSOR
MELANIE SAMSONA
PITCHIE MAE BELDIA
JANUARY 8, 2021
HOME OFFICE AND BRANCH ACCOUNTING THEORIES
1. In developing combined statements, the following are true, except:
a. Accounts for the home office and the branch need not be restated.
b. Combining branch and home office accounts results in those balances that would
have been obtained if one set of accounts had been maintained in recording
activities of both branch and the home office.
c. Any balance sheet accounts that report interoffice debits and credits have no
meaning when the related entities are recognized as one entity are eliminated.
d. The above statements are all correct.
Explanation
The affiliated entities are recognized as one entity. Accounts for the home office and the
ranch must be restated, so that, when combined, they will offer those balances that
would have resulted if the transactions of the related entities had been recorded in one
set of books.
2. Analyze the following statements.
I.
The accounting records for branches may be centralized in the home office.
II.
The accounting records for branches may be decentralized.
a. Statement I is correct. Statement II is incorrect.
b. Statement I is incorrect. Statement II is correct.
c. Statements I and II are both correct.
d. Statements I and II are both incorrect.
Explanation
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.
3. A branch is an organization that:
a. Is established to display merchandise.
b. Does not stock merchandise to fill customer’s orders or pass on customer’s
credit.
c. Has no separate accounting or business entity.
d. The statements above are all incorrect.
Explanation
All the given statements describe/define an agency.
4. Analyze the following statements.
I.
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.
II. It is acceptable that the fiscal year for the home office does not coincide with
the fiscal year for the branch.
a. Statement I is correct. Statement II is incorrect.
b. Statement I is incorrect. Statement II is correct.
c. Statements I and II are both correct.
d. Statements I and II are both incorrect.
Explanation
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.
The fiscal year for the home office must coincide with the fiscal year for the branch to
facilitate the preparation of combined financial statements.
5. As per AICPA SOP 98-5, start-up costs an entity undertakes when it introduces a
new product or service, conducts business in a new territory or with a new class of
customer or beneficiary, initiates a new process in an existing facility or commences
some new operation:
a. Must be expensed as the entity incurs them.
b. Must be deferred as charges.
c. Either A or B.
d. Neither A nor B.
Explanation
As per AICPA SOP 98-5, start-up costs an entity undertakes when it introduces a new
product or service, conducts business in a new territory or with a new class of customer
or beneficiary, initiates a new process in an existing facility or commences some new
operation must be expensed as the entity incurs them.
6. When billing at retail sales price, which of the following is incorrect?
a. Branch statements may be prepared and submitted to the home office.
b. If the branch is billed for goods at the sales price, the branch cost of goods sold
will not be equal to sales, and branch activities will show a loss from operations
equal to the expenses of operation.
c. The home office, when informed of branch sales currently, is provided with a
continuous record of the goods in the hands of the branch.
d. The statements above are all true.
Explanation
If the branch is billed for goods at the sales price, the branch cost of goods sold will be
equal to sales, and branch activities will show a loss from operations equal to the
expenses of operation. Branch accounts may be adjusted and closed in the usual
manner at the end of the fiscal period, and the home office account debited for the
reported loss.
7. 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.
Explanation
Shipments of merchandise to the branch under the periodic inventory system are
recorded (if at cost) as debit to Investment in Branch and credit to Shipment to Branch
in the home office books while they are recorded as a debit to Shipment from Home
Office and credit to Home Office Equity in the books of the branch.
Shipments of merchandise to the branch under the perpetual inventory system are
recorded in the books of the home office as a debit to Investment in Branch and a credit
to Inventories. While in the books of the branch, they are recorded as a debit to
Inventories and a credit to Home Office, considering the transfer is at cost.
8. When a home office ships merchandise to Branch A which is later shipped to Branch
B, the additional freight charged to ship the merchandise form Branch A to Branch B
should:
a. Treated as an expense on the Home Office books
b. Included as part of the cost of merchandise to Branch A
c. Included as part of the cost of merchandise to Branch B
d. Both B and C are correct
Explanation
Excess freight costs are recognized as expenses of the home office. Excessive
freight charges represent management mistakes or inefficiencies. Therefore, they are
not considered normal operating or freight expenses.
9. For a home office that uses the periodic inventory system of accounting for shipments
of merchandise to the branch, the credit balance of the Shipments to Branch ledger
account is displayed in the home office separate:
a. Income statement as an offset to purchase
b. Balance sheet as an offset to Investment in Branch
c. Balance sheet as an offset to inventories
d. Income statement as revenue.
Explanation
In its separate income statement, the home office displays the Shipment to Branch
ledger account as an offset to the net purchases to come up with the total cost of goods
available for its own sale.
10. A branch journal entry debiting Home Office and crediting Cash may be prepared
for:
a. The branch’s transmittal of cash to the Home Office
b. The branch’s acquisition for cash of plant assets to be carried in the home office
accounting records only
c. Either (a) or (b)
d. Neither (a) nor (b)
Explanation
Home Office Ledger Account is an account used by the branch to account for all
transactions with the home office. It is credited for all cash, merchandise or other
assets provided by the home office to the branch. It is debited for all cash,
merchandise, or other assets sent by the branch to the home office or to other
branches.
If a plant asset is acquired by a branch for its usage but the accounting record for this
plant asset is maintained by the home office, the accounting treatments are:
For the branch: debit Home Office, and credit cash or a liability account.
For the home office: debit a plant asset account: branch, and credit Investment in
Branch account.
11. In a working paper for combined financial statements of the home office and the
branch of a business enterprise, an elimination that debits Shipments to Branch and
credits Shipments from Home Office is required under:
a. The periodic inventory system only
b. The perpetual inventory system only
c. Both the perpetual inventory system and the periodic inventory system
d. Neither the perpetual inventory nor the periodic inventory system
Explanation
Under the perpetual inventory system, the ledger accounts “Shipment to Branch” and
“Shipment from Home” are not used. The shipment of merchandise to branch, for
instance, is recorded as debit to Investment in Branch and credit to Inventories in the
book of home office, and debit to Inventories and credit to Home Office in the book of
the branch.
Under periodic inventory system, on the other hand, in a working paper for combined
financial statements of the home office and the branch, the balance of the Shipment to
Branch ledger account is eliminated against the balance of the Shipment from Home
account together with the credit balance of the Allowance for Overvaluation of
Inventories account if there is any.
12. A journal entry debiting Cash in Transit and crediting Investment in Branch is
required for:
a. The home office to record the mailing of a check to the branch early in the
accounting period.
b. The branch to record the mailing of a check to the home office early in the
accounting period.
c. The home office to record the mailing of a check by the branch on the last day of
the accounting period.
d. The branch to record the mailing of a check to the home office on the last day of
the accounting period.
Explanation
Investment in Branch Ledger Account is a reciprocal ledger account to Home Office
account of a branch used by the home office to account for any transactions with the
branches. It is debited for cash, merchandise and services provided to the branch by
the home office and for the net income reported by the branch. Thus, a debit in cash
and a credit in Investment in Branch account may be a home office entry for a check
mailed by the branch, cash in transit if the check that has been sent by the head
office are still in transit, say on the last day of the reporting period.
13. A Home Office‘s Allowance for Overvaluation of Inventories: Branch ledger
account, which has a credit balance, is
a. an asset valuation account
b. an equity account
c. a liability account
d. a revenue account
Explanation
The home office reports the credit balance of the Allowance for Overvaluation of
Inventories: Branch ledger account, in its separate balance sheet as a valuation account
of the Branch Current of the Investment in Branch ledger account.
14. Which of the following generally is not a method of billing merchandise shipments by
a home office to the branch?
a. Billing at cost
b. Billing at a percentage above cost
c. Billing at a percentage below cost
d. Billing at retail selling price
Explanation
Three alternative methods are available to the home office in billing the merchandise
shipped to the branches:
a) billed at the home office cost,
b) billed at a percentage above the home office cost, and
c) billed at the branch’s retail selling price
15. The appropriate journal entry for the home office to recognize the branch’s
expenditure of P10,000 for equipment to be carried in the home office accounting
records is:
a. Equipment
10,000
Inv in Branch
10,000
b. Home Office
Equipment
10,000
10,000
c. Investment in branch
Cash
10,000
10,000
d. Equipment-Branch
Inv in Branch
10,000
10,000
Explanation
If a plant asset is acquired by a branch for its usage but the accounting record for this
plant asset is maintained by the home office, the accounting treatments are:
For the branch: debit Home Office, and credit cash or a liability account.
For the home office: debit a plant asset account: branch, and credit Investment
in Branch account.
16. Does the branch use a Shipments from Home Office ledger account under the:
Perpetual Inventory
Periodic Inventory
a.
b.
c.
d.
Method
Method
Yes
Yes
No
No
Yes
No
Yes
No
Explanation
When a periodic inventory system is adopted, inventory account cannot be used for
the shipments of merchandise between the home office and the branch. Thus, accounts
such as “Shipments to Branch” (used by the home office) and “Shipments from Home
Office” (used by the branch) are used.
17. If the home office maintains in its general ledger accounts for a branch’s plant
assets, the branch debits its acquisition of office equipment to:
a. Home Office
b. Office Equipment
c. Payable to Home Office
d. Office equipment carried by home office
Explanation
If a plant asset is acquired by a branch for its usage but the accounting record for this
plant asset is maintained by the home office, the accounting treatments are:
For the branch: debit Home Office, and credit cash or a liability account.
For the home office: debit a plant asset account: branch, and credit Investment in
Branch account.
18. May be Investment in Branch account of a home office be accounted for by the
Cost Method
Equity Method
a.
b.
c.
d.
of accounting
of accounting
Yes
Yes
No
No
Yes
No
Yes
No
Explanation
The home office keeps a reciprocal account called Branch Current or Investment in
Branch. This noncurrent asset account is debited for cash, goods, or services to the
branch; and for branch income. Conversely, the account is credited for remittances from
the branch or other assets received from the branch; and for branch losses. Thus, the
Investment in Branch account reflects the equity method of accounting.
19. If Jibs Branch ships merchandise with a cost of $400 to Tibs Branch and the periodic
inventory system is used, the following journal entries are required except:
a. Home office
400
Shipments from Home Office
400
b. Shipments from Home Office
Home Office
400
c. Investment in Tibs Branch
Investment in Jibs Branch
400
400
400
d. All are correct.
Explanation
Letter A are accounting records of Jibs Branch.
Letter B are accounting records of Tibs Branch.
Letter C are accounting records of home office.
20. The following are limitations of branch accounting except:
a. There are certain expenses which are incurred for the organization as a
whole but cannot be attributable to the branches.
b. Inter branch and intra branch comparison can be done.
c. Separate accounts for each branch are maintained which increases the
accounting charges.
d. In case of foreign branch, conversion of foreign currency into domestic
currency cannot be properly done due to regular fluctuations in exchange
rate.
Explanation
Inter branch and intra branch comparison is an advantage of branch accounting to
assess the performance of each branch.
21. Among the interoffice transactions in the accounting records of the home office of
Sand Company was the following:
Investment in Box Branch
10,000
Shipment to Box Branch
10,000
This journal entry indicates:
a. A transfer of merchandise from home office at cost.
b. A payment by home office of branch expenses.
c. A transfer of merchandise from home office at above cost.
d. A transfer of cash from the home office.
Explanation
The correct journal entries for letters B, C, and D respectively are the following:
Investment in Box Branch
xx
Cash
Investment in Box Branch
xx
xx
Allowance for overvaluation
xx
Shipment to Box Branch
xx
Investment in Box Branch
Cash
xx
xx
22. The home office ledger account in the accounting records of a branch is best
described as as:
a. A revenue account
b. An equity account
c. A deferred revenue account
d. None of the foregoing
Explanation
The Home Office Ledger account is quasi-ownership account equity that shows the net
investment by the home office in the branch. It indicates the extent of the accountability
of the branch to the home office.
23. If both the home office and the branch of a business enterprise use perpetual
inventory system, a Shipment to branch ledger account appears in the accounting
records of:
a. The home office only
b. The branch only
c. Both the home office and the branch
d. Neither the home nor the branch
Explanation
When a merchandise is transferred to the branch the home office debits the branch
account and credits Shipments to Branch, on the other hand, the branch debits
Shipments from Home Office. However, when both uses perpetual inventory system,
inventory accounts are being used, the home office will credit the appropriate inventory
account and the branch will debit the appropriate inventory account.
24. In preparing the financial statements of the home office and its various branches:
a. Nonreciprocal accounts are eliminated but reciprocal accounts are combines
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combines
d. Reciprocal accounts are eliminated and nonreciprocal accounts are combined
Explanation
The process of combining home office and branch financial statement is similar to the
process of consolidating the parent and subsidiary statements. Reciprocity is
established between home office and branch records by eliminating reciprocal accounts
and combining nonreciprocal accounts. We eliminate unrealized profits from internal
transfers between the home office and the branches in preparing combined financial
statements for the enterprise.
25. Which of the following accounts is a reciprocal account to the Investment in Branch
account?
a. Branch Income
c. Home Office Capital
b. Equity in Home Office
d. None of the above
Explanation
Investment in Branch Ledger Account this account is a reciprocal ledger account (to
Home Office account) used by the home office to account for any transactions with the
branches. It is debited for cash, merchandise and services provided to the branch by
the home office and for the net income reported by the branch.
HOME OFFICE AND BRANCH ACCOUNTING PROBLEMS
On November 2, 2015, Luffy Company created an agency in Davao, and transferred
merchandise samples costing P15,000, equipment worth P36,000 and a cash working
fund of P10,000 to be maintained on an imprest basis. The agency transmitted to the
home office sales orders which were billed at P90,000 of which P46,550 was collected
net of a 2% discount. The agency also paid for its operating expenses of P7,500
including supplies of P2,000. The agency received replenishment thereof from the home
office before the year ended. On December 31, the agency samples were estimated to
be useful over a period of 5 months while the equipment is estimated to have a useful
life of eight years. Unused supplies on Dec 31 amounted to P1,000. Home office
maintains a gross profit rate of 25% of cost.
1. How much is agency profit at the end of December?
a) P3,800
c) P4,800
b) P13,800
d) P14,800
2. Give the agency real accounts that will be presented in the Dec. 31 balance
sheet:
Agency Samples:
a) P7,000
b) P8,000
c)P9,000
d)3,400
3. Working Fund, Davao Agency
a) P10,000
b) P7,000
c)P12,000
d)P13,000
4. Supplies, Davao Agency
a) P200
b) P1,200
c) P1,000
d) P2,000
5. Equipment, Davao Agency
a) P36,000
b) P35,250
c) P38,550
d)P36,750
6. Give the cost of sales of Home Office if its Inventory on Nov 2 is P1,250,000 while
on hand at Dec 31 went down to 20% of total stock . Net purchases was
P2,750,000 including freight of P50,000.
a) P3,000,000
c) P3,113,000
b) P3,131,000
d) P3,010,300
a.) Income and Summary Expense
Samples
Used Sales
90,000
6,000
Supplies
1,000
Cost
of
Sales
72,000
Depreciation
750
Other
expenses
5,500
Sales
discount
950
Balance
(1)
3,800
b.) Real Accounts
(2)Agency Samples
(3)Working Fund, Davao
Agency
(4)Supplies, Davao
Agency
(5)Equipment, Davao
Agency
Accumulated
Depreciation
P 9,000
10,000
1,000
P 36,000
( 750)
P 35,250
c.) Home Office Cost of Sales
Inventory, Nov 2
P1,250,000
Net Purchases
2,700,000
Freight In
50,000
Shipments
( 87,000)
Inventory, Dec 31
(800,000)
(6)Cost of Sales
P3,113,000
Trafalgar Corporation shows the following balance sheet accounts as at Jan 1, 2015:
Cash
P 476,500
Accumulated Depreciation P 93,750
Accounts Receivable
1,050,000
Accrued Expenses
7,250
Inventory
1,300,000
Accounts Payable
743,750
Furniture & Fixtures
750,000
Capital Stock
2,500,000
Allowance for Bad Debts
31,500
Retained Earnings
263,250
On this date, management decided to establish a branch in Baguio and reported the
following transactions for the first quarter of 2015:
I.
Transferred cash P150,000, merchandise P500,000 with freight prepaid based
on 2% of its shipment cost.
II. Home office approved on Feb 1, the purchase by the branch of its furniture and
fixtures costing P75,000 for its own use. Home office policy was to maintain and
control all fixed assets.
III. The branch was authorized to take over P60,000 home office accounts from its
Baguio customers and make the necessary collections. Home Office issued a
debit memo for this.
IV. Summary of account sales and (collections) for the quarter : Home OfficeP1,865,000 and (1,499,400 net of a 2% discount) and for the Branch- P655,000
(P565,000).
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
Summary of account purchases and (payments): Home Office-P790,000 and
(P745,000) and for the Branch- P150,000 and (P88,755 net of a 3% discount).
Operating Expenses paid including accrued expenses, if any- Home Office,
P230,000 and Branch, P 131,250.
Returns from the original shipment amounted to P75,000. Freight on returns was
paid by the branch. Allocated freight and freight paid by branch were all charged
to home office as a loss account.
From the Baguio accounts turned over in c), collections were made accordingly
less a discount of 2% which the branch charged to the home office.
P11,875 of the expenses paid by home office in f) were charged to the branch.
Cash remittance was made by the branch in excess of original cash transfer.
Depreciation was recorded at a rate of 12%.
Unpaid utility bills: P67,500 for home office and P18,500 for the branch.
Policy on doubtful accounts was to be maintained based on the previous rate.
1. The entry to record transaction I in the books of Home Office
a) Cash
150,000
Freight In
10,000
Shipments from H.O.
500,000
Home office Equity
660,000
b) Investment in branch
Cash
Shipments to Branch
650,000
c) Cash
Shipments from H.O.
Home office Equity
150,000
510,000
d) Investment in branch
Cash
Shipments to Branch
660,000
150,000
500,000
660,000
160,000
500,000
2. The entry to record transaction IV in the Branch books
a) Accounts Receivable
655,000
Sales
655,000
b) Accounts receivable
Sales
1,865,000
c) Accounts Receivable
Sales
565,000
d) Accounts Receivable
Sales
1,449,200
1,865,000
565,000
1,449,200
3. The entry to record transaction XIII in the books of Home Office
a) Bad Debts
2,700
Allowance for Bad Debts
2,700
90,000 x .03
b) Bad Debts
8,250
Allowance for Bad Debts
8,250
(1,325,000x.03=39,750-31,500)
c) Bad Debts
7,293.75
Allowance for Bad Debts
(1,293,125 x.03=38,793.75-31,500)
7,293.75
d) Bad Debts
38,793.75
Allowance for Bad Debts
(1,293,125 x.03=38,793.75)
38,793.75
4. How much is the Plant Assets of the Home Office?
a) P825,000
c) P708,750
b) P822,750
d) P706,500
5. How much is the Home Office Net Sales?
a) P1,833,200
c) P1,338,200
b) P2,488,200
d) P2,884,200
6. How much is the Branch Net Sales?
a) P565,000
b) P655,000
c) P1,865,000
d) P1,449,200
7. How much is the Combined Net Sales?
a) P1,833,200
c) P1,338,200
b) P2,488,200
d) P2,884,200
8. How much is the Home Office Cost of Sales?
a) P879,500
c) P897,500
b) P875,900
d)P895,700
9. How much is the Branch Cost of Sales?
a) P455,000
c) P450,005
b) P450,000
d) P405,050
10. How much is the Combined Cost of Sales?
a) P1,392,550
c) P1,352,505
b) P1,330,900
d) P1,329,505
11. What is the Home Office Gross Profit?
a) P1,158,695
b) P953,700
c) P240,950
d) P1,150,690
12. How much is the Branch Gross Profit?
a) P204,995
b) P209,445
c) P209,450
d) 240, 950
13. How much is the Combined Gross Profit?
a) P953,700
c) P975,300
b) P1,158,695
d) P1,555,200
14. How much is the Home Office Profit/loss from Operations?
a) P644,575
c) P567, 445
b) P654,447
d) P674,575
15. How much is the Branch Profit/loss from Operations?
a) P38,420
c) P32,480
b) P34,800
d) P38,400
16. How much is the Combined Profit/loss from Operations?
a) P689,295
c) P692,558
b) P682,995
d)P628,995
17. How much is the Home Office Net Profit
a) P679,985
c) P682,995
b) P687,995
d) P679,995
18. How much is the Branch Net Profit?
a) P38,400
b) P34,800
c) P32,480
d) P38,420
19. How much is the Combined Net Profit?
a) P679,995
c) P682,995
b) P687,995
d) P689,225
PLANTS AND ASSETS
#(4)
Furniture &Fixtures
Acc. Depreciation
Furniture & Fixtures-Baguio
Acc. Depreciation
Total
750,000
116,250
75,000
2,250
633,750
72,750
P706,500
INCOME STATEMENT
HOME OFFICE
BRANCH
COMBINED
Sales
P1,865,000
P655,000
P2,520,000
Less Discounts,
( 31,800)
( 31,800)
Returns and
Allowances
Net Sales
(5) P1,833,200
(6)P655,000
(7)P2,488,200
Cost of Sales:
Inventory, Beginning
1,300,000
1,300,000
Net Purchases
790,000
147,255
937,255
Shipments to Branch
(425,000)
Freight In
8,500
8,500
Shipments from Home
425,000
Office
Inventory, Ending
(785,500) (8)879, 500
(130,750) (9)450,005 (916,250) (10)1,329,505
Gross Profit
(11) P953,700
(12)P204,995
(13)P1,158,695
Less Operating
Expenses:
Bad Debts
8,250
2,700
10,950
Depreciation
22,500
2,250
24,750
Utility
67,500
18,500
86,000
Other operating
210,875
309,125
143,125 166,575
354,000
475,700
Expenses
Net Profit from Operation
(14) P644,575
(15) P38,420
(16)P 682,995
Branch Profit
38,420
Loss on Branch Transfers
(3,000)
(3,000)
Net Profit (Loss)
(17)P679,995
(18)P38,420
(19)P 679,995