LECTURE NOTES

PRACTICAL ACCOUNTING 2 DE
LEON/DE LEON
P2.706- Home Office and Branch
OCTOBER 2009

LECTURE NOTES

Agencies and branches are established to decentralize operations or to
expand into new markets. Agencies are simple extensions of the home office;
branches, generally, are with regulated autonomy to operate as an
independent entity.

Because agencies do not maintain its own set of accounting records, all its
transactions are recorded in the books of the home office. If the home
office would like to determine viabilities of the agencies, real and
nominal accounts for the agency are identified in the home office books to
facilitate such determination. Otherwise, the agency items are merged
without identification with those of the home office.

The branch has its own complete set of accounting records, therefore all
its transactions, including those with the home office, are recorded in its
books. It also presents its own set of financial statements: the income
statement, the balance sheet, and the statement of cash flows. But because
the branch is but a part of the home office, therefore, these set of
financial statements are not acceptable for general purposes. And since the
home office is just also a part of the whole organization, its own set of
financial statements: the income statement, the balance sheet and the
statement of cash flows are also not acceptable for general purposes. These
two different sets of financial statements are internal to each of the
reporting entities, combined financial statements must be prepared for the
combined entities (taken as one and the same) to meet the requirements of
general-purpose statements.

A branch and its home office represent two accounting systems but just one
accounting and reporting entity. All entries in the accounting records of
the branch are also entered, at least in summary form, in the accounting
records of the home office. The records of the home office and the branch
are linked by two reciprocal accounts; the Home Office Equity account in
the books of the Branch and the Investment in Branch account in the books
of the Home Office. Because they are reciprocal, it means that the two
accounts always have the same balance although the Investment in Branch is
a debit account (as an asset in the books of the Home Office) and the Home
Office is a credit account (as an equity item in the books of the branch).
The two accounts frequently show different balances on a temporary basis
due to errors and items in transit. A very important aspect of the study of
home office and branches is the reconciliation of the reciprocal balances.


An illustration of journal entries recorded for interoffice transactions
follow:

"Transactions "Home Office Books "Branch Books "
"Transfer of cash from the "Investment in branch x"Cash "
"home office " "x "
" "Cash "Home office equity "
" "x "x "
"Transfer of cash from the "Cash "Home Office Equity x "
"branch "x "Cash "
" "Investment in branch "x "
" "x " "
"Transfer of mdse from HO at "Investment in branch x"Shipment from HO x "
"cost " "HO Equity "
" "Shipment to branch "x "
" "x " "
"Transfer of mdse from HO at "Investment in Branch x"Shipment from HO x "
"above cost " "HO Equity "
" "Allowance for OV "x "
" "x " "
" "Shipment to branch " "
" "x " "
"Payment by HO of branch "Investment in branch x"Expenses x"
"expenses " " "
" "Cash "HO Equity "
" "x "x "
"Allocation of prev. paid "Investment in branch x"Expenses x"
"branch exp " " "
" "Expenses "HO Equity "
" "x "x "
"Transfer of Fixed asset from"Memo entry "Memo entry "
"home office to Branch " " "
" "(Note: There will be no entry if all fixed assets are "
" "accounted in the books of the home office); otherwise: "
" "Investment in branch x "Fixed Assets x "
" "Accumulated depn x "Acc Depn "
" "Fixed Assets "x "
" "x "HO Equity "
" " "x "
"To take-up branch "Investment in branch x "Income Summary x "
"Profit/(loss) "Branch Income "HO Equity "
" "x "x "
" "Branch loss "HO Equity x "
" "x "Income Summary x"
" "Investment in branch " "
" "x " "
"To adjust the reported "Allowance for Ovrvltn x"No Entry "
"branch NI /NL) for realized " " "
"allowance "Branch Income " "
" "x " "
" "Note: The adjusting entry to reflect the true net income"
" "or loss of the branch from the standpoint of the home "
" "office is always favorable and only relevant when "
" "billing policy is above cost: "









Detailed computation of realized allowance for overvaluation thru sales by
the branch to outsiders during the period:
" "Billed "Cost "Mark-up "
" "Price "Price "on Cost "
"Branch Beg "xx "xx "xx "
"Invty (from " " " "
"HO)) " " " "
"Current "xx "xx "xx "
"shipments (from" " " "
"HO " " " "
"Branch End "(xx) "(xx) "(xx) "
"Invty (from HO)" " " "
"Cost of Goods "xx "xx "xx "
"Sold " " " "



Cost = Billed Price/100% + % mark-up on cost = Mark-up on cost/% mark-up on
cost. The amount of allowance considered realized will be the allowance
carried by the cost of goods sold.


There are two pricing methods generally used by the home office in billing
the branch for merchandise transfers:
1. Billed at cost – the merchandise is transferred at cost, thus when the
branch sells the merchandise, the entire gross margin is included in the
branch net income.
2. Billed at cost plus markup – the merchandise is transferred at an amount
between cost and the selling price. This intermediate pricing method
allocates part of the gross margin to the branch and the remainder to the
home office.

Working paper adjustments and eliminations must be determined in order to:
1. Eliminate inter-company balances from the combined statements to avoid
redundancy, and
2. Adjust some items in the cost of sales section of the branch income
statement to their true costs (as a consequence of the billing policy not
equal to cost).

The working paper adjustment/elimination entries are as follows:
"a. Billed at Cost "b. Billed above cost "
"HO Equity "HO Equity "
"x "x "
"Investment in Branch "Investment in Branch "
"x "x "
"Accounts Payable "Accounts Payable "
"x "x "
"Accounts Receivable "Accounts Receivable "
"x "x "
"Shipment to Branch "Shipment to Branch "
"x "x "
"Shipment from "Allowance for Ovrvltn"
"Home Office "x "
"x "Shipment from HO "
" "x "
"None "Allownce for Ovrvltn "
" "x "
" "Branch Beg Invty "
" "x "
"None "Br Ending Invty (I/S)"
" "x "
" "Branch End Invty "
" "(B/S) x "

When a company is composed of a home office and more than one branch, the
home office records include a separate investment in branch account and a
separate allowance for overvaluation account for each branch. Separate
worksheet adjustments are made for each branch.

When assets are transferred from one branch to another branch, the home
office account on each branch's records are used to record the transfers.
(Inter-branch receivables and payables are not created.) In essence, the
transferring branch reverses the entry to record the transfer from the home
office and the receiving branch enters a transfer as if it comes from the
home office.


- done -

MULTIPLE CHOICE THEORETICAL

1. Select the best answer for each of the following multiple-choice
questions:

1. May be Investment in Branch account of a home office be accounted for
by the
Cost Method Equity Method
of accounting of accounting
a. Yes Yes
b. Yes No
c. No Yes
d No No


2. 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


3. 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)


4. A Home Office 's Allowance for Overvaluation of Inventories: Branch
ledger account, which has a credit balance, is
a. an asset valuation account c. an equity account
b. a liability account d. a revenue account


5. Does the branch use a Shipments from Home Office ledger account under
the:
Perpetual Inventory Periodic Inventory
Method Method
a. Yes Yes
b. Yes No
c. No Yes
d. No No


6. 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.


7. 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.


8. 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


9. 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


10. 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 10,000
Equipment 10,000
c. Investment in branch 10,000
Cash 10,000
d. Equipment-Branch 10,000
Inv in Branch 10,000


11. On January 31, 2009, East Branch of Far Company, which uses the
perpetual inventory system, prepare the following journal entry.
Inventories in transit 10,000
Home Office 10,000
To record merchandise shipment in transit from home office.


When the merchandise is received on February 4, 2009, East Branch should:
a. Prepare no journal entry
b. Debit Inventories and credit Home Office, P10,000
c. Debit Home Office and credit Inventories in transit, P10,000
d. Debit inventories and credit Inventories in transit, P10,000.

12. If a Home Office bills merchandise shipments to the branch at a markup
of 20% on cost, the markup on billed price is:
a. 16.67% c. 25%
b. 20% d. Some other percentage



STRAIGHT PROBLEMS

Problem 1 (Branch was billed at cost)

Alet Company, which prepares financial reports at the end of the calendar
year, established a branch on July 1, 2009. The following transactions
occurred during the formation of the branch and its first six months of
operations, ending December 31, 2009.
1. The Home Office sent P35,000 cash to the branch to begin operations.
2. The Home Office shipped inventory to the branch. Intracompany
billings totaled P75,000, which was the Home Office's cost. (Both the
Home Office and the Branch use a periodic inventory system.)
3. The branch acquired merchandise display equipment which cost P15,000
on July 1, 2009. (Assume that branch fixed assets are carried on the home
office books).
4. The branch purchased inventory costing P53,750 from outside vendors
on account.
5. The branch had credit sales of P106,250 and cash sales of P43,750.
6. The branch collected P55,000 of its accounts receivable.
7. The branch paid outside vendors P35,000.
8. The branch incurred selling expenses of P18,750 and general and
administrative expenses of P15,000. These expenses were paid in cash when
they were incurred and include the expense of leasing the branch's
facilities.
9. The home office charged the branch P2,500 for its share of insurance.
10. Depreciation expense on the display equipment acquired by the branch
is P1,250 for the six-month period. (Depreciation expense is classified
as a selling expense.)
11. The branch remitted P12,500 cash to the home office.
12. The branch's physical inventory on December 31, 2009 is P41,250, of
which P31,250 was acquired from the home office (there was no beginning
inventory).


Requirements:
1. Prepare journal entries in the books of the home office and in the
books of the branch office for the above transactions.
2. Prepare closing entries in the books of the branch office to close
its income statement accounts.
3. Prepare adjusting entry in the books of the home office to reflect
the increase or decrease in the branch's net assets resulting from the
branch operations.

Problem 2 (Branch was billed at more than cost)
The following transactions pertain to a branch's first month's operations:
1. The home office sent P11,250 cash to the branch.
2. The home office shipped inventory costing P50,000 to the branch; the
intracompany billing was for P62,500.
3. Branch inventory purchases from outside vendors totalled P37,500.
4. Branch sales on account were P100,000.
5. The home office allocated P2,500 in advertising expense to the
branch.
6. Branch collections on accounts receivable were P56,250.
7. Branch operating expenses of P17,500 were incurred, none of which
were paid at month-end.
8. The branch remitted P21,250 to the home office.
9. The branch's ending inventory (as reported in its balance sheet) is
composed of:
Acquired from outside vendors............….. .P15,000
Acquired from home office (at billing price). 25,000
Total .........................................………...... 40,000

Requirements:
1. Prepare the home office and branch journal entries for these
transactions, assuming a periodic inventory system is used
2. Prepare the month-end closing entries for the branch.
3. Prepare the month-end adjusting entries for the home office relating
to the branch's operations for the month.
Problem 3
The pre-closing trial balances of Nicole Company and its Angeles City
branch for the year ended December 31, 2009, prior to adjusting and closing
entries are as follows:

"Home Office "Branch Office "
"Account"Debit "Credit "Debit "Credit "
"s " " " " "
"Cash "P 35,000" P "P10,000 " "
"Account" " " " "
"s " " " " "
"receiva"80,000 " "50,000 " "
"ble, " " " " "
"net " " " " "
"Invento" " " " "
"ry, " " " " "
"January" " " " "
"1, " " " " "
"2008: " " " " "
" " " " " "
"Acquire" " " " "
"d "230,000 " "50,000 " "
"from " " " " "
"vendors" " " " "
" " " " " "
"Acquire" " "20,000 " "
"d " " " " "
"from " " " " "
"home " " " " "
"office " " " " "
"Deferre" " " " "
"d " "25,000 " " "
"profit " " " " "
"Fixed " " " " "
"assets,"870,000 " "90,000 " "
"net " " " " "
"Investm" " " " "
"ent in "155,000 " " " "
"branch " " " " "
"Account" " " " "
"s " "221,000 " "45,000 "
"payable" " " " "
"Long-te" " " " "
"rm debt" "400,000 " " "
"Common " " " " "
"stock " "300,000 " " "
"Retaine" "350,000 " " "
"d " " " " "
"Earning" " " " "
"s, " " " " "
"January" " " " "
"1, 2008" " " " "
"Home " " " " "
"office " " " " "
"equity " " " "115,000"
"Sales " "960,000 " "320,000"
"Purchas"800,000 " "120,000 " "
"es " " " " "
"Shipmen" " " " "
"ts from" " " " "
"home " " "90,000 " "
"office " " " " "
"Shipmen" " " " "
"ts to " "84,000 " " "
"branch " " " " "
"Selling" " " " "
"expense"101,000 " "34,000 " "
"s " " " " "
"Adminis" " " " "
"trative" " " " "
"expense"69,000 "_______ "16,000 "_______"
"s " " " " "
" "P2,340,0"P2,340,00"P "P480,00"
"Totals "00 "0 "480,000 "0 "

Inventory per physical count on December 31, 2009:
Acquired from vendors P180,000 P 20,000
Acquired from home office 30,000

Additional information:
1. Inventory transferred to the branch from the home office is billed at
125% of cost.
2. The home office billed the branch P15,000 for inventory it shipped to
the branch on December 28, 2009; the branch received and recorded this
shipment on January 2, 2010.
3. The branch remitted P25,000 cash to the home office on December 31,
2009; the home office received and recorded this remittance on January 4,
2010.

Requirements:
1. Prepare the year-end adjusting entries to bring the intracompany
accounts into agreement. Be sure to adjust the other accounts in the
trial balance as appropriate.
2. Complete the following analysis of the branch's inventory




" "Transfers"Transfers " "
" "Above "__at "Mark-up "
" "cost "cost__ " "
"Beginning " " " "
"inventory:" " " "
" " " " "
"Acquired " " " "
"from "P "P "P "
"vendors " " " "
" " " " "
"Acquired " " " "
"from home " " " "
"office " " " "
"Add: " " " "
"Purchases " " " "
"(from " " " "
"vendors) " " " "
" " " " "
"Shipments " " " "
"from " " " "
"office " " " "
" " " " "
"Total " " " "
"goods " " " "
"available " " " "
"for sale " " " "
"Less: " " " "
"Ending " " " "
"inventory " " " "
" Acquired" " " "
" " " " "
"from " " " "
"vendors " " " "
" Acquired" " " "
" " " " "
"from home " " " "
"office " " " "
"Cost of " " " "
"goods sold" " " "

3. Prepare the following year-end adjusting entries to:
a. Record the branch income on the home office books
b. Adjust the deferred profit account to the proper balance
4. Prepare the year-end closing entries for the home office and the branch
5. Prepare a combining statement worksheet as of December 31, 2009, after
completing requirements 1 to 4
6. From the completed worksheet prepare:
a. An income statement and balance sheet for the branch.
b. An income statement and balance sheet for the home office.
c. An income statement and balance sheet combined for home office and
branch office.

Problem 4
On December 31, the Inv. in Branch account on the home books shows a
balance of P150,000. The following facts are ascertained:
1. Merchandise billed at P5,000 is in transit on December 31, from the home
office to the branch.
2. The branch collected a home account receivable for P2,000. The branch
did not notify the home office of cash collection.
3. On December 30, the home office mailed a check of P10,000 to the branch
but the bookkeeper charged the check to General Expenses; the branch has
not received the check as of December 31.
4. Branch profit for December was recorded by the home office at P8,900
instead of P9,800.
5. Branch returned supplies of P1,000 to the home office but the home
office has not yet recorded the receipt of the supplies.

Required:
a) Compute the balance of the Home Office account on the branch book as of
December 31 before its adjustment.
b) Prepare a reconciliation statement to compute the adjusted balances on
December 31.

Problem 5
The interoffice accounts between the main office of ABC COMPANY and its
branch in Ayala were adjusted to P145,500 as of December 31, 2008. The
transactions between the home office and the branch for 2009 were:
a. Remittance by the branch (P38,000 was still in transit as of December
31, 2009) P 178,000.
b. Shipments to branch (includes goods worth P44,000 that are not yet
received by the branch as of December 31, 2009) are P470,000.
c. The home office has not yet informed the branch of its share in the
advertising expense amounting to P 15,000.
d. Accounts receivable of the branch amounting to P30,000 was collected
by home office, net ,of 4% discount. The branch has not yet been
notified.
e. The home office incorrectly credited the branch by P 10,000 for the
remittance of its Cubao Branch. The Ayala Branch made no entry.
f. The home office corrected the above entry on January 5, 2010.
However, the Ayala Branch inadvertently received a copy of this memo and
entered a credit in favor of the home office as of December 31, 2009
g. The branch returned merchandise worth P 12,500 to the office and was
duly acknowledge by the latter during the year.
1. The unadjusted balance of the Home Office Current account as of
December 31, 2009.
2. The adjusted balance of the interoffice accounts as of December 31,
2009.

Problem 6
The Armani Corp. established a branch store in Ortigas on June 30, 2009.
The branch is to receive substantially all merchandise for sale from the
home office. During the remainder of 2009, shipments to the branch amounted
to P240,000 that included a 20% mark-up on cost. The branch purchased P
180,000 additional merchandise for cash and reported unsold merchandise for
P 145,000 at year-end. The branch made sales of P420,000, paid expenses of
P105,000 and remitted to the home office all sales proceeds.

The allowance for overvaluation of branch inventory account on the home
office books showed a balance of P22,500 after adjustment.
1. The branch ending inventory that represented purchase from outsiders
2. The branch net income as far as the home office is concerned.

Problem 7
Home office bills its branch for merchandise shipment at 25% above cost.
The following are some of the account balances appearing on the books of
home office and its branch as of December 31
" "Home "Branch'"
" "Office "s Books"
" "Books " "
"Inventory, Jan I "P 22,500 "P36,000"
"Shipments from Home " "210,000"
"Office " " "
"Purchases "675,000 "225,000"
"Shipments to branch "180,000 " "
"Allowance for " " "
"overvaluation of "49,500 " "
"branch inventory " " "
"Sales "900,000 "540,000"
"Operating Expenses "217,500 "82,500 "

The ending inventory of the branch of P54,000 includes goods from outside
purchases of P12,000; the ending inventory of the home office is P 112,500
1. The amount of shipments in transit at cost
2. The overstatement of branch cost of sales
3. The combined net income for the year

Problem 8
Branch A was authorized by its home office to send cash of P1,500 that it
can spare to Branch B. How is this transfer best recorded on the books of
(a) Branch A
(b) Branch B and
(c) the Home Office

Problem 9
The DIANNA Company has established several branches that sell the product
that it manufactures. Manufactured units are billed to the branches at the
manufacturing costs, the branches paying the freight charges from the home
office. On November 1, the home office ships goods to Branch No.1 charging
the branch P10,000. The branch pays freight charges of P500. It is
subsequently discovered that the home office had shipped the goods to
Branch No. 1 by mistake and the home office directs Branch No.1 to forward
to goods to Branch No.2. Branch No.2 upon receiving the goods pays freight
charges from Branch No. 1 of 150. If the shipment had been made directly
from the home office the freight would have been P350.

Give journal entries to record all of the foregoing transactions on the
books of (1) home office; (2) Branch No.1 and (3) Branch No. 2.

Problem 10
On December 31, 2009, the branch manager of Nancy Company in Iloilo City
submitted the following data to the home office in Manila:
Petty cash fund 6,000
Sales 390,000
Shipment from home office 270,000
Accounts receivable, January 1, 2009 86,000
Inventory, January 1, 2009 74,000
Inventory, December 31, 2009 82,000
Expenses 96,000

All cash collected on Accounts Receivable amounting to P378,000 were
remitted to the Home Office.

Required:
1. What is the balances of the Home Office Account on January 1, 2009.
2. What is the balance of the Home Office Account on January 1, 2010.





MULTIPLE CHOICE

Romy Corporation has one branch office, named Tibo Branch. Romy is
performing the end-of-the-period reconciliation of its Tibo Branch account
whose current balance is P000,000 and Tibo's Home Office account whose
current balance is P000,000. The following items are unsettled at the end
of the accounting period (you may assume that the item has been reflected
in the accounts of the underlined entity):
Romy has agreed to remove P750 of excess freight charges charged to Tibo
when Romy shipped twice as much inventory as Tibo requested.
Tibo mailed a check for P11,000 to Romy as a payment for merchandise
shipped from Romy to Tibo. Romy has not yet received the check.
Tibo returned defective merchandise to Romy. The merchandise was billed to
Tibo at P4,000 when its actual cost was P3,000.
Advertising expense attributable to the branch office were paid for by
the home office in the amount of P5,000.

1. If the adjusted balances for the Tibo Branch Account and the Romy
Home Office Account is P500,000, what unadjusted balance was listed in
(1) Romy's Tibo Branch Account and (2) Tibo's Home Office Account?
a. (1) P510,250 and (2) P505,000.
b. (1) P515,000 and (2) P495,750.
c. (1) P514,000 and (2) P516,000.
d. (1) P504,000 and (2) P500,750.
The Meycauayan branch of Marco Company, at the end of its first quarter of
operations, submitted the following income statement:
"Sales " "P300,00"
" " "0 "
"Cost of sales: " " "
"Shipments from home "P280,000 " "
"office " " "
"Local purchases "30,000 " "
"Total "P310,000 " "
"Inventory at end "50,000 "260,000"
"Gross margin on sales" "P "
" " "40,000 "
"Expenses " "35,000 "
"Net income " "P "
" " "5,000 "


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, 20% over cost. Branch expenses
incurred by home office amounted to P2,500.
2. On September 30, the branch inventory at cost and net income realized
by the home office from the branch operations, respectively are:
a. P37,600 and P72,600
b. P31,600 and P 5,000
c. P50,000 and P55,000
a. d. P37,600 and P70,100
b.
A home office transfers inventory to its branch at a 20% markup on cost.
During 2008, inventory costing the home office P80,000 was transferred to
the branch. At year-end, the home office adjusted its Unrealized
Intercompany Inventory Profit account downward by P18,200. The branch's
year-end balance sheet shows P4,800 of inventory acquired from the home
office.
3. How much is the beginning inventory of the branch at cost?
a. P 15,000 c. P 3,000
b. P 18,000 d. P 16,000


Sulu, Inc. established a branch in Jolo to distribute part of the goods
purchased by the home office. The home office prices inventory shipped to
the branch at 20% above cost. The following account balances were taken
from the ledger maintained by the home office and the branch:
" "Sulu, Inc."Jolo, "
" " "Branch "
"Sales "P 600,000"P 210,000"
"Beginning inventory "120,000 "60,000 "
"Purchases "500,000 "- "
"Shipment to branch "130,000 "- "
"Shipment from home " "156,000 "
"office " " "
"Operating expenses "72,000 "36,000 "
"Ending inventory "98,000 "48,000 "



All of the branch inventory is acquired from the home office.
4. On the basis of these account balances, the combined net income of
the home office and the branch is:
a. P170,000 c. P278,000
b. P 70,000 d. P132,000

Bicol Company is engaged in merchandising both at Home Office in Makati and
a branch in Cebu. Selected accounts in the trial balances of the Home
Office, and the branch at December 31, 2008 follow:
"Debit "Home "Branch "
" "Office " "
"Inventory, January "P "P 11,550 "
" "23,000 " "
"Branch "58,300 " "
"Purchases "190,000 " "
"Shipments from Home " "105,000 "
"Office " " "
"Freight in from Home " "5,500 "
"Office " " "
"Sundry expenses "50,000 "25,000 "
"Credit " " "
"Home Office " "53,300 "
"Sales "155,000 "140,000 "
"Shipments to Branch "110,000 " "
"Allow. for " " "
"overvaluation of "1,000 " "
"branch inventory – " " "
"Jan. 1 " " "



Additional information:
a. Cebu branch receives all its merchandise from the home office. The Home
Office bills the goods at cost plus 10% mark-up. At December 31, 2008 a
shipment with a billing price of P5,000 was in transit to the branch.
Freight on this shipment was P250 which is to be treated as part of
inventory.
b. December 31, 2008 inventories, excluding the shipment in transit was:
"Home Office, at cost "30,000 "
"Cebu Branch, at billed " "
"value (excluding freight "10,400 "
"of P520) " "

5. Net income of the Home Office was
a. P 10,000 c. P 20,000
b. P 15000 d. P 22,000

6. True income of Cebu Branch was
a. P 10,470 c. P 12,470
b. P 11,470 d. P 13,470

The following data were taken from the records of Star Corporation of
Manila and its Bulacan Branch for 2008:
" "Manila "Bulacan "
" "office "branch "
"Sales "P 530,000"P157,500 "
"Inventory, Jan."57,500 "22,250 "
"1 " " "
"Purchases "410,000 " "
"Shipment to "105,000 " "
"branch " " "
"Shipment from " " "
"home office " "126,000 "
"Inventory, Dec."71,250 "29,250 "
"31 " " "
"Expenses "191,000 "50,750 "


In 2008, Home office billed the branch at 120% of cost which was lower by
5% than last year's.
7. The combined net income of the home office and the branch for 2006
was:
a. P48,325 c. P49,850
b. P48,575 d. P56,075

Nicole Company has a branch in Boracay established on April 1, 2008.
During the year 2008, the home office shipped merchandise to the branch at
billed value of P125,000 which was 25% above cost. At the end of the year,
the branch reported sales of P200,000, operating expenses of P95,000, and a
net income from the operation of P15,000.
8. The true income of the branch was
a. P 15,000 c. P 18,000
b. P 25,000 d. P 33,000

Xero Corporation operates a number of branches in Metro Manila. On June 30,
2008, its Sta. Clara branch showed a Home Office account balance of P27,350
and the Home Office books showed a Sta. Clara branch account balance of
P25,550. The following information may help in reconciling both accounts:
1. A P12,000 shipment charged by Home Office to Sta. Clara branch was
actually sent to and retained by Sta. Isabel branch.
2. A P15,000 shipment, intended and charged to Sto. Domingo branch was
shipped to Sta. Clara branch and retained by the latter.
3. A P2,000 emergency cash transfer from Sta. Isabel branch was not taken
up in the Home Office books.
4. Home Office collects a Sta. Clara branch accounts receivable of P3,600
and fails to notify the branch.
5. Home office was charged for P1,200 for merchandise returned by Sta.
Clara branch on June 28. The merchandise is in transit.
6. Home office erroneously recorded Sta. Clara branch's net income for May,
2008 at P16,275. The branch reported a net income of P12,675.

9. What is the reconciled amount of the Home Office and Sta. Clara branch
reciprocal accounts?
a. P21,750 c. P27,350
b. P23,750 d.P20,150


The LL Company established a branch in Makati City on June 1, 2008. The
branch is to receive substantially all merchandise from the home office.
During the remainder of 2008, shipments to the branch amounted to P180,000
which included a 20% mark-up on cost. The branch purchased P45,000
additional merchandise for cash and reported unsold merchandise of P60,000
at year-end. The branch made sales of P292,500, paid expenses of P72,000
and remitted to the home office all sales proceeds. The allowance for
overvaluation of branch inventory account on the home office books showed a
balance of P7,500 after adjustment.
10. Compute the: (1) branch inventory on December 31, 2008 at cost, and (2)
the branch net income as far as the home office is concerned:
a. (1) P45,000; (2) P78,000
b. (1) P52,500; (2) P78,000
c. (1) P52,000; (2) P55,500
d. (1) P50,000; (2) P79,500


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The following information are extracted from the books and records of PP
Company and its branch. The balances are at December 31, 2009, the third
year of the corporation's existence.
" "Home " "
" "Office "Branch "
" "Books "Books "
"Sales " "P600,000 "
"Expenses " "200,000 "
"Shipments from home " "360,000 "
"office " " "
"Allowance for "P72,500 " "
"overvaluation " " "



The branch acquired all of its merchandise from the home office. The
inventories of the branch at billed prices are as follows:
"January 1, 2009 "P75,000"
"December 31, 2009 "84,000 "

1. The adjusted profit of the branch in so far as the home office is
concerned is:
a. P107,500 c. P 58,500
b. P 49,000 d. P 60,000

Nicole Company's Kalibo branch reports a profit of P17,000 for the year
2009 and a balance in its Home Office account at the end of the year of
P88,000 after closing. The branch income currently is unrecorded by the
home office. During the year, the home office had shipped inventory to the
branch at an intracompany profit of P14,000. Of that amount, P6,000
currently is unrealized.
2. Assuming the branch has made all entries to adjust and close its books
for 2009, what is balance in the home office's Investment in Branch
account?
a. P 65,000 c. P 88,000
b. P 71,000 d. P 94,000

On December 1, 2009, the Dustine Company established an agency in Las
Pinas, sending its merchandise samples costing P15,750 and a working fund
of P9,000 to be maintained on the imprest basis. During the month of
December, the agency transmitted to the home office sales orders which were
billed at P64,380 of which 20,400 was collected. A home office disbursement
chargeable to the sales agency is the acquisition of furniture and fixtures
for Las Pinas, P25,000 to be depreciated at 24% per annum. The agency paid
expenses of P3,815 and received replenishment thereof from the home office.
On December 31, 2008, the agency samples were valued at P10,075. It was
estimated that the gross profit on goods shipped to bill agency sales
orders average 25% of cost.

3. How much is the net income of the agency for the month ended December
31, 2008?
a. P 2,886 c. P 12,876
b. P 3,386 d. P (2,614)

Trial balances for the home office and for the branch of Mermaid Company
show the following accounts before adjustment as of December 31, 2008. The
home office bills merchandise to the branch at 20% above cost.
" "HO "Branch"
"Unrealized intercompany " " "
"inventory profit "P10,800" "
"Shipments to branch "24,000 " "
"Purchases (other vendors)" "P7,500"
"Shipments from Home " "28,800"
"Office " " "
"Merchandise inventory - " " "
"December 1, 2008 " "45,000"

4. What part of the December 1, 2008 branch inventory represents
acquisitions from outside purchases, and what part represents
acquisitions from the home office?
Outsider Home Office
a. P9,000 P36,000
b. 10,000 35,000
c. 12,000 33,000
d. 15,000 30,000

Universal Textiles has a single branch in Cagayan de Oro City. On March 1,
2009, the home office accounting records included an Allowance for
Overvaluation of Inventories with a credit balance of P32,000. During
March, merchandise costing P36,000 was shipped to the CDO branch and billed
at a price representing a 40% markup on the billed price. On March 31, the
branch reported a net loss of P11,500 for March and ending inventories at
billed prices of P25,000. Mark-up was uniform on all shipments.
5. Calculate the overstatement of the cost of sales in the branch income
statement in terms of the actual cost of sales, i.e. per home office
cost.
a. P46,000 c. P39,257
b. P22,000 d. P40,000


On December 31, 2009, the Branch account in the Manila Home Office books
shows a balance of P55,500. You ascertain the following facts in analyzing
this account.
1. On December 31, 2009, merchandise billed at P5,800 was in transit from
the home office to the branch.
2. The branch had collected home office accounts receivable of P560; the
home office was not notified.
3. On December 29, 2009, the home office mailed a check for P2,000 to the
branch, but the accountant for the home office had recorded the check as
a debit to Charitable Contributions; the branch had not received the
check as of December 31, 2009.
4. Branch net income for December 2009 was recorded erroneously by the home
office at P840 instead of P480.
5. On December 28, 2009, the branch had returned supplies costing P220 to
the home office; the home office had not recorded the receipt of the
supplies as at Dec. 31.
6. Calculate the adjusted balance of the reciprocal accounts at December
31, 2009.
a. P49,680 c. P46,980
b. P57,480 d. P54,870


Excel Corporation operates a branch in Calamba City. The Home Office ships
merchandise to the branch at 20% of the billed price. Selected information
from the December 31, 2009 trial balance are as follows:
" "Home "Branch "
" "Office "Books "
" "Books " "
"Sales "P600,000 "P300,000"
"Shipments to branch "200,000 " "
"Purchases "350,000 " "
"Shipments from home " " "
"office " "250,000 "
"Inventory, January 1"100,000 "40,000 "
"Unrealized " " "
"inter-company "58,000 " "
"inventory profit " " "
"Expenses "120,000 "50,000 "
"Inventory at " " "
"December 31, 2009 "30,000 "60,000 "


7. Calculate the combined net income for the home office and the branch
for 2009:
a. P236,000 c. P280,000
b. P263,000 d. P326,000

8. The AB Trading Co. operates a branch in Iloilo. At close of business
on December 31, 2008, Home Office account in the branch books showed a
credit balance of P372,900. The interoffice accounts were in agreement at
the beginning of the year. For purpose of reconciling the interoffice
accounts, the following facts were ascertained;
a. A furniture costing the home office P4,600 was picked up by the branch
as P460. The branch will maintain and use the asset.
b. The branch writes-off uncollectible, accounts of P1,260. The allowance
for doubtful accounts is maintained on the books of the home office.
The home office was not yet notified.
c. Freight charge on merchandise made by the home office for P2,715 was
recorded in the branch books as P7,215.
d. Home office credit memo for P9,710 was recorded by the branch at P7,91
0.
e. Iloilo branch failed to take up a P2,450 debit memo from the home
office.
f The home office inadvertently recorded a remittance for P3,730 from
its Ilocos branch as remittance from its Iloilo branch.
g. Insurance premium of P1,675 charged by the home office was taken up
twice by the branch.
h. A P14,500 branch remittance to the home office initiated on December
28, 2008, was recorded on the home office books on January 2, 2009.
i. A home office inventory shipment to Ilocos branch on December 29,
2008, was recorded by the branch on January 3, 2009; the billing of
P47,000 was at cost,
j. A branch customer remitted a P19,000 to the home office, The home
office recorded this cash collection on December 22, 2008. Meanwhile,
back at the branch, no entry has been made yet.


Determine the balance of the Investment in Branch account before
adjustments:
a. P364,545 c. P319,545
b. P307,515 d. P366,545









( - end of P2.701 - (

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