HOME OFFICE AND BRANCH ACCOUNTING

PROBLEM 1.
Home office operates a number of branches. On December 31, 2018, its Branch B showed a “Home
Office” account balance of P54,700. The interoffice accounts at the beginning of the year were correct.
However, during the year, there were errors in recording in both the home office and branch. The
following errors occurred during the year:

 A P24,000 shipment charged by the home office to Branch B was actually sent to and retained
by Branch C.
 A P30,000 shipment intended and charged to Branch A was shipped to Branch B and retained
by the latter.
 A P4,000 emergency cash transfer from Branch C was not taken up in the home office books.
 Home office collects Branch B’s customer accounts of P72,000 and fails to notify the branch.
 Home office charged for P2,400 for merchandise returned by Branch B on December 30 and is
in transit.
 Home office erroneously recorded Branch B’s net income for the year at P32,550. Branch B
reported net income of P25,350.

1. What is the adjusted balance of the reciprocal accounts on December 31, 2018?
2. What is the unadjusted balance of the Investment in Branch B on December 31, 2018?

PROBLEM 2.
At the end of the year, the Investment in Bacolod account of the home office is P300,500. However,
there are transactions discovered to have errors.

 Bacolod branch bought equipment on June 1, 2018 costing P63,800 for the home office’s use
and the policy is to record the asset in Bacolod’s books. During that time, the home office
recorded the equipment and credited its reciprocal account of its Bacolod branch.
 Company policy states that the life of the equipment has a life of 8 years with no salvage value,
and straight-line depreciation method should be used. No entry has been made by the home
office and branch.
 The home office ships merchandise to Bacolod amounting to P96,700. Bacolod recorded the
transaction as P97,600.
 Bacolod pays the home office’s creditors in the amount of P32,400 and sends a debit memo to
the home office. Upon receipt of the debit memo, the home office debited its reciprocal account
in the amount of P23,400 twice.

1. What is the unadjusted balance of the Home Office current account in the books of Bacolod at the
end of the year?
2. What is the net adjustment of the Investment in Bacolod account at the end of the year?
3. What is the net adjustment of the Home Office current account in the books of Bacolod at the end
of the year?

PROBLEM 3.
The following transactions relating to Branch AA and Branch BB are the following:

 On September 30, 2018, Branch AA collected Branch BB’s accounts receivable of P80,000 less
3% discount.
 On October 31, 2018, home office shipped merchandise costing P400,000 to Branch AA. Freight
of P6,000 was paid by the home office. It is the policy of the company to bill its branches at
25% above cost.
 On November 30, 2018, upon the instruction of the home office, Branch AA reshipped a quarter
of the above merchandise to Branch BB with freight of P3,000 (freight-collect). Had the goods
been shipped directly to Branch BB, the freight would have been only P1,400.

1. What is the Home Office current account of Branch AA as of October 31, 2018? 583,600
2. What is the Investment in BB account as of November 30, 2018? 45,800

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PROBLEM 4.
Miles Company established a branch in Ayala by sending merchandise costing P924,500 and effecting
a fund transfer. The branch purchased computer equipment costing P420,000 on April 1. As per
agreement, the home office will maintain all the property, plant, and equipment records.

Ayala branch collected P56,000 worth of Ortigas branch’s receivable on August 4. Cash remittance to
the home office was P250,000 on September 28. On November 21, Ayala branch returned defective
merchandise worth P125,000 to the home office.

At the end of the year, the Company’s controller found out that the branch accountant had failed to
record all the transactions initiated by the home office from the second half of the year. Because of
this, there is a significant discrepancy between the balances of the reciprocal accounts.

For purposes of reconciling the reciprocal accounts, the controller instructed the accounting staff of the
home office to send a copy of the Investment in Ayala general ledger to the branch:

Investment in Ayala
1/1 Merchandise to Branch 924,500 4/2 Equipment acquisition 240,000
1/1 Fund transfer 400,000 9/30 Remittance 225,000
7/2 Merchandise to Branch 135,000 11/22 Return of goods from branch 12,500
8/31 Fund transfer 95,000
10/5 Expense paid for Branch 29,000

1. What is the unadjusted balance in the Home Office account?

904,500
2. What is the adjusted balance of the reciprocal accounts? 585,500

PROBLEM 5.
The following information is given regarding AAA Company:

 The reciprocal account in the separate income statement of the home office amount to
P225,000.
 During the current year, the home office bills merchandise to the branch at 215% on cost.
 The beginning inventory of the branch is P249,375.
 During the current year, the branch purchased from vendors merchandise amounting to
P150,000.
 The ending inventory of the branch as shown in the combined financial statements is P267,125.
 The allowance for overvaluation before adjustment is P320,000.
 The beginning inventory of the branch from the home office at cost is P153,125.
 The unrealized profit at the end of the year must be decreased by P55,000.

1. What is the cost of goods sold in the combined financial statements at the end of the year?
2. What is the total goods available for sale recorded in the branch’s books at the end of the year?

PROBLEM 6.
During 2016, goods billed at P3,250,000 were shipped to the branch at 130% of cost. The account
Loading in Branch Inventory has a balance of P1,225,000 before adjustment.

The beginning inventory of the branch from the home office at cost is P2,375,000, the beginning
inventory of the branch from outsiders is P540,000 and the amount of purchases from outsiders is
P1,450,000.

How much is the total goods available for sale of the branch from the home office?

PROBLEM 7.
The income statement submitted by the branch to the home office for the year ended December 31,
2017 has the following balances: beginning inventory was P80,000 (of which P10,000 came for known
suppliers); ending inventory was P100,000 (of which P16,000 came from known suppliers); shipments

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24,000
HOME OFFICE AND BRANCH ACCOUNTING

from home office was P350,000 and purchases from known suppliers was P30,000. Operating expenses
for the year was P180,000. The branch generated sales in the amount of P600,000.

At the end of the year, after adjustments have been made, the recorded true net income of the branch
was ascertained to be P156,000.

What is the balance of the Unrealized profit in branch inventory account at December 31, 2017?

PROBLEM 8.
On June 1, 2016, the Greenbelt Main Office established a sales agency in Ortigas. The main office sent
samples of its merchandise amounting to P8,400 and a working fund amounting to P72,000 to be
maintained on the imprest basis. The samples sent were intended to last until January 1, 2017. The
agency transmitted to the home office sale of goods costing P291,600 but the home office was not able
to fill up 35% of the said transmitted sales orders.

Collections from customers amounted to P82,175, net of 5% sales discount. Payments made by the
agency during June, July, and August were annual rent of P70,200, advertising expense of P4,650, and
utilities of P6,300. The agency also purchased an equipment on July 1, 2016 worth P11,000 which will
be depreciated at 15% per annum. The gross profit rate on sales agency order is 20% of gross sales.

What is the income of the agency for the three months ended August 31, 2016?

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