ACCT602_Prelim Quiz 2

Problem 1. Mariano operates a branch in Laoag City. At close of the business on Dec. 31, 2016, Laoag Branch account
in the home office books showed a debit balance of P234,900. The inter-office accounts were in agreement at the
beginning of the year. For purposes of reconciling the inter-office accounts, the following facts were ascertained:
a. Computer equipment costing the home office P27,000 was sent to Laoag Branch. The home office will maintain the
records of the asset used by the branch. Meanwhile, back at the branch, no entry was made.
b. The branch acquired a machinery costing P18,000. The home office will maintain the records of the asset used by the
branch. The home office was not yet notified.
c. The home office charged the branch for the freight amounting to P2,220. It should have been charged to its customers
d. The home office inadvertently recorded a Laoag branch remittance of P4,200, as collection from its customers on
account.
e. On December 24, 2016, the branch sent a check for P9,600 to its supplier on account. The branch erroneously
recored the transaction as a remittance to home office and sent a copy of the debit memo the the home office. The
home office recorded this upon receiving the debit memo on December 29, 2016.
f. On December 26, 2016 the branch returned P6,600 of excess merchandise to the home office. The merchandise was
received by the home office on December 30, 2016 and credited Lanao branch current.
g. The home office allocated advertising and rent expense totaling P5,400 to Laoag branch. The home office charge the
said expense to Laguna Branch by mistake, Laoag branch had not entered the allocation at year end.
h. A home office customer remitted P3,600 to the branch. The branch inadvertently recorded this transaction on
December 28, 2016 as a transfer of cash from the home office. The home office made no entry during the year.
i. Inventory costing P36,000 was sent to the branch by the home office on December 14, 2016. The branch recorded the
transaction as a purchase of merchandise on account from outsiders by mistake.

1.1 What is the unadjusted balance of the home office current account as of December 31, 2016?
1.2 What is the adjusted balance of the reciprocal accounts as of December 31, 2016?

Problem 2. On December 31, 2016, ABC Corporation combined net income together with its branch in Bacolod amounted
to P350,000. On June 30, 2016, the home office purchased and recorded fixed asset for the use of the branch amounting
to P200,000. Useful life is 5 years.

The following were ascertained in the Bacolod Branch books: During the year, shipments of merchandise amounted to
P135,000. Remittance of P70,000 was made during the year to the home office. Purchases of merchandise from outside
suppliers amounted to P125,000. Ending inventories amounted to P80,000. Sales for the year was reported at P400,000.
The branch paid selling and administrative expenses amounting to P75,000. What is the separate income of the home
office?

Problem 3. 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.
a. Bacolod branch bought equipment on June 1, 2016 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.
b. The policy of the company regarding the equipment’s depreciation is that it has a life of 8 years with no salvage value
and straight line method is to be used. No entry has been made by the home office and the branch.
c. The home office ships merchandise to Bacolod amounting to P96,700. Bacolod recorded the transaction as P97,600.
d. 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.

3.1 What is the unadjusted balance of the home office current account in the books of Bacolod at the end of the year?
3.2 What is the net adjustment of the investment in Bacolod Account at the end of the year? (specify if net debit or net
credit, negative is credit, positive is debit)
3.3 What is the net adjustment of the home office current Account at the end of the year? (specify if net debit or net credit,
negative is credit, positive is debit)
Problem 4. 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 P4,650 and utilities 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?

Problem 5. Comparative Trial Balances of the home office of HOH Corporation and its two branches at December 31,
2015 are as follows:
Home Office CHI Branch MIN Branch
Cash 5,000 15,000 22,000
Accounts Receivable 80,000 30,000 40,000
Inventories 150,000 60,000 48,000
CHI Branch 170,000
MIN Branch 165,000
Plant Assets 730,000 250,000 200,000
Purchases 900,000
Shipments from Home Office 300,000 240,000
Expenses 300,000 75,000 50,000
Totals 2,500,000 730,000 600,000

Accounts Payable 100,000 45,000 30,000

Other Liabilities 80,000 15,000 50,000
Allowance for overvaluation 108,000
Share capital, P10 par 500,000
Retained Earnings 262,000
Home Office 170,000 165,000
Sales 1,000,000 500,000 400,000
Shipments to Branch 450,000
Totals 2,500,000 730,000 645,000

Additional information:
Home office and branch inventories at December 31, 2015 were:
Home Office P120,000
CHI Branch (at billed price) 72,000
MIN Branch (at billed price) 96,000

How much net income will HOH Corporation report for year-ended 2015?

Problem 6. Hugot Inc. established a branch in Tagbilaran City to distribute part of the goods purchased by the home
office. The home office prices inventories shipped to the branch at 25% above cost. The following account balances were
taken from the ledger maintained by the home office and the branch:
HUGOT INC. TAGBILARAN BRANCH
Sales 336,000 144,000 (20 % still uncollected)
Beginning Inventory 69,000 38,400 (1/3 from Home Office)
Purchases 222,000 40,000 (30% unpaid)
Shipments to branch 66,000
Shipments from Home Office 82,500
Operating Expenses 68,000 11,200 (4/5 unpaid)
Ending Inventory 48,000 21,600 (10% from outsiders)
Calculate the combined net income for the home office and the branch.
Problem 7.
The income statement submitted by the branch to its home office for a given period follows:
Sales 600,000
Cost of Sales
Inventory, Beginning 80,000
Shipments from home office 350,000
Purchases 30,000
Total available for sale 460,000
Inventory, ending (100,000) 360,000
Gross Profit 240,000
Operating Expenses 180,000
Net Income for the period 60,000
The branch inventories consisted of: Beginning Ending
Merchandise from Home Office 70,000 84,000
Merchandise from local vendors 10,000 16,000

After the required adjustment, the home office ascertained that the true net income of the branch was P156,000. At what
percentage of cost did the home office bill the branch for merchandise shipments over the past two periods?

Problem 8. The following information concerning Tesoro’s branch in Tio City were gathered after the branch’s first year of
operation. Tio City Branch acquires all of its inventories from the home office and twenty five percent of the shipments
from the home office remained unsold.

Per Tio City Per Tesoro Head

Branch's Books Office Books
Branch Sales 950,000 -
Branch Cost of sales 425,700 -
Branch Expenses 424,300 -
Branch Net Income 100,000 332,200

How much was the cost of the merchandise shipped to Tio City Branch?

Problem 9. The following data were provided by the accountants of the home office and the branch of the year ended
December 31, 2015:

Home Office Branch

Books Books
Net sales to outside customers 1,000,000 800,000
Beginning inventory 300,000 140,000
Net purchase from outside suppliers 800,000 250,000
Shipment to branch 400,000
Shipment from home office 500,000
Ending Inventory 100,000 200,000
Operating expenses 200,000 100,000

Additional Notes:
• The current corporate income tax rate is 30%.
• It is the policy of the company to use specific identification for its inventory.
• For the year ended December 31, 2014, the home office bills its branch with a gross profit rate of 40% based on
cost.
• Half of the beginning inventory of the branch was acquired from outside suppliers.
• The ending inventory of the branch is broken down as follows:
o 60% from outside supplier
o 26% from 2015 shipment from home office
o 14% from 2014 shipment from home office

What is the combined net income to be presented by the home office in its statement of comprehensive income for the
year ended December 31, 2015?
Problem 10. The trial balances of the home office and for the branch of Galme Inc. show the following accounts before
adjustment as of December 31, 2015:

HO Books Branch Books

Unrealized intercompany inventory profit 12,000
Shipment to branch 25,000
Purchases from outside supplier 100,000 80,000
Shipments from Home Office ?
Merchandise Inventory on January 1, 2015 15,000

Additional Notes:
• For the year ended December 31, 2014, Galme Inc. Home Office bills its branch at 20% gross profit based on
sale.
• For the year ended December 31, 2015, Galme Inc. Home Office bills its branch at 40% gross profit based on
cost.

What part of the December 31, 2014 branch inventory represents acquisition from outside supplier?

Problem 11. The home office transfers inventory to its branch at 20% of billed price. During the year, inventory costing
the home office P320,000 was transferred to the branch. At year end, the home office adjusted its deferred profit account
by P82,800. The branch year-end statement of financial position shows P19,200 of inventory acquired from Home office.
What is the branch’s beginning inventory at its actual cost?

Problem 12. The following are the unadjusted trial balances of Diamante Corporation and its branch on December 31,
2015 follow:
Home Office Branch
Shipment to branch 120,000
Branch inventory allowance 39,960
Shipment from home office 156,000
Purchases 56,580
Inventory, January 1, 2015 21,840
Inventory, December 31, 2015 19,500
Sales 216,000
Expenses 20,400

The branch ending inventory acquired from the home office is P15,600 at billed price. The branch billed for the
merchandise shipments at 30% above cost. Calculate the overstatement or (understatement) of the branch’s cost of
sales.

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