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Home Office Branch and Agency Accounting Answers
Home Office Branch and Agency Accounting Answers
Home Office Branch and Agency Accounting Answers
(c)
(1) Net profit of the branch:
Sales PI 12,500
Less: Cost of goods sold
Shipments from home office PI20,000
Less: Inventory, December 31 30,000 90,000
Gross profit P 22,500
Less: Expenses 8,100
Net Income P 14,400 (c)
3. (b)
Shipments from home office (P120,000 + P50,000 + P35,000) . P205,O00
Less: Returns 3,050
Shipments from home office (net of returns) P201,950
Less: Inventory, 3/31 85,000
Cost of goods sold at billed price PI 16,950
Less: Allowance or mark-up included in the cost of goods sold
or realized profit from branch sales (PI 16,950 x 25/125). 23,390
Cost of goods sold made by branch P 93,560 (b)
4. (d)
Home Office Current Account before branch
net income P48,125
Add: Net Income of the branch as reported:
Sales P203,500
Less: Cost of goods sold
Shipments from home office P186,120
Less: Inventory, 12/31 25,245 160,875
Gross profit P42,625
Less: Operating expenses 18,755 23,870
Home Office Current Account/Branch Current, 12/31 P71,995 (d)
5. (a)
In the preparation of combined income statement of home office and
branch, all intercompany transactions should be eliminated as if it had never
occurred. Therefore, the only transaction that should remain are transactions to
unrelated customers, i.e. P250.000 sales by branch to outsider.
6. (b)
Inventor/January 1 P 33,600
Add: Shipments from office, net of returns
(P840,000-P48,000) 792,000
Cost of goods available for sale P825,600
Multiplied by: Mark-up 20/120
Allowance for overvaluation before adjustments PI37,600 (b)
7. (b)
Inventory, December 31, 2017 in the Combined Balance Sheet (at cost):
Branch: PI08,000x100/120 P 90,000
Home Office: (PI60,500-PI0,500) ' 150,000
Inventory, 12/31 /2017 at cost P240,000 (b)
8. (b)
Cost of goods sold at cost:
Beginning inventory P2,880,000
Add: Shipment from home office 2,040,000
Purchases _ 820,000
Cost of goods available for sale P5,740,000
Less: Ending inventory 2,920,000
Cost of goods sold with intercompany profit P2,820,000
Less: Realized profit from sales made by branch/
overvaluation of cost of goods sold:
Allowance for overvaluation before adj...... P740,000
Less: Allowance for ending inventory
P2,340,000x20/120 390,000 350,000 (b)
Cost of goods sold at cost P2,470,0O0 lb)
9. (d)
Net income (loss) per branch books P(2,270)
Add: Realized profit from sales made by branch/
Overvaluation of cost of goods sold:
Beginning inventory P
Add: Shipments 125,000
Less: Returns 1.5,620
Cost of goods available for sale at billed price P109,380
Less: Ending inventory, at billed price 84,000
Cost of goods sold at billed price P 25,380
Multiplied by: Mark-up 20/120 4,230
Adjusted branch net income P 1,960 (d)
10. (d)
Sales (P250,000 + P80,000) P330,000
Less: Cost of goods sold, at cost:
Shipments from home office PI30,000
Less: Ending inventory 15,000
Cost of goods sold at billed price PI 15,000
Multiplied by: Cost ratio 100/115 100,000
Gross profit P230.000
Less: Operating expenses 38,000
Net income of the branch in so far as the
home office in concerned PI92,000 (d)
11. (d)
Sales P369.600
Less: Cost of goods sold:
Shipments from home office, at cost
(P462,000x 100/140) P330,000
Less: Ending inventory, at cost
(PI 38,600x100/140) 99,000 231,000
Gross profit P138,600
Less: Expenses 29,700
Real Net Income of the Branch PI08,900 (d)
12. (a)
Cost of goods available for sale, at cost:
Shipments from home office P300,000
Additional shipments 120,000
Returns to home office ( 7,500)
Shipments from home office at billed price (net of returns) P412,500
Multiplied by: Cost Ratio 100/120
Shipments from home office at cost P343,750
Purchases from outsiders at cost 72,500
Cost of goods available for sale, at cost P416,250 (a)
13. (c)
Merchandise inventory, August 31,2017 P 60,000
Add: Shipments (P400,000 x 25% - note: markup is based on
billed price) 100,000 "
Cost of goods available for sale P160,000
Less: Merchandise inventory, September 30,2017
(PI 60,000x25%) 40,000
Overvaluation of CGS / Realized the gross profit on branch sales PI 20,000 (c)
15. (d)
Sales (P80,000 + P250,000) P330,000
Less: Cost of goods sold:
Shipment from home office, at cost
(P138,000x 100/115) P120,000
Less: Ending inventory, at cost
(P23,000x 100/115) 20,000 100,000
Gross profit P230,000
Less: Operating expenses 38,000
True Branch Net Income PI92,000 (d)
16. (d)
Sales P117,430
Less: Sales discounts 1,480
Net sales PI 15,950
Less: Cost of goods sold: •
Shipments from home office, at cost
(PI04,000x100/125) P83,200
Less: Ending inventory, at cost
(PI 2,500x100/125) 10,000 73,200
Gross profit P 42,750
Less: Expenses 20,000
Branch Results of Operations in so far as HO is concerned.. P 22,750 (d)
.18. (b)
Ending Inventory:
Branch: (P120,000x 100/120) PI00.000
Homeoffice: (P210,000-PI0,000) 200,000
P300,000 (b)
19. (a)
Branch reported net loss P(52,500)
Add: Overvaluation of cost of goods sold/realized
profit from sales made by branch:
Shipments, at cost (P250,000 + PI 25,000
- P10,000) x 25/125 P73,000
Less: Inventory, 5/31/2004
(PI 50,000x25/125) 30,000 43,000
True Branch Net Loss P( 9,500) (a)
20. (b)
Net Sales P180,000
Less: Cost of goods sold:
Purchases P 40,000
Shipments from home office, at cost
(P98,000x 100/140) 70,000
Cost of goods available for sale P 110,000
Less: Inventory, December 31
[(P28,000 - P7,000) x 100/140 + P7,000]. 22,000 (b) 88,000
Gross profit P 92,000 (b)
21. (d)
Merchandise Inventory, January 1, at billed price P 26,400
Shipments from home office at billed price 20,000
Cost of goods available for sale, at billed price P 46,400
Less: Cost of goods sold, at billed price
(P15,000-P2,000)xl00/125 10,400
Merchandise inventory, February 16, at billed price P 36,000
Multiplied by: Cost ratio 100/120
Merchandise inventory destroyed by fire, at cost P 30,000 (d)
22. (c)
Allowance for overvaluation of branch inventory after
adjustment* P14,000
Divided by: Mark-up on cost 25%
Cost P56,000(c)
Add: Allowance for overvaluation of branch inventory*.......... 14,000
Billed Price P70.000
(c)
'The allowance reflects the unrealized profit included in the ending inventory
of the branch.
23. (C)
(1) Actual Branch Income:
Sales P 32,000
Less: Cost of goods sold
Inventory, January 1, at billed price ... P 3,960
Shipments from Main Store, at billed price 17,600
Cost of goods available for sale, at billed
price P 21,560
Less: Inventory, December 31, at billed
price 4,840
Cost of goods sold at billed price P 16,720
Multiplied by: Cost ratio 100/110 15,200
Gross profit P 16,800
Less: Expenses 10,480
True Branch Net Income P 6,320 (c)
24. (a)
Inventory, January 1, at billed price PI65,000
Shipments received from home office at billed price 110,000
Cost of goods available for sale at billed price P275,000
Less: Cost of goods sold, from home office at billed price:
Sales P169,O00
Less: Sales returns and allowances 3,750
Sales price of merchandise purchased
from outsiders (P7.500 x 120%)....... 9,000
Net sales of merchandise acquired from
home office P156.250
Multiplied by: Intercompany cost ratio 100/125 125,000
Inventory, August 1, 2017, at billed price PI50,000
Multiplied by: Cost ratio 100/125
Merchandise inventory at cost destroyed by fire.. P120,000 (a)
25. (b)
Note: This problem focuses more on Inventory Accounting rather than Branch
Accounting.
26. (b)
Inventory, January 1 at billed price P 50,000
Add: Shipments from home office, at billed price 130,000
Cost of goods available for sale at billed price P180,000
Divided by: Cost of goods availabe
for sale at sales price:
Net Sales P225,O00
Add:Inventory before the fire:
Undamaged merchandise... P30,000
Divided by: Recovery % 40%* 75,000 300,000
Percentage of Billing Price to Selling Price 60%
*Since 60% of the inventory was destroyed by fire, therefore, 40% was
recovered.
28. (a)
Branch Merchandise Inventory, January 1,2017 P 8,000
Add: Purchases 30,000
Shipments from home office ' 93,750
Cost of goods available for sale P131,750
Less: Branch merchandise Inventory, December 31,2017........ 10,350
Cost of goods sold P121,400
Less: Overvaluation of cost of goods sold:
Branch Inventory Allowance/Allowance before
Adjustments PI9,750
Less: Unrealized profit in ending inventory
(P10,350-P4,350)x(P93,750-P75,000)/
P93.750 1,200 18,550 (a)
Cost of sales in so far as home office is concerned. PI02,850 (a)
29. (d)
In this problem, intercompany transactions between home office and branch are
not given, then alternatively it would be best to determine the nature of the
account "home office". Home office account is an intercompany account used
to reflect transactions between home office and branch, it takes the place of the
capital account (alternatively it may be treated as a liability) of a branch.
Since, it is tike a capital account, therefore, to determine the amount, simply analyze
the basic accounting equation. Assets equals Liabilities plus Capital. Thus, to apply:
Branch A Branch B
Assets:
Inventory, January 1 P 21,000 P 19,000
Imprest Branch Fund 2,000 1,500
Accounts Receivable, January 1 55,000 43,500
Total P 78,000 P
Assets Less: 64,000
Liabilities 0 0
Home Office Current Account P 78,000 P 64,000 (d)
30. (a)
(1) Ending inventory in the combined income statement:
From Home Office: (P50,000 - P6,600) x 100/140 .. P31,000
From Outsiders 6,600
P37,600 (a)
32. (d)
Realized profit from sales made by branch:
Allowance for overvaluation of branch inventory before
adjustment P 31,200
Less: Allowance for overvaluation of shipments
(P104,000-P78,000) 26,000
Allowance for overvaluation branch inventory, January 1 . P 5,200
Divided by: Mark-up on cost: (PI04,000-P78,000)/P78,000. 331/3%
Merchandise inventory at cost, December 31,2017 P 15,600
Add: Allowance for overvaluation of branch inventory,
January 1 5,200
Merchandise Inventory, January 1 at billed price P 20,800 (d)
Add: Shipments from home office 104,000
Cost of goods available for sale PI24,800
•Less: Merchandise Inventory, December 31 at billed price .. 26,000
Cost of goods sold afbilled price P 98,800
Multiplied by: Mark-up .33 / 1.33
Realized profit of home office from sales made by
the branch P 24,700 (d)
33. (c)
Shipments to branch- loading/allowance for overvaluation
of merchandise before adjustments P39,500
Less: Allowance for overvouchers of ending inventory
(after adjustments): (P20,700-P8,700) x 25/125* 2,400
Realized mark up on branch merchandise P37,100 (c)
'Since there are no shipments in transit and there was no error in recording shipments,
therefore, the shipments from office account was correctly recorded, so, to compute
for the billing price would be: PI87,500/P 150,000 = P25%. Markup on cost would be 25%.
34. (c)
Inventory, January 1,2017 P 56,000
Add: Shipments from home office 350,000
Cost of goods available for sale P406,000
Less: Inventory, December 31,2017 84,000
Cost of goods sold at billed price P322.000
Multiplied by: Mark-up on cost (P350,000 - P280.000) /P350,000 ... 20%
Overvaluation of cost of goods sold P 64,400 (c)
35. (b)
(1) Branch Net Income:
Sales P 63,000
Less: Cost of goods sold:
Inventory, beginning P 8,900
Inventory, transfers 50,400
Cost of goods available for sale P59,300
Less: Inventory, end 11,700 47,600
Gross profit P 15,400
Less: Expenses 20,300
Net Income (loss) per branch books P( 4,900) (b)
(2) Combined Net Income & Loss
Sales P212.000
Less: Cost of goods sold
Inventory, beginning P 23,000
Add: Purchases 164,000
Cost of goods available for sale. P187,000
Less: Inventory transfer 42,000
Inventory, ending 28,500 116,500
Gross profit P 95,500
Less: Expenses 76,400
Net Income (loss) of the home office P 19,100
Add: True Branch Net Income:
Net income (loss) per branch
books P(4,900)
Add: Realized profit from branch sales:
Inventory, beg. (P8,900 x
25/125) P 1,780
Shipments (P50,400x20/120) 8,400
Total P10.180
Less: Inventory, end (PI 1,700
X20/120) 1,950 8,230 3,330
Combined Net Income P 22,430 (b)
Or, alternatively:
Sales (P63,000 + P212,000) P275,000
Less: Cost of goods sold:
Inventory, beginning [P23,000 +
(8,900x100/125)] P 30,120
Add: Purchases 164,000
Cost of goods available for sale PI94,120
Less: Inventory, ending [P28,500 +
(PI 1,700x100/120)] 38,250 155,870
Gross profit PI 19,130
Less: Expenses (P20,300 + P76,400) 96,700
Combined Net Income P 22,430 (b)
36. (b)
(1) Realized profit from branch sales:
Inventory, beginning (P8,900x25/125) P 1,780
Add: Shipments (P50,400 x 20/120) , 8,400
Total P 10,180
Less: Inventory, ending (PI 1,700x20/120) 1,950
Realized Inventory profit from branch sales P 8,230 (b)
37. (c)
(1) Branch Net Income is so far as home office is concerned:
Sales P280,000
Less: Cost of goods sold:
Inventory, 1/1 P 23,100
Add:Shipments from home office
(P209,000 + P11,000 in transit) 220,000
Freight-in [PI0,450 + (5%x PI 1,000)]
or (P220,000 x 5%) 11,000
Cost of goods available for sale P254J00
Less: Inventory, 12/31
(P33,000 + P11,000)... P44,000
Add: Freight-in
(P44,000x5%)... 2,200 46,200 207,900
Gross profit P 72,100
Less: Expenses 58.100
Branch Net Income from own operations. P 14,000
Add: Realized Profit from sales made by branch:
Branch merchandise markup/allowance
before adjustments P 22,000
Less: Allowance for overvaluates of
ending inventory (P44,000 x 10/11 *) _ 4,000 18,000
Branch Net Income in so far as home office concerned P 32,000 (c)
39. (a)
(1) Shipments in transit:
Shipments from home office per branch books P 32,500
Less: Shipments from home office, (correct amount)
P30,000xl25% 37,500
Merchandise in transit P 5,000 (a)
40. (d)
No entry should be made in the books of the home office, since the freight should be chargeable
to the branch and the payment of the freight was made by the branch.
41. (b)
1) Net Income of the home office from own operations:
Sales P155,000
Less: Cost of goods sold:
inventory, January 1,2017 P 23,000
Add: Purchases 190,000
Cost of goods available for sale P213,000
Less: Shipments to branch at cost 100,000*
Cost of goods available for home office
sale PI 13,000
Less: Inventory, December 31,2017....... 30,000 83,000
Gross profit P 72,000
Less: Expenses 52,000
Net Income P 20,000 (b)
*The sales to branch (shipments to branch) amounting to PI 10,000 is recorded by the home
office of billed price which should be recorded at cost, no corresponding allowance for
overvaluation amounting to PIO.OOO was recorded. This scenario can be proven by
analyzing the January 1 balance of allowance for overvaluation of PI,000. If the PI,000
amount be divided by the mark-up on cost of 10%, the resulting amount would be
PIO.OOO which will be the cost of the merchandise, therefore, the allowance of
overvaluation of P 1,000 recorded in the home office books is not the correct figure of
allowance for overvaluation in which the correct amount should be PI 1,000 (PI,000
beginning plus P10,000 mark-up on shipment). So, the home office erroneously recorded
the shipment with no allowance being provided (i.e. the P10,000 mark-up).
43. (b)
Home Office Sn. Lorenzo
Account Branch Account
Unadjusted balances, June 30,2017 P25.550 P27,350
Add (deduct): adjustments:
1. Shipment charged to Sn Lorenzo
branch but actually sent to Sto. Tomas (12,000)
2. Shipment charged to Sn Jose branch
but actually sent to Sn Lorenzo branch 15,000
3. No effect, since it was intented for Sto.
Tomas branch and at the same time the
home office did not charged it to Sn. Lorenzo
4. Home office collection of Sn. Lorenzo
branch - (3,600)
5. Merchandise returned by Sn. Lorenzo
branch still in transit to home office .. (1,200)
6. Overstatement of Sn. Lorenzo branch net
income (PI6,275-PI2,675) (3,600)
Adjusted balances, June 30,2017 P23,750 P23,750 (b)
44. (d)
Investment in Home Office
Branch Account Current
Unadjusted balance(s),December31,2017 P102,000 P52,800* (d)
Add (deduct): adjustments:
1. Branch remittance not yet recorded by
the home office in 2017 (12,000)
2. Shipments not recorded by the
branch in 2017 24,000
3. Unrecorded branch expenses 6,000
4. Branch customers' remittance recorded
by the home office but not yet recorded
by the branch (3,600)
5. Erroneous recording of branch shipments
(P51,600-P40,800) 10,800
Adjusted balance(s) December 31,2017 P 90,000 P90,000 (d)
*The P52,800 is computed by simply working back with P90.000 adjusted balance as the
starting point.
45. (d)
Branch Current Home Office
Account Current
Unadjusted balance(s), December31,2017 P225,770 P226,485*(d)
Add (deduct): adjustments:
1. Erroneous recording of branch
equipment 3,150
2. Insurance premium recorded trice
by the branch (675)
3. Erroneous recording of freight charge
(P1.215-P1.125) (90)
4. Discount on merchandise not yet
recorded by the branch (800)
5. Failure by the branch to record share
• in advertising 700
6. Error by the home office to record
remittance of Cebu 3,000
Adjusted balance(s), December 31,2017 P228,770 P228,770 (d)
*The P226.485 is computed by simply working back with P228.770 adjusted balance as the starting
point.
46. (a)
Branch Home Office
Current Current
Dr. (Cr.)* Dr. (Cr.)**
Fixed assets not recorded by the branch ... P (53,960)
2. Marketing expense of another branch was
charged by Home Office to Bacolod P( 10,000)
Inventory transfers recorded twice by the
branch 75,000
Error by home office to record remittance
from Bacolod as coming from Tacloban... (65,700)
No reconciling item since Bacolod reversed a
previous debiT memo and the home office did not
charged it to Bacolod
Error by branch in recording a debit memo
(P4,650 - P4,560) J?0)
Net adjustments - debit (credit) P(75,700) P20,950 (a)
*Dr.- Addition; Cr. - Deduction
**Dr. - Deduction; Cr. - Addition
47. (b)
Branch Home Office
Current Current
Unadjusted balance(s), June 30,2017 P175,520 P184,279.50*(b)
Add (deduct]: adjustments
a. Freight recorded twice by the branch (500)
b. Erroneous recording of freight
charge by the branch (P895 - P89.5) 805.50
Erroneous recording of furniture
and fixtures by the branch
(P980- P890) 90
d. Erroneous recording of merchandise
allowance by the branch (P400- P350) 50
e. Unrecorded interest expense of
the branch** 425
Erroneous deduction/charge to branch
account by the home office arising
from the sale of a truck 5,000
Repairs erroneously deducted/
charged to home office 370
h. Correction of home office error by the
branch correcting item of (5,000)
Adjusted balance(s), June 30,2017 PI80,520 PI80,520 (b)
*7he P184,279.50 is computed simply by working back with P 180.520 adjusted
as the starting point.
**The PI00 wrong adjusting memo does not affect the home office current
account, thereby, there is no effect.
48. (d)
Freight actually paid (P6,000 + P2,000) P8,000
Less: Freight that should be recorded 9,000
Savings PI,000(d)
49. (d)
In arriving at the cost of the merchandise inventory at the end of the period, freight charges
are properly recognized as a part of the cosf. But a branch should not be charged with
excessive freight charges when, because of indirect routing, excessive cost are incurred.
Under such circumstances, the branch acquiring the goods should be charged for no more than
the normal freight from the usual shipping point. The office directing the interbranch transfers are
responsible for the excessive cost should absorb the excess as an expense because it represents
management mistakes or inefficiencies.
50. (d)
Davao branch's records should treat the freight as inventoriable cost (product cost) and it
should be properly classified as freight-in (periodic method, since problem is
silent).
Answer (a) is incorrect because the freight was treated as a selling expense (period cost)
rather than product cost. Answer (b) is incorrect for reason that the mark-up should be part
of the shipments from home office account which is at billed price. Answer (c) is incorrect
for freight should not be charged to shipments occount under periodic approach.
51. (c)
(1) • Inventory of Davao Branch at December 31, 2017:
Shipments from home office at billed price P29,000
Multiplied by: Ending inventory 60%
PI 7,400
Add:Freight-in (PI,000x60%) 600
P18,000 (c)
Answer (a) is incorrect for there was no proper charging of freight. Answer (c) is incorrect for reason
that the unrealized profit was capitalized as part of shipment. Answer (d) is incorrect because
freight-in was capitalized up to the extent of what was totally incurred which is clear violation of
capitalization on shipments of goods to branches (refer to No.
49 for further discussion.)
53. (C)
The Davao branch credits cdsh representing freight that was paid while inventory occount
was credited for reason ■that shipments account was already closed at the end of 2017.
Answer (a) is incorrect for reason that inventory account was credited including the cash that
was paid. Answer (b) is incorrect for reason that the cash was erroneously recorded at PI00
which should have been P500. Answer (d) is incorrect for reason that freight-in was credited
when in fact it is a nominal account and there's no previous allowance and the amount was even
erroneously computed at P600 which should have been at P500 (50% xP 1,000).
54. (C)
The home office which normally direct inter branch transfers of merchandise should be responsible
for any excess cost arising from such transfer and charged to operation (expensefloss) because it
represents management mistakes or inefficiencies. The excess freight was computed as follows:
Alternatively, the following entry may be made if the unrealized profit account was
originally credited to "Unrealized Profit in Davao Branch Inventory", to transfer such
account to Baguio branch:
Answer (a) is incorrect, this entry should be for Davao branch. Ansv/er (b) is incorrect, this entry
should be for Baguio branch. Answer (d) is incorrect for reoson that, what was recorded ds freight was
the amount paid by Baguio.
55. (c)
Sales (P350,000 + P100,000) P450,000
Less: Cost of goods sold:
Purchases (P400,000 + P50,000) P450,000
Less: Inventory, end 90,000 360,000
Gross profit P 90,000
Less: Expenses:
Salaries and commission P 70,000
Rent 20,000
Advertising supplies (PI0,000 - P6,000) 4,000
Other expenses 5,000 99,000
Net Loss P( 9,000) (c)
56. (c)
Sales P 55,800
Less: Sales Discount (P47,628 ,98% x 2%) 972
Net Sales P 54,828
Less: Cost of goods sold [(P55,800 x 70%) + P1,320 freight] 40,380 (c)
Gross profit P 14,448
Less: Expenses:
Selling expenses P 3,384
Administrative expenses (5% x P55,800) 2,790
Samples expense (P3.600-P 1,320) 2,280 8,454
Net Income P 5,994 (c)
57. (a)
in adopting the imprest system for the agency working fund, the home office writes a check to the
agency for the amount of the fund. Establishment of the fund is recorded on the home office
books by a debit to the agency working fund account and credit to cosh. The dgency will request
fund replenishment whenever the fund runs low ond at the end of each fiscal period. Such a
request is normally accompanied by an itemized and duthenticated statement of disbursements
and the paid vouchers. Upon sending the dgency a check in replenishment of the fund, the
home office debits expense or other accounts for which disbursements from the fund were
reported and credits cash.
58. (d)
Refer to No. 57 for further discussion.