Questions 1 & 2 are based on the following information.

On February 14, 2012, Therese Company established a sales agency in Tagbilaran. Upon establishment of the sales
agency, the home office sent samples costing P8,000 and a working fund of P3,000 to be maintained on the imprest
basis. During the six months period, the sales agency reported to the home office sales orders. These were billed at
P70,000 of which of P40,000 was collected) the sales agency paid expenses of P5,800 but was reimbursed by the home
office.

On August 15, 2012, the sales agency samples were valued at P2,000. It was estimated that the gross profit on goods
shipped to fill sales order averaged 40% of cost.

1. The cost of sales of the sales agency for the six months period is
a. P42,000 c. P48,000
b. P44,000 d. P50,000

2. The net income of the sales agency for the six months period is
a. P16,200 c. P10,200
b. P14,200 d. P8,200

3. A branch’s ending inventory of merchandise shipped by the home office and purchased from outside vendors
amounts to P 50,000. The post-closing trial balance in the Unrealized Gross Profit in Branch Inventory account is P
6,000 due to the home office practice of shipping merchandise at 20% above cost. The merchandise purchased from
outside vendors contained in the ending inventory of the branch amounts to:
a. P 38,000 c. P 30,000
b. P 18,000 d. P 14,000

Questions 4 and 5 are based on the following information.

The income statement submitted by Loon Branch to the Home Office for the month of December 31, 2013 follows:

Sales P600,000
Cost of Sales:
Inventory, December 31, 2013 P80,000
Shipments from Home office 350,000
Purchased locally by branch 30,000
Total P460,000
Inventory, December 31, 2013 100,000 360,000
Gross Margin P240,000
Operating Expenses 180,000
Net Income for the month P 60,000

The Branch inventories consisted of:

12/1/2012 12/31/2012
Merchandise purchased from home P70,000 P84,000
Local purchases P10,000 P16,000
Total P80,000 P100,000

After effecting the necessary adjustments, the Home Office ascertained the true net income of the Branch to be
P156,000.

4. At what percentage of cost did the home office bill the branch for merchandise shipped to it?
a. 100% c. 120%
b. 140% d. 150%

5. What is the balance of the Allowance for Overvaluation in the branch inventory at December 31, 2013?
a. P10,000 c. P16,000
b. P24,000 d. P34,000

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Questions 6 and 7 are based on the following information.
The following information is extracted from the books and records of Elaine Company and its branch. The balances are at
December 31, 2012 of the company’s operations.
Home Office Branch
Sales P260,000
Shipments to branch P 78,000
Shipments from home office 104,000
Purchases 39,000
Expenses 78,000
Inventory, January 1, 2012 26,000
Allowance for overvaluation of branch inventory 31,200

However, no shipments in transit between home office and the branch were made. Both shipments accounts are
properly recorded. The ending inventory includes merchandise acquired from the home office in the amount of
P26,000 and P7,800 acquired from outsiders acquired from the home office in the amount of P26,000 and P7,800
acquired from outsiders for a total of P33,800.

6. What is the realized profit in branch inventory?

a. P21,000 c. P22,533
b. P31,200 d. P24,700

7. What is the amount of branch merchandise beginning inventory that was acquired from the home office?
a. P14,000 c. P15,600
b. P19,000 d. P20,800

Questions 8 and 9 are based on the following information.

Auto Supply Company is engaged in merchandising both at its home office in Cebu City and its branch in Toledo City.
Selected accounts taken from the trial balances of the home office and the branch as of December 31, 2012 follow:

Debits Cebu City Toledo Branch

Inventory, January 1, 2012 P 23,000 P 11,550
Toledo Branch 58,300
Purchases 190,000 105,000
Freight in from home office 5,500
Sundry Expenses 52,000 28,000

Credits
Home Office P 53,300
Sales P155,000 140,000
Sales to branch 110,000
Allowance for Overvaluation of branch inventory at
January 1, 2012. 1,000

Additional information:
 The Toledo City branch gets all of its merchandise from the home office. The home office bills the goods at
cost plus a 10% mark-up. At December 31, 2012, a shipment with a billed value of P5,000 was still in
transit. Freight on this shipment was P250 and is to be treated as part of the inventory.
 Inventories on December 31, 2012, excluding the shipment in transit, follow:
Home office, at cost………………………………….……….. P30,000
Branch, at billed price (excluding freight of P520…… 10,000

8. What is the net income of the home office from own operations?
a. P30,470 c. P21,000
b. P20,000 d. P30,470

9. What is the net income of the branch in so far as the home office is concerned?
a. P870 c. P1,500
b. P10,470 d. P12,000

10. Durable Textile Company has a single branch in Bohol. On March 1, 2012, the home office accounting records
included an Allowance for Overvaluation of Inventories – Bohol Branch ledger account with a credit balance of
P32,000. During March, merchandise costing P36,000 was shipped to the Bohol Branch and billed at a price
representing a 40% markup on the billed price. On March 31, 2012, the branch prepared an income statement
indicating a net loss of P11,500 for March and ending inventories at billed prices of P25,000. What is the amount of
adjustment for allowance for Overvaluation of Inventories to reflect the true branch net income?
a. P39,257 debit c. P39,333 debit
b. P46,000 credit d. P46,000 debit

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