Chapter 8

HOME OFFICE AND BRANCH RELATIONSHIP –

GENERAL PROCEDURES
PROBLEM 8-1

July 1, 20x7
(1)
(a)Working Fund- Agency 1,000.00
Agency samples 5,000.00
Prepaid Advertising Agency 1,250.00
Cash 1,000.00
Merchandise Inventory 5,000.00
Advertising Expense 1,250.00
To record shipments to Agency.

July

(b)Accounts Receivable 17,600.00

Furniture & Fixture - Agency 2,400.00
Selling Expenses - Agency 2,550.00
Sales – Agency 17,600.00
Cash 4,950.00
Sales by agency on account and other payments.

Cost of Sales – Agency 10,500.00

Merchandise Inventory 10,500.00
To record agency cost of sales.

July 31, 20x7

(c)Selling Expense - Agency 925.00
Cash 925.00

(d)Selling Expense – Agency 2,383.33

Prepaid Advertising – Agency 1,000.00
Agency Samples 583.33
Accumulated Dep.- Furniture & Fixture-Agency 40.00
Bonus Payable 760.00
To record adjustment of agency accounts.

(e)Sales – Agency 17,600.00

Cost of Sales – Agency 10,500.00
Selling Expenses – Agency 5,858.33
Profit and Loss – Agency 1,241.67
To record agency profit

(f)Profit and Loss – Agency 1,241.67

Profit and Loss 1,241.67
To close agency profit.

(2)

Amor Company
Agency Income Statement
For Month Ending July 31, 20x7

Sales P17,600
Less: Cost of Sales 10,500
Gross Profit 7,100
Less: Selling Expenses 5,858.33
Net Income 1,241.67

PROBLEM 8-2

139
 (1)

Sunset Sales Co.

Statement to Reconcile Reciprocal Accounts
January 31, 20x7

Home Office Books Branch Books

Balances before adjustments 77,150 56,450
Shipments from Home Office overstated (90)
Remittance from branch in transit (16,000)
Shipments in transit 4,400
Home Office Accounts collected by branch 750
Branch advertising expense not yet taken up 600
20x6 depreciation understated (540)
Adjusted Balances 61,360 61,360
(2)
a.) Home Office Books:
Correction of prior year’s profit 540
Cash 16,000
Accounts Receivable 750
Cebu Branch 15,790
To adjust home office books.

b.) Branch Books:

Merchandise Shipments From Office 4,310
Advertising Expense 600
Home Office 4,910
To adjust branch books.

PROBLEM 8-3

(1)

Beda and Dera , Inc.

Statement To Reconcile Reciprocal Accounts
January 31, 20x7

Home Office Branch Books

Books Home Office- Home Office-
Current Merchandise

Balances before adjustment 59,365 36,365 21,160

Branch expenses incurred by home office 215
Accounts of Branch Written Off (1,200)
Branch account collected by home office (65)
Correction of December profit 310
understatement
Returns not yet recorded (840)
Shipment sent to Bulacan branch (1,400)
January Profit 1,440
Expenses not taken up (215) 1,225 (215)

Adjusted Balances Jan. 31, 20x7 57,460 36,300 21,160

(2)

a) Books of Branch
Home Office Current 65
Accounts Receivable 65
Collection made by home office

Note: A memorandum record has to be made to show that

Branch profit is not 1,440 but 1,225 instead.
b) Books of Home Office
Merchandise, shipments to Laguna Branch 840
Allowance for Doubtful Accounts 1,200
Bulacan Branch 1,400
Laguna Branch Profit 1,225
Correction of December Laguna branch profit 310

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 Laguna Branch 1,905
To adjust home office books.

PROBLEM 8-4

(1)

a) Accounts Receivable 40,000

Sales 40,000

b)Purchases 10,500
Accounts Payable 10,500

c) Shipments From Home Office 20,000

Home Office 20,000

d) Cash 38,000
Accounts Receivable 38,000

e) Accounts Payable 10,100

Cash 10,100

f) Allowance for Bad Debts 600

Accounts Receivable 600

g) Home Office 15,000

Cash 15,000

h) Expenses 12,400
Cash 12,400

i) Expenses 800
Home Office 800

19,400
j) Merchandise Inventory
Expenses 1,100
Prepaid Expenses 100
Accrued Expenses 200
Allowance for Bad Debts 800
Allowance for Depreciation 600
Income Summary 19,400

k) Income Summary 21,300

Sales 40,000
Purchases 10,500
Merchandise Inventory 16,500
Expenses 14,300
Shipments from Home Office 20,000

l) Home Office 1,900

Profit & Loss 1,900
(2)

Waldo Co.
Branch Balance Sheet
December 31, 20x7

Assets
Current Assets:
Cash 40,000
Accounts Receivable 13,600
less: Allowance for Bad Debts 1,050 12,550

Merchandise Inventory 19,400

Prepaid Expenses 450
Total Current Assets 36,400
Furniture & Fixtures 3.850

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 less: Allowance for Depreciation 3,300 550
Total Assets 36,950

Liabilities & Home Office Equity

Current Liabilities
Accounts Payable 2,400
Accrued Expenses 400
Total Current Liabilities 2,800

Home Office Equity 34,150

Total Liabilities & Home Office Equity 36,950

Waldo Company
Branch Income Statement
For the Year Ended December 31, 20x7

Sales 40,000
Less Cost of Sales:
Merchandise Inventory, Jan.1 16,500
Purchases 10,500
Shipments from Home Office 20,000
Available for Sale 47,000
Less Inventory, Dec. 31 19,400 27,600
Gross Profit 12,400
Less Expenses 14,300
Net Loss 1,900

NOTE : Net loan may also be P 1,650 if the P800 includes all uncollectible receivable.

(3)

a) Branch 20,000
Shipments to Branch 20,000

b) Cash 15,000
Branch 15,000

c) Branch 800
Cash/Expenses 800

d) Branch Profit & Loss 1,900

Branch 1,900

PROBLEM 8-5
(1)
a) Branch books:
1) Cash 600
Merchandise Shipments 10,200
Accounts Receivable 2,600
Home Office 13,400

Received store furniture & fixtures, cost P3,000, net book

value is P2,250; P900 was paid upon receipt of the item.

2) Accounts Receivable 6,200

Sales 6,200

3) Cash 2,600
Accounts Receivable 2,600

4) Purchases 3,000
Accounts Payable 3,000

5) Accounts Payable 1,450

Cash 1,450

6) Expenses 1,250

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 Cash 1,250

7) Cash 1,600
Home Office 150
Accounts Receivable 1,750

8) Merchandise Shipments 1,250

Home Office 1,250

9) Home Office 1,000

Cash 1,000

1- (b)
Home Office Books
Branch 13,400
Allowance for Depreciation-Store, Furniture & Fixture 750
Store Furniture & Fixture 3,900
Merchandise Shipments to Branch 10,200
Store, Furniture & Fixture 3,000
Allowance for Depreciation-Store Furniture & Fixture 750
Cash 1,500
Accounts Receivable 2,600

Accounts Receivable 34,600

Sales 34,600

Cash 40,000
Accounts Receivable 40,000

Purchases 31,600
Accounts Payable 31,600

Accounts Payable 36,200

Cash 36,200

Expenses 9,200
Cash 9,200

Allowance for Bad Debts 150

Branch 150

Cash 1,000
Branch 1,000

Branch 1,250
Merchandise Shipments to Branch 1,250
(2)

EAGLE SALES CO.

Branch Income Statement
For the Month Ended, January 31, 20x7
a1)
Sales 6,200.00
Less- Cost of Goods Sold:
Merchandise Shipments from Home Office 12,050.00
Purchases 3,000.00
Goods Available for Sale 15,050.00
Less- Merchandise Inventory 10,400.00 4,650.00
Gross Profit 1,550.00
Less –Expenses 2,101.25
Net Income (551.25)

Eagle Sales Co.

Branch Balance Sheet
January 31, 20x7
a2)
Cash 1,100.00 Accrued Expenses 350.00
Accounts Receivable 4,450.00 Accounts Payable 1,550.00
Merchandise Inventory 10,400.00 Home Office Equity 14,050.00

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Total Assets 15,950.00 Total Liabilities & Home Office 15,950.00
Equity

EAGLE SALES CO.

Income Statement
For the Month Ended, January 31, 20x7

Sales 34,600.00
Less-Cost of Goods Sold:
Merchandise Inventory, Jan. 1 46,000.00
Purchases 31,600.00 77,600.00
Less: Merchandise Shipments 12,050.00
Merchandise Inventory, Jan. 31 44,500.00 56,550.00 21,050.00
Gross Profit 13,550.00
Less Expenses 9,325.00
Net Income from Operations 4,225.00

EAGLE SALES CO.

Balance Sheet
January 31, 20x7

Cash 9,100.00 Accrued Expenses 750.00

Accounts Receivable 34,000.00 Accounts Payable 29,150.00
Less- Allow. For Bad Debts 1,050.00 32,950.00
Merchandise Inventory 44,500.00 Capital Stock 50,000.00
Branch 14,050.00 Retained Earnings 31,873.75
Store Fur & Fix - H.O. 12,000.00
Store Fur & Fix - Branch 3,900.00
15,900.00
less- Allow for Dep’n. 3,950.00
Home Office 776.25
Branch 4,726.25 11,173.75
Total Assets 111,773.75 Total liab & Stockholders 111,773.75
Equity

(3)

EAGLE SALES CO.

Combined Income Statement
For the Month Ended, January 31, 20x7

Sales 40,800.00
Less: Cost of Goods Sold
Merchandise Inventory 46,000.00
Purchases 34,600.00 80,600.00
Less: Merchandise Inventory, Jan. 31 54,900.00 25,700.00
Gross Profit 15,100.00
Less: Expenses 11,426.25
Net Income 3,673.75

EAGLE SALES CO.

Combined Balance Sheet
January 31, 20x7

Cash 10,200.00
Accounts Receivable 38,450.00
Less: Allowance for Bad Debts 1,050.00 37,400.00
Merchandise Inventory 54,900.00

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 Total Current Assets 102,500.00

Store, Furniture & Fixtures 12,000.00

Store, Furniture & Fixtures- Branch 3,900.00 15,900.00
Less: Allowance for Depreciation
Store, Furniture & Fixture 3,950.00
Allowance for Depreciation- Store Furniture 776.25 4,726.25 11,173.75
Total Assets 113,673.75

Accrued Expenses 1,100.00

Accounts Payable 30,700.00
Total Liabilities 31,800.00
Capital Stock
Retained Earnings 50,000.00
Total Liabilities & Stockholder’s Equity 31,873.75 81,873.75
113,673.75
To Close Home Office Books:
Profit & Loss 40,275.00
Sales 34,600
Merchandise Ships to Branch 12,050.00
Merchandise Inventory 46,000.00
Purchases 31,600.00
Expenses 9,325.00

Profit and Loss 3,673.75

Retained Earnings 3,673.7500

(4)

4 (a) To adjust Branch Books:

a) Merchandise Shipments In Transit 600
Home Office 600

b) Expenses 475
Home Office 475

c) Expenses 26.25
Home Office 26.25

d) Merchandise Inventory 10,400

Income Summary 10,400

e) Expenses 350
Accrued Expenses 350

To Close Branch Books

1) Sales 6,200.00
Profit & Loss 10,951.25
Merchandise Shipments From Home Office 12,050.00
Purchases 3,000.00
Expenses 2,101.25

Home Office 551.25

Profit & Loss 5501.25

4-(b) To Adjust Home Office Books:

a) Branch 600
Merchandise Shipments to Branch 600

b) Branch 475
Expenses 475

c) Expenses 100
Branch 2,625
Allow for Dep’n -Store Furniture & Fixture - Branch 2,625

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 Allow for Dep’n -Store Furniture & Fixture 100

d) Merchandise Inventory 44,500

Income Summary 44,500

e) Expenses 700
Accrued Expenses 700

PROBLEM 8-6

(1-a) Branch Books:

a) Cash 42,500
Home Office 42,500

b) Merchandise Shipments From Home Office 50,200

Home Office 50,200

c) Accounts Receivable 66,000

Sales 66,000

d) Purchases 22,500
Accounts Payable 22,500
e)
Home Office 53,400
Accounts Receivable 53,400

g) Furniture & Fixtures 8,000

Cash 8,000

h) Expenses 18,000
Cash 18,000

BERTOL SALES CO.

Branch Income Statement
For the Year Ended, December 31, 20x7

Sales 66,000
Less: Cost of Goods Sold
Merchandise Shipments from Home Office 50,200
Purchases 22,500
Available For Sale 72,700
Less: Merchandise Inventory 23,500 49,200
Gross Profit 16,800
Less: Expenses 18,200
Net Income (1,400)

BERTOL SALES CO.

Branch Balance Sheet
December 31, 20x7

Cash 16,500
Accounts Receivable 12,600
Merchandise Inventory 23,500
Prepaid Expenses 750 53,350
Furniture & Fixtures 8,000
Less: Accumulated Depreciation 650 7,350

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Total Assets 60,700
Accounts Payable 22,500
Accrued Expenses 300 22,800
Home Office Equity 37,900
Total Liabilities and Home Office Equity 60,700

1- b) Home Office Books

a) Branch 42,500
Cash 42,500

b) Branch 50,200
Merchandise Shipments to Branch 50,200

c) Accounts Receivable 105,000

Sales 105,000

d) Purchases 122,500
Accounts Payable 122,500

e) Cash 113,600
Accounts Receivable 113,600

f) Accounts Payable 124,000

Cash 124,000

g) Expenses 26,600
Cash 26,600
h) Cash 53,400
Branch 53,400

i) Retained Earnings 10,000

Cash 10,000

4-a) Branch Books

Merchandise Inventory 23,500
Profit and Loss 23,500

Prepaid Expenses 750

Expenses 200
Accrued Expenses 300
Accumulated Depreciation 650

Profit and Loss 24,900

Sales 66,000
Expenses 18,200
Purchases 22,500
Merchandise Shipments from Home Office 50,200

Home Office 1,400

Profit and Loss 1,400

4-b) Home Office Books

Merchandise Inventory 48,500
Profit and Loss 48,500

Expenses 1,030
Prepaid Expenses 250
Accrued Expenses 100
Accumulated Depreciation 1,180

Profit and Loss 35,050

Sales 105,000
Merchandise Shipments 50,200
Purchases from Home Office 122,500
Merchandise Inventory 40,120
Expenses 27,630

Profit and Loss- Branch 1,400

Branch 1,400

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Profit and Loss 12,050
Retained Earnings 12,050

(2)

BERTOL SALES CO.

Income Statement
For the Year Ended December 31, 20x7
a)
Sales 105,000
Less: Cost of Goods Sold
Merchandise Inventory 40,120
Purchases 122,500 162,620
Less: Merchandise Shipments 50,200
Merchandise Inventory, Dec. 31, 48,500 98,700 63,920
Gross Profit 41,080
Less: Expenses 27,630
Net Income 13,450

BERTOL SALES CO.

Balance Sheet
December 31, 20x7
b)
Cash 23,200 Accrued Expenses 1,350
Accounts Receivable 19,050 Accounts Payable 21,300
Merchandise Inventory 48,500
Prepaid Expenses 2,050 Capital Stock - 50,000
Retained Earnings 72,470 122,470
Branch 37,900

Furniture & Fixtures - 20,000

Less: Allow for Dep’n 5,580 14,420
Total Assets 145,120 Total liabilities & Home Office 145,120
Equity

(3)

BERTOL SALES CO.

Combined Balance Sheet
December 31, 20x7
a)
Assets Liabilities & Stockholder’s Equity
Cash 39,700 Accounts Payable 43,800
Accounts Receivable 31,650 Accrued Expenses 1,650
Merchandise Inventory 72,000 Total Current Liabilities 45,450
Prepaid Expenses 2,800
Total Current Assets 146,150 Capital Stock - 50,000
Furniture and Fixtures - 28,000 Retained Earnings - 72,470 122,470
Less: Allow for Dep’n - 6,230 21,770
Total Assets 167,920 Total Liabilities & Stockholder’s 167,920
Equity

BERTOL SALES CO.

Combined Income Statement
For the Year Ended, December 31, 20x7
b)
Sales 171,000
Less: Cost of Goods Sold
Merchandise Inventory, Jan. 1 40,120
Purchases 145,000 185,120
Merchandise Inventory, Dec. 31 72,000 113,120
Gross Profit 57,880
Less: Expenses 45,830

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Net Income 12,050

PROBLEM 8-7

Items not taken up/ incorrectly recorded:

Errors: Branch
a) Correct Amount (Office Furniture) 870
Recorded at 780 90 - Cr.

b) Merchandise Allow. Credit by Home Office 300

Recorded at 350 50 – Cr.

c) Interest charged by Home Office 325

Not Recorded by branch 325 Cr.

Adj. Memo of branch 250

Credit to Liability 75 - Cr.

d) Charge for labor by H.O. 433

Taken up twice by branch 433- Dr.

e) Charge for freight 785.00

Taken up as 78.50 706.50- Cr.

f) Incorrect debit note

for truck repairs 293- Cr.

Home Office
g) Sale of truck erroneously credited to branch 475
h) Erroneously entered by branch 475- Dr.

HOME OFFICE BRANCH

a) 90 g.) 475
c) 325
d.) 433 e) 706.50
h.) 475 f) 293
b) 50
Bal. 131,608.50 End Bal.-12/31 131,690

1.) Balance on branch books before adjustment (pls. see working papers) P 131,608.50

2.) Correct Amount of Interoffice balances is 132,165.00

3.)
WAL WHOLESALE COMPANY
Working Papers to Correct the Interoffice Balance
September 30, 20x7

Balances before Adjustment H.O. account Branch account

Adjustments: 131,608.50 131,690.00
Errors committed by branch:
a) Office Furniture correct amount 870.00
Recorded as 780.00 90.00
c) Interest charge not recorded 75.00
e) Freight correct amount 785.00
Recorded as 78.50 706.50
f) Incorrect debit note for truck repairs 293.00
Sub total 1,164.50

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 b) Incorrect credit for Merchandise 50.00 1,464.50
Allow.
d) Amount taken up twice 433.00
h) Incorrect entry 475.00 958.00
g) Incorrect entry for sale of truck (908.00) 475.00
Balances as adjusted. 09/30/x7 132,165.00 132,165.00

4) Branch Books:
Office Furniture 90.00
Interest Expense 325.00
Freight on Merchandise Shipments 706.50
Repairs 293.00
Merchandise Shipments 50.00
Direct Labor 433.00

Truck 475.00
Home Office 556.50
PROBLEM 8-8

1)
a) Books of Peet Manufacturing Company
(Common shares have par value of P50 per share)

Cash 160,000
Preferred Stock (Par, P100) 100,000
Common Stock (Par, P 50) 50,000
Paid In Capital In Excess of Par – Common 10,000

b) Accounts Receivable 50,000

Inventories 100,000
Plant and Property (net) 200,000
Accounts Payable 40,000
Sundry Accruals 10,000
Common Stock - (par P50) 250,000
Paid in Capital in Excess of Par- Common 50,000

c) Allowance for Depreciation 150,000

Investment in Peet Manufacturing Company 300,000
Sundry Accruals 10,000
Accounts Payable 40,000
Accounts Receivable 50,000
Inventories 100,000
Plant and Equipment 350,000

d) Books of Signal Telephone Company, Dec. 31, 20x7

Profit and Loss 80,000
Retained Earnings 80,000

Books of Peet Manufacturing Company, Dec. 31, 20x7

Cash 10,000
Retained Earnings 4,000
Accounts Payable 18,000
Accounts Receivable 10,000
Inventories 20,000
Allowance for Depreciation 2,000

Signal’s books:
Intercompany Control 308,000
Intercompany Control 308,000

SIGNAL TELEPHONE COMPANY

Balance Sheet
December 31, 20x7

150
 Assets Liabilities and Stockholder’s Equity
Cash 78,000 Accounts Payable 78,000
Accounts Receivable 110,000 Sundry Accruals 110,000
Inventories 50,000 Income Tax Payable 40,000
238,000 228,000
Investments 320,000 Capital Stock 300,000
Retained Earnings 278,000 578,000
Plant and Property 500,000
Less: Allowance for 252,000
Depreciation
248,000
Total Assets 806,000 Total liabilities and Stockholders’ 806,000
Equity

Note: The investment in Peet Manufacturing is equal to the book value of net assets transferred except
cash.

PEET MANUFACTURING COMPANY

Balance Sheet
December 31, 20x7

Assets Liabilities and Stockholder’s Equity

Cash 162,000 Accounts Payable 22,000
Accounts Receivable 40,000 Sundry Accruals 10,000
Inventories 80,000 32,000
282,000 Capital Stock
Plant and Property Preferred Stock 100,000
Cost 200,000 Common Stock 300,000
Less: Allow for Dep’n. 198,000 Paid in Capital In Excess of Par
2,000 60,000
Retained Earnings 448,000
( 12,000)
Total Assets 480,000 Total Liabilities and Stockholders’ Equity 480,000

Note: Since cash was not transferred to Peet Manufacturing the entire P20,000 balance will not be
reflected on the books of Signal; only P10,000 is Signal’s.

PROBLEM 8-9

Boysen Adjustment Adjusted Kampo Adjustment Adjusted Master Adjustment Adjusted

b) (1,000)
Sales 265,000 a) (8,000) 251,000 540,000 c) (15,000) 525,000 870,000 870,000
c) (5,000) 525,000 b) 1,000 524,000
Cost of Sales 154,000 154,000 372,000 c) 10,000 385,000
e) 3,000
Gross Profit 111,000 97,000 168,000 140,000 345,000 d) ( 2,000) 346,000
Expenses 78,000 78,000 93,000 d) (100) 92,475 210,000 ( 100) 233,470
( 430)
( 25)
(100) (10,050)
Net Profit fr. Operations 33,000 19,000 75,000 (325) 47,525 135,000 (10,865) 112,530
Gain on sale of business 3,500 (3,000) 500 3,000 (3,000)
Property
48,025
Loan by Kampo deemed
Worthless 2,000 2,000
Share in Masters’ Income 45,012 67,518
Net Income 33,000 64,012 76,500 116,043 112,530
107,530

Kampo 60 % 67,518
Boysen 40 % 45,012

Charges to Master Credits to Kampo

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 on Kampo’s Books on Master’s Books
Sale of machine for Kampo by Master 3,000 2,000 e) 1,000
Insurance 2,000 2,000
Legal Expenses 200 d) (100) d) 100
Freight 430 430 Addition to Expenses on
Advertising 125 d) (100) 25 Master’s Books
Machinery 25,000 25,000 23,470
Supplies 10,050 10,050
Payroll 11,190 d) (325) 10,865

Total 26,995 27,000 24, 470

51,470
51,470

Kampo Boysen Master Correct

Amount
1) Cost of Sales of Master, 45,000 135,000
Sales of Boysen
Fixtitious (8,000) 136,000
Returns (1,000)
Returns not accepted 1,000

2) Sales to Kampo 40,000 55,000

Overstatement (5,000) 50,000
Understatement 10,000

3) Sales of Kampo to Master 85,000 65,000

Overstatement (15,000) 70,000
Understatement 5,000

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