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CHAPTER 1: HOME OFFICE AND BRANCH ACCOUNTING

Part 1: Theory of Accounts

1. In the separate statement of financial position of the home office, the investment in branch account shall be presented as
a. Liability
b. Equity
c. Asset
d. Income

2. In the separate statement of financial position of the branch, the home office account shall be presented as
a. Liability
b. Equity
c. Asset
d. Income

3. In the combined statement of financial position prepared by the company, the inventory of the branch shall be measured and presented at
a. Lower of cost or net realizable value
b. Cost
c. Billed price
d. Fair value

4. The main difference between the net income in the separate income statement of the branch and the net income reported by the home office for
the branch’s operation is the
a. Overstatement of beginning and ending inventory reported by the branch
b. Overstatement of total goods available for sale reported by the branch
c. Overstatement of cost of goods sold reported by the branch
d. Overstatement of shipment from home office reported by the branch

5. If the home office receives debit memo from the branch, the home office shall record it in its separate statement of financial position by
a. Increasing the investment in branch account
b. Decreasing the investment in branch account
c. Debiting the investment in branch account
d. Disclosure

6. If the branch receives credit memo from the home office, the branch shall record it in its separate statement of financial position by
a. Increasing the home office account
b. Crediting the home office account
c. Debiting the home office account
d. Disclosure

7. Which of the following transactions will increase the home office account in the branch’s separate statement of financial position?
a. Net loss of the branch
b. Collection by the home office of branch’s receivable
c. Debit memo received from the home office
d. Payment by the branch of home office’s liability

8. Which of the following transactions will decrease the investment in branch’s account in the home office’s separate statement of financial
position?
a. Net income of the branch
b. Payment of branch’s liability by the home office
c. Credit memo received from the branch
d. Return by branch to home office of merchandise shipped

Part II. Problem Solving

1. At the end of the year the Investment in Bacolod account of home office is P 300,500. However, there are transactions discovered to have
errors:
 Bacolod branch bought equipment on June 1, 2020 costing P 63,800 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.
 The policy of the company regarding the equipment’s depreciation is that it has a life of 8 years with no salvage value and the
straight-line method should be used. No entry has been made by the home office and branch.
 The home office ships merchandise to Bacolod amounting to P 96,700. Bacolod recorded the transaction as P 97,600.
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 Bacolod pays the home office’s creditors in the amount of P 32,400 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 P 23,400 twice.

1.1. What is the unadjusted balance of the home office current account in the books of Bacolod at the end of the year?
a. 379,600
b. 252,000
c. 286,000
d. 315,800

1.2. What is the net adjustment of the Investment in Bacolod account at the end of the year?
a. 20,052 debit
b. 20,052 credit
c. 19,387.50 debit
d. 19,287.50 credit

1.3. What is the net adjustment of the home office current account in the books of Bacolod branch at the end of the year?
a. 4,887.50 debit
b. 4,887.50 credit
c. 5,552 debit
d. 5,552 credit

2. Miles Co. established a branch in Ayala by sending merchandise costing P 924,500 and effecting a fund transfer of P 400,000 cash on
January 1, 2017. The branch purchased computer equipment costing P 420,000 on April 1. As per agreement, the home office will maintain all
the property, plant and equipment records.

Ayala branch collected P 56,000 worth of Ortigas branch’s receivable o August 4. Cash remittance to the home was P 250,000 on September
28. On November 21, Ayala branch returned defective merchandise worth P 125,000 to the home office.

At the end of the year, the company’s controlling 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 the purpose 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 Expenses paid for branch
29,00

2.1. What is the unadjusted balance of the Home Office account?

a. 598,500
b. 585,500
c. 723,500
d. 335,500

2.2. What is the adjusted balance of the reciprocal accounts?

a. 844,500
b. 574,500
c. 901,000
d. 596,500

3. The following transactions relating to branch AA and branch BB are the following:
 On September 30, 2020, branch AA collected branch BB’s accounts receivable of P 80,000 less 3% discount.
 On October 31, 2020, home office shipped merchandise costing P 400,000 to branch AA. Freight of P 6,000 was paid by the home
office, it is the policy of the company to bill its branches at 25% above cost.
 On November 30, 2020, upon the instruction of the home office, branch AA reshipped a quarter of the above merchandise to branch
BB with freight of P 3,000 (freight-collect). Had the goods been shipped directly to branch BB, the freight would have been only P
1,400.

3.1. What is the home office current account of branch AA as of October 31, 2020?
a. 483,600
b. 577,600
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c. 583,600
d. 983,600

3.2. What is the investment in BB account as of November 30, 2020?

a. 45,800
b. 48,800
c. 201,000
d. 204,000

4. The following information is given regarding AAA Co.:

 The reciprocal account in the separate income statement of the home office amount to P 225,000.
 During the year 2019 (current year), the home office bills merchandise at 215% cost.
 The beginning inventory of the branch is P 249,375.
 During the 2019, the branch purchased from vendors merchandise amounting to P 150,000.
 The ending inventory of the branch as shown in the combined financial statements is P 267,125.
 The allowance for overvaluation before adjustment is P 320,000.
 The beginning inventory of the branch from the home office at cost is P 153,125.
 The unrealized profit at the end of the year must be decreased by P 55,000.

4.1. What is the cost of goods sold in the combined financial statements at the end of 2019?
a. 351,000
b. 354,900
c. 296,000
d. 306,190

4.2. What is the total goods available for sale recorded in the branch’s books at the end of 2019?
a. 883,125
b. 563,125
c. 624,375
d. 821,875

5. Siargao Co. set up a branch in a province. The entity and its branch provided the following data for the second year of branch operation:
Home Office Branch
Sales revenue to outside customer 1,000,000 500,000
Beginning inventory 50,000 30,000
Purchases from outside supplier 400,000 100,000
Shipment to branch 200,000
Shipment from home office 250,000
Ending inventory 80,000 50,000
Operating expenses 150,000 40,000

 The home office to branch markup based on cost is 25% this year and last year.
 20% of the beginning inventory of the branch came from outside supplier.
 24% of the ending inventory of the branch came from the last year’s shipment from the home office while 50% of the ending
inventory of the branch came from current year’s shipment from the home office.

5.1. What is the net income reported by the branch in its separate income statement for the current year?
a. 130,000
b. 124,000
c. 114,000
d. 95,000

5.2. What is the ending inventory to be reported by the entity in its combined statement of financial position?
a. 128,000
b. 115,000
c. 130,000
d. 122,600

5.3. What is the overstatement in the cost of goods sold reported by the branch in its separate income statement for the current year?
a. 54,000
b. 50,000
c. 52,000
d. 47,400
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6. The home office in Quezon City ships and bills merchandise to its provincial branch at cost. The branch carries its own accounts receivable
and makes its own collections. The branch also pays its expenses. The branch transactions for 2019 are reflected in the following information:
Cash 20,000
Accounts receivable 80,000
Home office 180,000
Shipments from Home Office 250,000
Sales 225,500
Expenses 55,500
December 31, 2019 inventory 65,000

What is the balance of the Investment in Branch account in the home office books?
a. 180,000
b. 195,000
c. 165,000
d. 175,000

7. On June 1, 2019, the Greenbelt Main Office established a sales agency in Ortigas. The main office sent samples of its merchandise amounting
to P 8,400 and a working fund amounting to P 72,000 to be maintained o the imprest basis. The samples sent were intended to last until
January 1, 2020. The agency transmitted to the home office sale of goods costing P 291,600 but the home office was not able to fill up 35% of
the said transmitted sales orders.

Collections from customers amounted to P 82,175, net of 5% sales discount. Payments made by the agency during June, July and August
were annual rent P 70,200, advertising expense P 4,650 and utilities P 6,300. The agency also purchased an equipment on July 1, 2019 worth
P 11,000 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, 2019?
a. 18,610
b. 14,285
c. 14,147.50
d. 10,685

END