HOME OFFICE AND BRANCH ACCOUNTING

Home office operates a number of branches. On December 31, 2019, its branch B showed a Home
office account balance of P54,700. The interoffice accounts at the beginning of the year were
correct, however during the year there were errors in recording in both home office and branch.
The following errors occurred during the year:

 A P24,000 shipment charged by the home office to branch B was actually sent to and
retained by branch C.
 A P30,000 shipment intended and charged to branch A was shipped to branch B and
retained by the latter.
 A P4,000 emergency cash transfer from branch C was not taken up in the home office
books.
 Home office collects branch B’s customer accounts of P7,200 and fails to notify the branch.
 Home office charged for P2,400 for merchandise returned by branch B on December 30
and is in transit.
 Home office erroneously recorded branch B’s net income for the year at P32,550. Branch B
reported net income of P25,350.

1. What is the adjusted balance of the reciprocal accounts on December 31, 2016?
a. 54,700
b. 47,500
c. 40,300
d. 43,500

2. What is the unadjusted balance of the investment in branch B on December 31,2016?

a. 48,700
b. 43,900
c. 51,100
d. 39,100

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.
 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.
 The policy of the company regarding the equipment depreciation is that it has a
life of 8yrs 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 P96,700. Bacolod
recorded the transaction as P97,600
 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.
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

4. What is the net adjustments of the investment in Bacolod account at the end of the year?
a. 20,052 debit
b. 20,052 credit
c. 19,387.5 debit
d. 19,387.5 credit

5. What is the net adjustments of the home office current account in the books of Bacolod
branch at the end of the year?
a. 4,887.5 debit
b. 4,887.5 credit
c. 5,552 debit
d. 5,552 credit

6. The following transactions relating to branch AA and branch BB are following:

 On September 30, 2016, branch AA collected branch BB’s accounts receivable of
P80,000 less 3% discount.
 On October 31, 2016, home office shipped merchandise costing P400,000 to
branch AA. Freight of P6,000 was paid by the home office. It is the policy of the
company to bill its branches at 25% above cost.
 On November 30, 2016, upon the instruction of the home office,branch AA
reshipped a quarter of the above merchandise to branch BB with freight of
P3,000 (freight-collect). Had the goods been shipped directly to branch BB, the
freight would have been only P1,400.
What is the home office current account of branch AA as of October 31, 2016?
a. 483,600
b. 577,600
c. 583,600
d. 983,600

7. What is the investment in BB account as of November 30, 2016?

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

8. The following information is given regarding AAA company:

 The reciprocal account in the separate income statement of the home office
amount to P225,000
 During the year 2016 (current year), home office bills merchandise to the branch
at 215% on cost.
 The beginning inventory of the branch is P 249,375.
  During the 2016, the branch purchased from vendors merchandise amounting to
P150,000.
 The ending inventory of the branch as shown on the combined financial
statements is P267,125.
 The allowance for overvaluation before adjustments is P320,000.
 The beginning inventory of the branch from the home office at cost is P153,125
 The unrealized profit at the end of the year must be decreased by P55,000.
What is the cost of goods sold in the combined financial statements at the end of 2016?
a. 351,000
b. 354,900
c. 296,000
d. 306,190

9. What is the total goods available for sale recorded in the branch’s books at the end of
2016?
a. 883,125
b. 563,125
c. 624,375
d. 821,875

10. The income statement submitted by the branch to the home office for the year ended
December 31, 2016 has the following balances: Beginning inventory was P80,000 (of
which P10,000 came for known suppliers). Ending inventory was P100,000 (of which
P16,000 came from known suppliers). Shipments from home office was P350,000 and
purchases from known supplier was P30,000. Operating expenses during the year was
P180,000. The branch generated sales in the amount of P600,000. At the end of the year
after adjustments have been made the recorded true net income of the branch was
ascertained to be P156,000.

What is the balance of the unrealized profit in branch inventory account at December 31,
2016?
a. 16,000
b. 34,000
c. 10,000
d. 24,000

11. 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.

Collection from customers amounted to P82,175, net of 5% sales discount. Payments

made by the agency during june and august were annual rent 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 to 15% per annum. The gross profit rate
on sales agency order is 20% of gross sales.
What is the net income of the agency for the three months ended august 31, 2016?
a. 18,610
b. 14,285
c. 14,147.50
d. 10,685