Home Office, Agency and Branch Accounting

Seatwork

Problem 1
The following information was taken from the records of a branch.

Sales by branch 700,000

Billings to branch by Home Office 625,000
Operating Expenses 100,000
Ending Inventory at billed price 250,000

The following information was taken from the records of the home office

Branch current account 650,000

Shipments to branch 500,000
Allowance for markup – Unadjusted 125,000

Requirements: Compute for the following:

1. Billing rate based on cost or Mark up percentage based on cost
2. Sales of branch to be included in the combined financial statements
3. Realized mark up
4. Cost of goods sold of branch to be included in the combined financial statement
5. Ending inventory of branch to be included in the combined financial statements
6. Unrealized markup in ending inventory
7. Ending balance of the “allowance for markup” account before combining the financial
statements
8. Individual profit of the branch
9. True profit of the branch
10. Adjusted balance of the branch current account immediately prior to combining the financial
statements

Problem 2
The home office consistently bills its branch for shipments at 120% of cost. The following selected
information was taken from the records of the home office and the branch.

Home office books

Sales 1,600,000
Inventory, beg 50,000
Purchases 850,000
Freight In 30,000
Shipments to branch (300,000)
Markup on shipments to branch (during the period) (60,000)
Inventory, end 320,000
Operating expenses 120,000

Classification: Confidential
Investment in branch – end 640,000

Branch Books
Inventory, end
- From outside purchase 18,000
- From home office 120,000
Cash Sales 300,000
Collections on receivables 200,000
Disbursements for purchases form unrelated parties 40,000
Disbursements for operating expenses 60,000
Remittances of collections to home office 25,000

Additional Information
• Accounts receivable has a net income of P80,000, while accounts payable has a net decrease of
P10,000
• Accrued expenses has an ending balance of P5,000. Not included in this account is a P2,000
allocated expenses from the home office. There were no accrued expenses as of the beginning
of the period.
• As at year-end, a shipment from the home office with a billed price of P12,000 was in transit.
Normally, the home office pays 5% freight based on billed price of the goods shipped to the
branch.
• The realized mark up is P41,000 while the combined profit of the home office and branch is
P1,441,700.

Requirement
1. True profit of the branch
2. Beginning inventory of the branch from outside purchases.
3. Beginning balance of “Home Office” account.

Classification: Confidential