Prof. Reynaldo A. Cole, Jr.

, CPA, MM ACP 312: 1st Term SY: 2022-2023 Discussion Paper and Practice Set (Week 1-
3)

HOME OFFICE, BRANCH AND AGENCY ACCCOUNTING

AGENCY

Agencies are established to display merchandise and to take customers’ order but they don’t stock merchandise to fill
their orders or to pass on customers’ credit. Agencies are given only samples of merchandise to display. Agencies are
not required to have a complete accounting system. They keep only records of cash receipts and disbursements.

Proforma Entries:
No Transactions Home Office Books
Working Fund – Agency xxx
1 Establishment of Working Fund Cash xx
x
Samples – Agency xxx
2 Shipment of Samples
Shipment to Agency xxx
Accounts Receivable Sales xxx
3 Receipts of orders from customers
– Agency xxx
Cost of Sales xxx xxx
4 Cost of sales associates with agency sales
Shipment to Agency
Expenses - Agency xxx xxx
5 Replenishment of Working Fund
Cash
Expenses – Agency Samples xxx xxx
6 Adjustment of Samples
– Agency
Expenses – Agency xxx
7 Payment of agency expenses by home office
Cash xxx
Sales – Agency xxx
8 Closing of Revenues and Expense Cost of Sales – Agency xxx
Expenses – Agency xxx
Agency Income xxx

Agency Income Retained xxx

9 Closing of Agency Income to Retained Earnings
Earnings xxx

PROBLEM 1
PUP Company put up an agency in Sta. Mesa and had the following transactions with Sta. Mesa agency for the month of
January:
• PUP Company transferred merchandise to Sta. Mesa agency to be used as samples - P13,000 and P10,000 as
working fund.
• Receipts of sales order from the agency – P130,000.
• Collection of agency accounts by the home office – P91,000.
• PUP Company paid P11,700 for agency expenses.
• Replenishment of the agency working fund upon receipt of expense vouchers – P6,850.
• Cost of goods sold identified with the agency sales – P93,000.
• Appraised value of the samples at the end of the month is estimated to be P8,000.

Determine the following:

a. Net Income (Loss) of the agency

b. Entries to record the transactions in the books of PUP Company and Sta, Mesa Agency

HOME OFFICE AND BRANCH ACCOUNTING

Branches stock merchandise coming from the home office or acquired from other suppliers, make sale to customers,
pass on customer’s credit, collect receivables, incur expenses and perform other functions normally associated with
the operations of a separate entity. Branches have their own books of accounts and prepare financial statements and
submit them to home office for consolidation.

Proforma Entries
No Transactions Home Office Branch

Branch Cash xxx xxx Cash xxx xxx

1 Cash sent by Home Office to Branch
Home Office
Merchandise sent by Home Office to Branch xxx xxx Shipment from HO Home xxx xxx
2
Branch Shipment to Branch Office
Merchandise returned by Branch to Shipment to Branch xxx xxx Home Office xxx xxx
3
Home Office Branch Shipment from HO
 Cash remitted by Branch to Home Cash Branch xxx xxx Home Office xxx xxx
4
Office Cash
Fixed assets purchased by Home
5 Office for the Branch (records are Fixed Assets Cash xxx xxx Memorandum Entry
kept by Home Office)
Fixed assets purchased by Home
Fixed Assets Home
6 Office for the Branch (records are Branch Cash xxx xxx xxx xxx
Office
kept by Branch)
Adjusting entry for the depreciation in Branch xxx xxx Depreciation Expense xxx xxx
7
No. 5 Accum. Depreciation Home Office
Adjusting entry for the depreciation in Depreciation Expense xxx xxx
8 No Entry
No. 6 Accum. Depreciation
Fixed assets purchased by Branch Fixed Assets xxx xxx Home Office xxx xxx
9
(records are kept by Home Office) Branch Cash
Accounts payable of Branch paid by Branch xxx xxx Accounts Payable Home xxx xxx
10
Home Office Cash Office
Accounts receivable of Home Office Branch xxx xxx Cash xxx xxx
11
collected by Branch Accounts Receivable Home Office
Branch expenses paid by the Home Branch xxx xxx Expenses Home xxx xxx
12
Office Cash Office
Branch expenses charged by Home Branch xxx xxx Expenses Home xxx xxx
13
Office Expenses Office

PROBLEM 2
Home office and branch accounts of CAF Company show activities for the month of February:
HOME OFFICE

Cash remitted 42,000 Beginning Balance 15,000

Merchandise returned by HO 3,000 Shipment at cost 32,000
Fixed assets charged to HO 5,000 Expense allocated from HO 14,500
HO note collected with interest 2,100

BRANCH

Beginning Balance 15,000 Branch remittance 36,000

Shipment at cost 37,000 Fixed assets purchased by branch 5,000
Expense allocated to Branch 15,400
Note collected by branch 2,000

Except for a branch error in recording expense allocations and home office error in not recording interest, all
differences in the accounts are due to timing differences in recording reciprocal information.

Determine the following:

a. Unadjusted and adjusted balance of the Home Office Account

CLOSING ENTRIES

Proforma Entries
No Transactions Home Office Branch

Inventory, end xxx Inventory, end xxx

Sales xxx Sales xxx xxx
To close the balance of revenue and Shipment to Branch xxx Inventory, beg xxx
1 xxx
expenses accounts Inventory, beg Shipment from HO xxx
Purchases xxx Purchases xxx
Expenses xxx Expenses xxx
Income Summary xxx Income Summary
To close the branch net profit to the (already recorded as an adjusting Income Summary Home xxx xxx
2
HO account entry) Office
Income Tax Expense xxx
3 To record income taxes No Entry
Income Tax Payable xxx
To close the branch income to Income Branch xxx
4 No Entry
Summary Income Summary xxx
To close the combined net income to Income Summary xxx xxx
5 No Entry
Retained Earnings Retained Earnings
CONSOLIDATION OF FINANCIAL STATEMENTS

Consolidation Procedures:
1. Combine like items of assets, liabilities, equity, revenues and expenses of the home office and branch.
2. Eliminate inter-company transactions.
• Eliminate home office and branch account.
Home Office xxx
Branch xxx

• Eliminate merchandise shipment accounts.

Shipment to Branch xxx
Shipment from HO xxx

• Eliminate allowance for overvaluation of inventory.

Allowance for overvaluation xxx Inventory
xxx
• Eliminate intercompany sales and purchases.
Sales xxx
Cost of Sales xxx

• Eliminate intercompany payables and receivables.

Accounts Payable xxx
Accounts Receivable xxx

PROBLEM 3
The unadjusted trial balance of the Home Office and Branch as of December 31, 2017 is as follows:
Accounts Home Office Branch

Cash 116,000 31,250

Accounts Receivable 104,250 63,000

Inventory 200,600 0

Branch 196,500 0

Furniture and Fixtures 100,000 40,000

Accumulated Depreciation 22,000 0

Accounts Payable 112,750 51,250

Home Office 0 196,500

Share Capital 250,000 0

Retained Earnings 302,100 0

Sales 525,000 330,000

Shipment to Branch 251,000 0

Purchases 612,500 112,500

Shipment from HO 0 251,000

Operating Expenses 133,000 80,000

Total 1,462,850 1,462,850 577,750 577,750

Adjustments:
• Depreciation Expense: Home Office – P5,900; Branch – P3,250
• Inventory, end: Home Office – P242,500; Branch – P117,500

Determine the following:

a. Adjusting Entries on both books
b. Closing Entries on both books
c. Elimination Entries
d. Net Income of Home Office
e. Net Income of Branch
f. Consolidated Net Income

SHIPMENT TO BRANCH AT ABOVE COST

Proforma Entries
Home Office Branch

Branch xxx xxx

Shipment from HO Home
Shipment to Branch xxx xxx xxx
Office
Allowance for Overvaluation

The billed price is either:

• Based on sales (gross profit rate)
• Based on cost (mark-up rate)

PROBLEM 4
BSA Company operates a branch in Cebu City. Operating data for the home office and branch:
Home Office Branch
Sales 300,000 78,500
Purchases from outsiders 210,000 20,000
Shipment to Branch/from HO 30,000 40,000
Expenses 60,000 12,500
Inventory, 01/01/2017:
From outsiders 80,000 7,500
From home office 0 24,500
Inventory, 12/31/2017:
From outsiders 55,000 5,500
From home office 0 26,000

Determine the following:

a. Inventory on January 1 and December 31 at cost
b. Cost of Sales of the Branch at cost
c. True income of the Branch
d. Consolidated net income
PROBLEM 5
The income statement submitted by Branch to the Home Office for the month of January is as follows:
Sales 600,000
Less: Cost of Sales
Inventory, Jan 1 80,000
Shipment from HO 350,000
Purchases 30,000
Inventory, Jan 31 (100,000) 360,000
Gross Profit 240,000
Less: Operating Expenses 180,000
Net Income (Loss) 60,000

The inventory of the branch consisted of:

January 1 January 31
From home office 70,000 84,000
From outsiders 10,000 16,000

After effecting necessary adjustments, the home office ascertained that the net income of the branch should be
P156,000.

Determine the following:

a. Percentage of billing by home office
b. Allowance for overvaluation of inventory

PROBLEM 6
Duterte Company has a branch in Davao City. Davao branch receives all its merchandise from Duterte at 25% above
cost and sells them at 40% mark-up on cost. Duterte also sells merchandise to outsiders at 40% above cost. Below are
the excerpts from the trial balance of Duterte and Davao branch:
Home Office Branch
Sales 5,880,000 3,360,000
Purchases 6,250,000
Inventory, beginning 350,000 200,000
Shipment to Branch 2,000,000
Shipment from HO 2,375,000
Allowance for overvaluation 540,000
Operating Expenses 1,200,000 325,000

Determine the following:

a. Inventory of branch on December 31
b. Consolidated inventory
c. True income of the branch
d. Consolidated Net Income
e. Allowance for Overvaluation

PROBLEM 7
SM Company just opened a branch in Baguio City this February of the current year. Summary of transactions for the 1st
month of operations follows:
1. Baguio Branch received P15,750 cash from home office to start its operations.
2. Home office shipped merchandise to the branch costing P100,000 at 25% mark-up on cost, of which 20% have
not yet received by the branch.
3. Branch purchases from other suppliers amounted to P89,250.
4. Branch sales for the month amounted to P245,000.
5. Home office debit memo for P3,500 representing the branch’s share on advertising expenses was recorded only
by the branch on the 3rd day of March.
6. Branch operating expenses of P61,250 were paid by the home office.
7. Branch remitted P29,750 to the home office but the home office recorded it only in March.
8. The inventory on hand of the branch is: from outsider – P21,000 and from HO – P37,500.

Determine the following:

a. Unadjusted and adjusted balance of Home Office account
b. Unadjusted and adjusted balance of Branch account
c. Net Income reported by the Branch
d. True Income of the Branch

PROBLEM 8
The Manila branch of Pacman Company is billed for merchandise at 20% gross profit rate. The branch sells them at 25%
above cost. On March 17, the entire branch’s merchandise was destroyed by fire. The branch records that were
recovered show:
Inventory, beginning (at billed price) 165,000
Shipment, Jan 1 – March 17 (at billed price) 100,000
Purchases from outsiders – all were sold at 20% mark-up on cost 7,500
Sales 169,000
Sales returns 3,750
Determine the following:
a. Branch beginning inventory at cost
b. Cost of merchandise destroyed by fire

INTER-BRANCH TRANSFER OF MERCHANDISE WITH EXCESS FREIGHT

There are instances when home office finds it necessary to authorize the transfer of merchandise from one branch to
another branch. Since branches receiving shipments are properly charged with freight and freight is properly
accounted as inventoriable cost, any excess freight should be absorbed by the home office and treated as an operating
expense. On the other hand, any reduction in freight is treated as savings by the home office.

PROBLEM 9
The Home Office shipped merchandise to Baguio Branch costing P10,000 and paid a freight of P650. Baguio Branch was
subsequently instructed to transfer merchandise to Laoag Branch wherein Baguio Branch paid P200 freight. If the
shipment was directly shipped from Home Office to Laoag Branch, the freight cost would have amounted to P700.

Determine the following:

a. Entries to record the transactions
b. Entries to record the transactions assuming the freight from Home Office to Laoag is P1,000.