1.

Which of the following transactions will decrease the investment in

branch's account in 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.

2. Which of the following statements regarding accounting for home office

and branch is CORRECT?
a. The required balance of the Allowance for Overvaluation account is
the mark-up in the total ending inventory of the branch.
b. The combined net income of the home office and its
branches is presented in the separate Statement of
Comprehensive Income of the Home office.
c. The income of the branch as far as the home office is concern is
debited to Investment in Branch account in the separate books of the
home office.
d. The home office ships merchandise to the branch at a mark-up
based on cost, as a consequence the retained earnings of the branch in
its separate books is understated.

3. Which of the following statements is CORRECT regarding accounting for

home office and branch
a. Assuming the home office ships merchandise to the branch at a mark-
up based on cost, the account Shipments from Home Office in the
published income statement is reported at billed price.
b. If the home office purchased an equipment to be used by the branch
but the record of the asset is being maintained by the home office for
uniform depreciation policy, no entry is required on the part of the
branch.
c. The Allowance for overvaluation account must be debited in
the separate books of the home office to adjust the results of
operations of the branch whether it is a net income or net loss
per branch books.
d. A credit memo received by the branch may be a notification from
the home office about allocation of expense incurred by the latter.
 4. Which of the following statements is CORRECT regarding accounting for
home office and branch?
a. The stockholders’ equity of each branch is eliminated through the
working paper.
b. The accounts Shipments to Branch and Shipments from
Home Office are eliminated in the working paper and closed in
the separate books.
c. The account Allowance for Overvaluation in Branch Inventory
account is debited in the working paper to make the ending inventory
of the branch at cost.
d. A branch may debit an Investment in “another” Branch account for
purposes of interbranch transactions.

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, 2020 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's depreciation

is that it has a life of 8 yrs 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.

5. 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

SOLUTON: (WORK BACK) 280,448 + 900 + 4,652 = 286,000

6. 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. 19,387.5 debit

d. 19,387.5 credit

SOLUTION: 63,800 - 4,652 - 79,200= -20,052

7. What is the net adjustment of the home office current account in the
books of Bacolod branch at the end of the year?

a. 4,887.5 debit
b. 4,887.5 credit
c. 5,552 debit
d. 5,552 credit
SOLUTION: 4,652 + 900 = 5,552

8. Handyman Company has a branch in San Carlos City. Shipments of

merchandise to the branch totaled P.297,000 for the year, which
included a 25% mark-up on cost.
The following data summarizing branch operations for the period
ended December 31, 2019:

Sales on account P407,000

Sales on cash basis 121,000
Collections of accounts 330,000
Expenses paid 149,000
Expenses unpaid 41,000
Purchase of merchandise for cash 143,000
Inventory on hand, January 1 (60% from outside 114,000
purchases)
Inventory on hand, December 31 (70% from home 165,000
office)
Remittances to home office 302,500
Allowance for overvaluation of branch inventory amounted to P 67,000
in the home office books. In the home office books, the branch net
income (loss) is:
A. P16,000 B. (P51,000) C. (7,100) D.
(P5,580)

SOLUTION:

Sales on Account
407,000

Sales on Cash Basis

121,000

Cost of Sales:

Inventory on hand, January 1 114,000

Purchase Merchandise 143,000

Shipment from Home Office 297,000

Total Merchandise Available for Sale 554,000

Ending Inventory at Billed Price (165,000)

Cost of Sales
(389,000)

Gross Profit
139,000

Expenses:

Expenses Paid 149,000

Expenses Unpaid 41,000

(190,000)

Unadjusted Net Income

(51,000)

Allowance for overvaluation of branch inventory

67,000

Adjusted Net Income

16,000
 9. Summary adjusted trial balance for the home office and branch of
Emerald Corporation at December 31, 2019 are as follows:

Home Office Branch

Debits:
Other assets P530,000 P165,000
Inventories, January 1, 2019 50,000 45,000
Branch 200,000 -
Purchases 500,000 -
Shipments from home office - 240,000
Expenses 120,000 50,000
Dividends 100,000
Total Debits P1,500,000 P500,000

Credits:
Other liabilities P90,000 P25,000
Capital stock 500,000 -
Retained earnings 100,000 -
Home office - 175,000
Unrealized profit in branch 10,000 -
inventory/loading
Sales 537,500 300,000
Shipments to branch 200,000 -
Branch profit 62,500
Total credits P1,500,000 P500,000

Additional Information:

1) The home office ships merchandise to its branch at 120% of

home office cost.
2) Inventories at December 31, 2019 are P 70,000 for the home
office and P 60,000 for the branch. The branch inventory is at
transfer prices.

The combined net income of the home office and the branch amounted
to:

A. P370,000 B. P200,000 C. P132,500

D. P170,000

Home Office:
Sales 2,120,000
Less: Cost of Sales (50,000 + 500,000 - 200,000
- 700,000) 1,870,000
Expenses 764,000
Net Income -514,000 137,500

Branch:
Sales 300,000
Less: Cost of Sales (45,000 + 240,000 - 60,000) 225,000
Expenses 50,000
Net Income per Branch's Books 25,000
Realized Profit (225,000 x20%/120%) 37,500
Net Income per Home Office Books 62,500 62,500
Total 200,000

10. The Manila Branch of the Milestone Company is billed for merchandise
by the home office at 20% above cost. The branch in turn, prices
merchandise for sales purposes at 25% above billed price. On February
29, all of the branch merchandise branch merchandise is destroyed by
fire. No insurance was maintained. Branch accounts show the following
information:

Merchandise inventory, January 1 (at P26,400

billed price)
Shipments from home office (January 1 20,000
to February 29)
Sales 15,000
Sales returns 2,000
Sales allowances 1,000

What was the cost merchandise destroyed by fire?

A. P36,000 B. P30,667 C. P36,800 D. P30,000

Merchandise Inventory, 1/1 at Billed Price 26,400

Shipments from Home Office at Billed Price 20,000
Cost of Goods Sold Available for Sale, at Billed
Price 46,400
Less: Cost of Goods Sold, at Billed Price
(15,000-2,000) x 100/125 10,400
Merchandise Inventory, 2/16 at Billed Price 36,000
Multiply: Cost Ratio (100/120) 0.83333
Merchandise Inventory destroyed by fire
 at Cost 30,000

The Davao City branch of Octagon Enterprise, Davao was billed for
merchandise shipments from home office at cost plus 25% 2017 and
cost plus 20 % in 2018. Other pertinent data for 2018:

Davao branch Home office

Sales P630,000 P2,120,000
Inventory 89,000 (at billed 230,000 (at cost)
price)
Purchases 1,640,000
Inventory transfers 504,400 (at billed 420,000 (at cost)
price)
Inventory, end 117,000 (at billed 285,000 (at cost)
price)
Expenses 203,000 764,000

11. What will bet the combined cost of sales of Davao branch and
Octagon’s home office that must be shown in the combined income
statement?
A. P224,300 B. P1,558,150 C. P1,558,700
D. P220,400

12. What will be the combined net income of Davao branch and Octagon’s
home office?
A. P224,300 B. P226,000 C. P221,330
D. P220,400
13. The following data were taken from the records of BMW Corporation of
Baguio and its Davao Branch for 2018:
Baguio Branch Davao Branch
Sales P530,000 P157,500
Inventory, January 1, 57,500 22,250
Purchases 410,000
Shipments to branch 410,000
Shipment from home 126,000
office
Inventory, December 71,250 29,250
31
Expenses 191,000 50,750
 In 2018, Baguio Office billed the Davao Branch at 120% of cost which
was lower by 5% than last year’s. The combined net income of the
home office and the branch is:
A. P48,325 B. P48,575 C. P49,650 D. P56,075
SOLUTION: 35,500 + 20,575 = 56,075

The Baguio branch of CRC-ACE Inc., submitted trial balance as of

December 31, 2020, after the first year of operations:
Debit Credit
Cash P10,400
Accounts receivable 63,200
Shipments from home 168,000
office
Expenses 10,800
Sales P134,400
Home office current 118,000
P252,400 P252,400
Merchandise inventory, P50,400.
Shipments to the branch are billed at 140% of cost.

14. The adjustment to the cost of goods sold of the branch account
amounts to:
A. P0 B. P14,000 C. P33,600 D. other
amount

15. The true net income of the branch during 2020 was:
A. P6,000 B. P33,600 C. P39,600 D. other
amount

16. The overstatement in the branch inventory at December 31, 2020 was:
A. P0 B.P6,000 C. P14,400 D. other
amount
SOLUTION: 50,400 x (40/140) = 14,400

TIM HORTONS Company set up a branch in a province. The entity and its
branch provided 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 years shipment from the home office.

17. 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

SOLUTION: 500K – (30K+100K +250K - 50K) = 170K - 40K =

130,000

18. 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
SOLUTION: 80K + 50K = 130K – (50Kx 24%x20%) – (50k x 50% x
20%) = 122,600

19. 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

SOLUTION: 4,800+50K = 54,800 -7,400 = 47,400

The following information came from the books and records of Filipina
Corporation and its branch. The balances are as of December 31, 2019, the
third year of the corporation's existence.

Home office Dr. (Cr.) Branch Dr. (Cr.)

Sales P(500,000)
Expenses 200,000
Shipments from home 220,000
office
Unrealized profit in P(50,000)
branch

The branch purchases all of its merchandise from the home office. The
inventories of the branch at billed prices are as follows:

January 1, 2019 P30,000 December 31, P25,000

2019

20. Compute the percentage of profit on billed price that the home office
uses to ship merchandise to the branch.
A. 25%

B. 20%

C. 22.73%

D. 29.41%
SOLUTION: 220,000 + 30,000 + 25,000 = 225,000

50,000/225,000 = 22.22%

21. Compute the balance in the Shipments to Branch account before

closing entries are posted.
A. P220,000

B. P270,000

C. P176,000

D. P245,000

22. Compute the true net profit of the branch.

A. P80,000

B. P75,000

C. P120,000

D. P45,000