HOME OFFICE AND BRANCH ACCOUNTING

PROBLEM 1
ABC Company operates a number of branches in various provinces in the
Philippines. On December 31, 2021, the home office account balance in its Davao
Branch showed a balance of P600,000 before any necessary adjustments. The
following information was provided:
a) The home office collected a Davao branch trade accounts receivable of
P9,000. The branch was not notified about the collection.

b) Merchandise billed at P6,150 was shipped by the home office to the Davao
branch on December 30. The merchandise was still in transit as of December
31 and has not been recognized in the books of the branch.

c) The home office was charged P6,400 when the Davao branch returned
merchandise to the home office on December 31. The merchandise is in
transit.

d) The home office acquired a piece of furniture to be used by the Davao branch
for P8,700. The furniture will be carried in the books of the branch. This was
erroneously recorded as P7,800 by the branch.

e) Salaries expenses charged by the home office to the Davao branch amounted
to P4,500. This was recorded twice by the branch.

f) A charge amounting to P800 for freight on merchandise shipments is made by

the home office but the amount was recorded by the Davao branch as P80.

g) The Davao branch incorrectly sent a debit memo to the home office
amounting to P3,000 representing repairs and maintenance expenses.

h) A home office credit memo representing a discount on merchandise for P800

was not recorded by the Davao branch.

i) The Davao branch failed to take up a P7,000 debit memo from the home
office representing the share of the branch in advertising expenses.

j) A P24,000 shipment, charged by the Home Office to the Davao Branch, was
actually sent to and retained by the Cebu Branch.

k) A P30,000 shipment, intended and charged to the Aklan Branch was shipped
to Davao Branch and retained by the latter.
 l) The Davao branch recorded a debit memo, representing inventory transfers,
amounting to P20,000 twice.

m) The home office recorded a cash remittance of P15,000 from the Cebu
branch as coming from the Davao branch.

n) The home office recorded a branch net income of P84,000. The correct net
income of the branch should be P48,000.

QUESTIONS:
1. How much is the adjusted Home Office account to be reported in the 2021
Statement of Financial Position of the Branch?
a. Zero
b. 577,070
c. 583,470
d. 604,870

2. How much is the unadjusted Investment in the Davao Branch in the books of
the home office?
a. Zero
b. 577,070
c. 583,470
d. 604,870

3. How much is the adjusted Investment in Davao Branch to be reported in the

2021 Combined Statement of Financial Position?
a. Zero
b. 577,070
c. 583,470
d. 604,870
PROBLEM 2
On January 1, 2020, SGP Company established a branch in a nearby city. At the
close of the calendar year ended December 31, 2020, the Investment in Branch
account on the books of the home office had a balance of P66,000. The branch
books reflected another amount thus the difference in the reciprocal accounts is due
to the following data:
a) Cash of P10,000 forwarded to the home office by the branch is in transit and
has not been recorded on the home office books.
b) Merchandise costing the home office P8,000 was transferred to the branch at a
billing price of P9,000. The merchandise is in transit and has not been recorded
on the branch books.
c) Notification sent by the home office to the branch, informing the branch of
P5,000 of operating expenses that the home office paid on behalf of the
branch, has not been received by the branch and thus has not been recorded
by the branch.
d) Cash of P2,000 received by the branch from the home office was erroneously
recorded by the branch as P20,000.
e) The branch purchased, for cash P15,000 of equipment for its use; fixed asset
accounts of the branch are maintained at the home office. The home office is
yet to be notified.
f) The branch reported a net income of P89,000 but was recorded by the home
office at P98,000.

1. Compute the unadjusted balance of Home Office Current account

a. 32,000
b. 36,000
c. 31,000
d. 27,000
PROBLEM 3

The home office bills its branch for merchandise shipments at a mark-up of 30%
based on cost. The following are some of the account balances on the books of
home office and its branch as of December 31, 2020:
Home Office Books Branch Books
Inventory, January 1 P 35,000 P 101,500
Shipments from Home Office 263,900
Purchases 1,575,000 350,000
Shipments to Branch 253,750
Branch Inventory Allowance 91,875
Sales 2,100,000 1,260,000
Operating Expenses 507,500 192,500

Per physical count, the ending inventory of the branch is P73,500 including
goods from outside purchases of P48,475; the ending inventory of the home office
is P210,000.

1. Beginning inventory of the branch in 2020 that came from outside purchases:
a. 33,250 c. 53,025
b. 48,475 d. 68,250

2. Beginning inventory of the branch in 2020 that came from the home office:
a. 33,250 c. 53,025
b. 48,475 d. 68,250

3. The amount of merchandise in transit (at cost):

a. 50,750 c. 65,975
b. 52,500 d. 68,250

4. Total goods available for sale in the branch:

a. 339,500 c. 431,375
b. 689,500 d. 781,375

5. Total goods available for sale in the branch on the home office books:
a. 339,500 c. 431,375
b. 689,500 d. 781,375

6. Unrealized profit in the separate books of the home office on December 31,
2020
a. 15,225 c. 70,875
b. 15,750 d. 21,000

7. COGS in the branch:

a. 571,025 c. 641,900
b. 689,500 d. 781,375
 8. COGS in the branch on the home office books:
a. 571,025 c. 641,900
b. 689,500 d. 781,375

9. Net Income of the branch on the branch books:

a. 425,600 c. 446,250
b. 496,475 d. 469,475

10. Combined Net Income:

a. 461,475 c. 942,725
b. 496,475 d. 957,950

PROBLEM 4

Arrow Modern Clothing, ships merchandise to its Greenbelt branch at a 40% markup
based on cost during 2020, which was higher by 25% compared to the markup
based on cost in the prior year. In 2020, the separate Statement of Comprehensive
Income of the Greenbelt branch shows merchandise from Arrow Modern Clothing in
the amount of P1,890,000. At year-end, Arrow Modern Clothing adjusted its Loading
in Branch Inventory account downward to P99,000. In the books of Arrow Modern
Clothing, the Income Summary – Greenbelt branch was credited in the amount of
P495,000 with a debit to the Unrealized Mark-up account of the same amount.

1. Compute the inventory of the Greenbelt branch at the beginning of 2020

a. 360,000
b. 346,500
c. 414,000
d. 247,500