HOME OFFICE AND BRANCH THEORIES

(mavy)

1. Which of the following accounts is a reciprocal account to the investment in the branch
account?
A. Branch Income
B. Equity in Home Office
C. Home Office Capital
D. None of the above

ANSWER: D

2. The Shipments to Branch ledger account in the accounting records of the home office of a
business enterprise.
A. asset valuation account
B. Indicates that the home office uses the periodic inventory system
C. Is adjusted at the end of the accounting period to equal the unrealized profit in the
branch's ending inventories
D. Is not displayed in the home office's separate financial statement

ANSWER: D

3. Which of the following would explain why the Investment in Branch account is less than the
Home Office Capital Account?
A. A cash transfer to the branch is in transit
B. A cash transfer to the home office is in transit
C. An inventory shipment to the branch (at cost) is in transit
D. A home office has received and deposited a remittance from a branch customer but has
not yet notified the branch
E. None of the above

ANSWER: B

4. In a working paper for combined financial statements of home office and branch the branch's
net income is included in:
A. The debit column of the branch income statement section and the credit column of the
branch statement of retained earnings section.
B. The credit column of the branch income statement section and the debit column of the
branch statement of retained earnings section.
C. The debit column of the branch income statement section and the credit column of the
home office statement of retained earnings section.
D. Some other manner

ANSWER: A

5. When billing at retail sales price, which of the following is incorrect?

A. Branch statements may be prepared and submitted to the home office.
 B. If the branch is billed for goods at the sales price, the branch cost of goods sold will not
be equal to sales, and branch activities will show a loss from operations equal to the
expenses of operation.
C. The home office, when informed of branch sales currently, is provided with a
continuous record of the goods in the hands of the branch.
D. The statements above are all true

ANSWER: B

6. In accounting for branch transactions, it is improper for the home office to:
A. Credit cash received from a branch to the Investment in Branch ledger account.
B. Maintain Common Stock and Retained Earnings ledger accounts for only the
home office.
C. Debit shipments of merchandise to the branch from the home office to the
Investment in Branch ledger account.
D. Credit shipments of merchandise to the branch to the Sales ledger account.

ANSWER: D

7. When a home office ships merchandise to Branch A which is later shipped to Branch B, the
additional freight charged to ship the merchandise form Branch A to Branch B should:
A. Treated as an expense on the Home Office books
B. Included as part of the cost of merchandise to Branch A
C. Included as part of the cost of merchandise to Branch B
D. Both B and C are correct

ANSWER: A

8. For a home office that uses the periodic inventory system of accounting for shipments of
merchandise to the branch, the credit balance of the Shipments to Branch ledger account
is displayed in the home office separate:
A. Income statement as an offset to purchase
B. Balance sheet as an offset to Investment in Branch
C. Balance sheet as an offset to inventories
D. Income Statement as revenue.

ANSWER: A

9. Which of the following generally is not a method of billing merchandise shipments by a home
office to the branch?
A. Billing at cost
B. Billing at a percentage above cost
C. Billing at a percentage below cost
D. Billing at retail selling price

ANSWER: C

10. The home office ledger account in the accounting records of a branch is best
described as as:
A. A revenue account
 B. An equity account
C. A deferred revenue account
D. None of the foregoing

ANSWER: B

11. In preparing the financial statements of the home office and its various branches:
A. Nonreciprocal accounts are eliminated but reciprocal accounts are combines
B. Both reciprocal and nonreciprocal accounts are eliminated
C. Both reciprocal and nonreciprocal accounts are combines
D. Reciprocal accounts are eliminated and nonreciprocal accounts are combine

ANSWER: D

12. In developing combined statements, the following are true, except:

A. Accounts for the home office and the branch need not berestated.
B. Combining branch and home office accounts results in those balances that would have
been obtained if one set of accounts had been maintained in recording activities
of both branch and the home office.
C. Any balance sheet accounts that report interoffice debits and credits have no
meaning when the related entities are recognized as one entity are eliminated.
D. The above statements are all correct

ANSWER: A

13. As per AICPA SOP 98-5, start-up costs an entity undertakes when it introduces a
new product or service, conducts business in a new territory or with a new class of
customer or beneficiary, initiates a new process in an existing facility or commences
some new operation:
A. Must be expensed as the entity incurs them.
B. Must be deferred as charges.
C. Either A or B.
D. Neither A nor B

ANSWER: A

14. Transactions between a home office and its branch are accounted for in reciprocal accounts.
The reciprocal account maintained in the branch books is called

A. Investment in branch
B. Home office
C. Advances from home office
D. Any of these

ANSWER: B

15. For external reporting, the individual financial statements of the home office and the branch
are combined
 A. by using complex consolidation procedures
B. by recognizing the home office's own assets, liabilities, income and expenses plus its
share in the branch's assets, liabilities , income and expenses
C. by adding together similar items of assets, liabilities, income and expenses
D. by adding together similar items of assets, liabilities, income and expenses and
eliminating reciprocal accounts.

ANSWER: D

16. The freight on shipments to branch paid by the home office is recorded by the home office
as

A. Debit to freight-in
B. Credit to freight-in
C. Credit to Investment Account
D. Credit to Cash

ANSWER: D

17. Which of the following would explain why the Investment in Branch account is less than the
Home Office Capital account?
A. A cash transfer to the branch is in transit
B. A cash transfer to the home office is in transit
C. An inventory shipment to the branch (at cost) is in transit
D. A home office has received and deposited a remittance from a branch customer but has
not yet notified the branch e. None of the above

ANSWER: B

18. Which of the following accounts is a reciprocal account to the Investment in Branch
account?
A. Branch Income
B. Equity in Home Office
C. Home office capital
D. None of the above

ANSWER: D

19. A control feature in a decentralized accounting system is

A. The balance in the investment in Branch account must equal the balance in the Home
Office Capital account
B. The balance in the Investment in Branch account must equal the balance in the Home
Office Capital account less the branch’s cumulative unremitted profits
C. The intracompany accounts are eliminated in preparing combined financial statements
D. The balance in the Investment in Branch account must equal the balance in the Branch
Income account
ANSWER: D

20. if both the home office and the branch of a business enterprise use the periodic inventory
system, the home office’s Shipments to Branch ledger account:
A. Is a valuation account for the home office’s Investment in Branch account
B. Always should have the same balance as the branch’s Shipments from Home Office
account
C. Is a revenue account
D. Is a valuation account for the home office’s Purchases account.

ANSWER: C

21. If the home office receives debit memo from the branch, the home office shall record it in its
separate statement of financial position by
A. Increasing the investment in branch account
B. Decreasing the investment in branch account
C. Debiting the investment in branch account
D. Disclosure

ANSWER: B

22. Which of the following transactions will decrease the investment in branch’s account in the
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

ANSWER: D

23. Which of the following is the only reason why a home office cannot report inventory
shipments to a branch as sales?
A. The inventory transfer is a transaction with a related party.
B. There is no practicable means of determining whether the transfer prices
approximate those that would occur in an arms-length transaction between
independent parties
C. Only inventory transaction between the company and outside third parties can be
considered sales
D. The principles of conservatism

ANSWER: C

24. An enterprise uses a branch accounting system in which it establishes separate

formal accounting systems for its home office operations and its branch office
operations. Which of the following statements about this arrangement is false?
A. The home office account on the books of the branch represents the equity
interest of the home office in the net assets of the branch
B. The branch office account on the books of the home office represents the equity
interest of the branch in the net assets of the home office
 C. The home office and branch office accounts are reciprocal accounts that must be
eliminated in the preparation of the enterprise’s financial statements that are
presented in accordance with GAAP
D. Unrealized profit from internal transfers between the home office and a branch must be
eliminated in the preparation of the enterprise’s financial statements that are presented
in accordance with GAAP

ANSWER: B

25. The home office bills its branch for merchandise transfers at a price in excess of cost. In the
home office separate financial statements, the allowance for unrealized profit in branch
inventory account would appear in the financial statements of the home office as
A. An operating expense of the current period
B. Deduction from the cost of goods sold
C. Addition to the cost of goods sold
D. Deduction from the investment in branch account

ANSWER: D

HOME OFFICE AND BRANCH PROBLEMS

(mavy)

Use the following information for question 1 and 2:

Selected balances from the Cebu Company’s Branch A and B are as follows:

Accounts Branch A Branch B

Inventory, 1/1 /20x4 P 21,000 P 19,000

Branch Fund 2,000 1,500

Inventory, 12/31 /20x4 19,000 12,000

A/Receivable. 1/1 /20x4 55,000 43,500

Merchandise from Home Office 61,000 47,000

Accounts Receivable, 12/31 /20x4 70,000 53,500

Sales 100,000 80,000

Cash Expense 21,000 14,300

All sales, collections, and expenses are handled at the branch. All cash received
from sales and collections are sent directly to the Home Office. Expenses are paid by the
branch from the fund and immediately reimbursed by the Home Office and credited to the Home
Office account. All expenses paid by the branch are recorded in the books of the branch.
 1. Compute the balance of the Home Office account in the books of Branch on January 1,
202020x4
A B
A. 163,000 67,000
B. 64,000 78,000
C. 139,000 111,000
D. 78,000 64,000

ANSWER: D
Solution

Branch Books
Branch A Branch B
Inventory, beg. 21,000 19,000
Branch Fund 2,000 1,500
A/Receivable, beg. 55,000 43,500
Home Office 78,000 64,000
account, Jan. 1

2. Compute the balance of the Home Office account on December 31, 20x4.

A B
A. 110,000 152,000
B. 91,000 67,000
C. 139,000 111,000
D. 78,000 64,000

ANSWER: B
Solution

Branch A Branch B
Branch Fund 2,000 1,500
Inventory, end 19,000 12,000
A/Receivable,end 70,000 53,500
Home Office 91,000 67,000
account, Dec. 31

3. Changi Trading Corp. operates a branch in Dagupan City. At the close of business on
December 31, 20x4. Dagupan Branch account in the home office books showed a debit balance
of P225,770. The interoffice accounts were in agreement at the beginning of the year. For
purposes of reconciling the interoffice accounts, the following facts were ascertained:

 Office equipment costing the home office P3, 500 was picked UP by the branch as P350.
 Insurance premium of P675 charged by the home office was taken up twice by the
branch
 Freight charges on merchandise made by the home office for P1,125 were recorded in
the branch books as P1,215.
  Home office credit memo representing a discount on merchandise for P800 was not
recorded by the branch.
 The branch failed to take up a P700 debit memo from the home office representing the
share of the branch in advertising.
 The home office inadvertently recorded a remittance for P3,000 from the Cebu
branch as remittance from its Dagupan branch.
Compute the balance as of Dec. 31, 20x4.

Unadjusted balance Adjusted balance

of the home of the current
office account

A. 226,485 225,770
B. 228,485 228,770
C. 225,770 226,485
D. 226,485 228,770

ANSWER: D
Solution

Adjustment Branch Home Office Current

Current

Unadjusted Balance 225,770 226,485

Office Equipment erroneously recorded 3,150

Insurance premium was recorded (675)

twice

Freight erroneously recorded (90)

Unrecorded Credit Memo (800)

Unrecorded Debit Memo 700

H. O. error 3,000

Adjusted Balance 228,770 228,770

 Work back with 228,770 to get the Unadjusted Balance

4. Luzon Corporation starts a branch operation in a nearby town. Merchandise costing 80,000 is
shipped to this branch along with equipment costing 50,000. During the initial year, the home
office assigns 8,000 in expenses to the branch. The branch sells 70% of the inventory that it
received for 80,000 and remits 40,000 in cash to the Home Office. What is the correct Home
Office account balance on the records of the branch? Closing entries have not been made.
 A. 98,000
B. 104,000
C. 122,000
D. 178,000

ANSWER: A
Solution

Shipment of merchandise to home office 80,000

Equipment sent to home office 50,000

Expenses assigned to branch by the home office 8,000

Cash remittance to home office (40,000)

Home office account balance 98,000

5. Tillman Textile Company has a single branch in Bulacan. On March 1, 2016 the home office
accounting records included an allowance for overvaluation of inventories –Bulacan
Branch ledger account with a credit balance of P 32,000. During March,
merchandise costing P 36,000 was shipped to Bulacan branch and billed at a
p[ricerepresenting 40% mark up on the billed price. On March 31,2016 the branch prepared an
income statement indicating a net loss of P11,500 for March and ending inventories at billed
prices of P25,000. What is the adjustment for the allowance for overvaluation of inventories to
reflect the true branch net income?
A. P 39,257 dr
B. P 46,000 cr
C. P 39,333 dr
D. P 46,000 dr

ANSWER: D
Solution

Merchandise Inventory, March 1, 2016 32,000

Add: Shipments (36,000/60%= 60,000*40%- note: markup is based on billed price) 24,000

Cost of Goods Sold 58,000

Less: Merchandise Inventory, March 31, 2016 (25,000*40%) 10,000

Overvaluation of CGS/ Realized gross profit on branch sales 46,000

6. The Gift Co, has a branch in Dipolog City. During 2016 the home office shipped to the branch
merchandise billed at P 150,000 including a markup of 20% on cost. The branch reports
opening and closing inventories of P 90,000 and P 120,000 respectively, while the home office
has closing inventories of P 210,000 which includes merchandise held on consignment values
at P 10,000. Both locations use the periodic inventory system. What Closing inventory would be
reported in the combined income statement for the year 2016?
A. P 296,000
B. P 300,000
C. P 320,000
D. P 330,000

ANSWER: B
Solution

Ending Inventory:
Branch (120,000*100/120) 100,000
Home office (210,000-10,000) 200,000
300,000

7. Fisher Company opened its Tuguegarao Branch on January 1, Merchandise shipments from
home office during the month billed at 120% of cost, is P 125,000. Branch returned damaged
merchandise worth P 15,620. On January 31, the branch reported a net loss of ofP 84,000.
What is the net income or loss of the branch to be taken up in the books of the home office?
A. (P 1,490)
B. 6,500
C. (P 2,270)
D. 1,960

ANSWER: D
Solution

Net income (loss) per branch books 2,270

Add: Realized Profit from sales made by the branch/Overvaluation of

cost of goods sold:

Beginning inventory -

Add: Shipments 125,000

Less: Returns 15,620

Cost of goods available for sale at billed price 109,380

Less: Ending Inventory, at billed price 84,000

Cost of goods sold at billed price 25,380

Multiplied by mark-up 20/120 4,230

Adjusted Branch Income 1,960

8. Barros Corporation’s shipments to and from its Brazil City branch are billed at 120% cost.On
December 31, Brazil branch reported the following data, at billed prices: inventory, January 1, of
P33,600; shipments received from home office of P840,000; shipments returned of P48,000;
and inventory. December 31, of P36,000. What is the balance of the allowance for overvaluation
of branch inventory on December 31 before adjustments?
A. P5,600
B. P137,600
C. P6,000
D. P145,600

ANSWER: B
Solution

Inventory, January 1 33,600

Add: Shipments from office, net returns 792,000

(840,000 - 48,000)

Cost of good available for sale 825,600

Multiplied by mark-up 20/120

Allowance for overvaluation before 137,600

adjustments

The Home Office in Obrero bills its Catitipan branch for shipments of goods at 25% above cost.
At the close of the business on April 27, 2016, a fire gutted the branch warehouse and
destroyed 70% of the merchandise stock stored therein. Thereafter, the following data were
gathered:

January 1 Inventory P 672,000

Shipments from Home Office, January 1 through April 27 1,008,000

Net Sales, January 1 through April 27 1,428,000

Undamaged merchandise recovered are marked to sell 378,000

for

9. What is the amount of inventory destroyed by the fire per home office records at cost?
A. P 178,500
B. P 273,000
C. P 441,000
D. P 892,500

ANSWER: C
Solution
Undamaged Merchandise Inventory (30%) 378,000

Total Ending Inventory (378,000/30%) 1,260,000

Total CGAS at SP (1,260,000 + 1,428,000) 2,688,000

Total CGAS (672,000 + 1,008,000) 1,680,000

Mark up on sales (2,688,000 / 1,680,000) 160%

Ending Inventory at Damaged Price (1,260,000 x 882,000

70%)

Ending Inventory at Billed Price (882,000/160%) 551,250

Ending Inventory at Cost (551,250/125%) 441,000

10. How much is the branch net income as provided by GAAP?

A. P 178,500
B. P 273,000
C. P 441,000
D. P 892,500

ANSWER: B
Solution

Sales 1,428,000

True Cost of Goods Sold (892,500/125%) 714,000

Gross Profit 714,000

Loss on fire 441,000

Net income 273,000

11. A reconciliation of the investment in Tarlac branch account of Manila Company and the
Home Office account carried in the books of the branch shows the following discrepancies at
December 31, 2013:
 A credit from merchandise allowance for 3,000 was taken by the branch as 3,600.
 A charge by the branch of 5,500 for an advance taken by the president when he visited
the branch has not yet been recorded by the Home Office.
 The branch has not taken up 9,000 covered by a debit memo from the Home Office as
share in advertising expenses
The investment in the Tarlac branch account in the Home office books had a debit balance of
430,000 at December 31, 2013. The reciprocal accounts were in agreement at the beginning of
the year. What is the unadjusted balance of the Home Office account in the books of the branch
on December 31,2013?
A. 414,900
B. 419,900
C. 429,500
D. 404,900

ANSWER: A
Solution

Unadjusted balance – Investment in Branch account, 12/31 P430,000

Charge for advances by president (5,500)

Erroneous entry for merchandise allowance (600)

Share in advertising expense (9,000)

Unadjusted balance – Home Office account, 12/31 P414,900

12. The Robert Company established its Bulacan branch in January 2016. During its first year of
operations, home office shipped to its Bulacan Branch merchandise worth P 130,000 which
included a mark–up of 15% on cost. Sales on account totaled P 250,000 while cash sales
amounted to P 80,000. Bulacan reported operating expenses P 38,000 and ending inventory P
15,000 at billed price. In so far as the home office is concerned, the real net income of Bulacan
is:
A. 82,000
B. 147,000
C. 177,000
D. 192,000

ANSWER: D

Sales (250,000+80,000) 330,000

Less: COGS at cost: 130,000

Shipments from home office 15,000

Cost of goods sold at billed price 115,000

Multiplied by: Cost ratio 100/115 100,000

Gross Profit 230,000

Less: operating expenses 38,000

Net Income of the branch in so far as the Home office is 192,000

concerned

HOME OFFICE AND BRANCH (SABELA)

Theories

1. In developing combined statements, the following are true, except:

a. Accounts for the home office and the branch need not be restated.
b. Combining branch and home office accounts results in those balances that
would have been obtained if one set of accounts had been maintained in
recording activities of both branch and the home office.
c. Any balance sheet accounts that report interoffice debits and credits have
no meaning when the related entities are recognized as one entity are
eliminated.
d. The above statements are all correct.

ANSWER: A

2. Analyse the following statements.

I. The accounting records for branches may be centralised in the home office.
II. The accounting records for branches may be decentralised.
a. Statement I is correct. Statement II is incorrect.
b. Statement I is incorrect. Statement II is correct.
c. Statements I and II are both correct.
d. Statements I and II are both incorrect.

ANSWER: C

3. A branch is an organisation that:

a. Is established to display merchandise.
b. Does not stock merchandise to fill customer’s orders or pass on customer’s
credit.
 c. Has no separate accounting or business entity.
d. The statements above are all incorrect

ANSWER:D

4. Analyse the following statements.

I. At the end of an accounting period, the balance of the Investment in Branch
ledger account may not agree with the balance of the Home Office account.
II. It is acceptable that the fiscal year for the home office does not coincide with
the fiscal year for the branch.
a. Statement I is correct. Statement II is incorrect.
b. Statement I is incorrect. Statement II is correct.
c. Statements I and II are both correct.
d. Statements I and II are both incorrect.

ANSWER: A

5. As per AICPA SOP 98-5, start-up costs an entity undertakes when it introduces a
new product or service, conducts business in a new territory or with a new class of
customer or beneficiary, initiates a new process in an existing facility or commences
some new operation:
a. Must be expensed as the entity incurs them.
b. Must be deferred as charges.
c. Either A or B.
d. Neither A nor B.

ANSWER: A

6. When billing at retail sales price, which of the following is incorrect?

a. Branch statements may be prepared and submitted to the home office.
b. If the branch is billed for goods at the sales price, the branch cost of goods
sold will not be equal to sales, and branch activities will show a loss from
operations equal to the expenses of operation.
c. The home office, when informed of branch sales currently, is provided with
a continuous record of the goods in the hands of the branch.
d. The statements above are all true.

ANSWER: B

7. In accounting for branch transactions, it is improper for the home office to:
a. Credit cash received from a branch to the Investment in Branch ledger
account.
b. Maintain Common Stock and Retained Earnings ledger accounts for only
the home office. c. Debit shipments of merchandise to the branch from the
home office to the Investment in Branch ledger account.
d. Credit shipments of merchandise to the branch to the Sales ledger
account.
ANSWER: D

8. When a home office ships merchandise to Branch A which is later shipped to

Branch B, the additional freight charged to ship the merchandise form Branch A to
Branch B should:
a. Treated as an expense on the Home Office books
b. Included as part of the cost of merchandise to Branch A
c. Included as part of the cost of merchandise to Branch B
d. Both B and C are correct

ANSWER: A

9. For a home office that uses the periodic inventory system of accounting for
shipments of merchandise to the branch, the credit balance of the Shipments to
Branch ledger account is displayed in the home office separate:
a. Income statement as an offset to purchase
b. Balance sheet as an offset to Investment in Branch
c. Balance sheet as an offset to inventories
d. Income statement as revenue.

ANSWER: A
10. A branch journal entry debiting Home Office and crediting Cash may be
prepared for:
a. The branch’s transmittal of cash to the Home Office
b. The branch’s acquisition for cash of plant assets to be carried in the home
office accounting records only
c. Either (a) or (b)
d. Neither (a) nor (b)

ANSWER: C

11. In a working paper for combined financial statements of the home office and the
branch of a business enterprise, an elimination that debits Shipments to Branch and
credits Shipments from Home Office is required under:
a. The periodic inventory system only
b. The perpetual inventory system only
c. Both the perpetual inventory system and the periodic inventory system
d. Neither the perpetual inventory nor the periodic inventory system

ANSWER: A

12. A journal entry debiting Cash in Transit and crediting Investment in Branch is
required for:
a. The home office to record the mailing of a check to the branch early in the
accounting period.
b. The branch to record the mailing of a check to the home office early in the
accounting period.
 c. The home office records the mailing of a check by the branch on the last
day of the accounting period.
d. The branch to record the mailing of a check to the home office on the last
day of the accounting period

ANSWER: C

13. A Home Office‘s Allowance for Overvaluation of Inventories: Branch ledger

account, which has a credit balance, is
a. an asset valuation account
b. an equity account
c. a liability account
d. a revenue account

ANSWER: A

14. Which of the following generally is not a method of billing merchandise

shipments by a home office to the branch?
a. Billing at cost
b. Billing at a percentage above cost
c. Billing at a percentage below cost
d. Billing at retail selling price

ANSWER: C

15. The appropriate journal entry for the home office to recognize the branch’s
expenditure of P10,000 for equipment to be carried in the home office accounting
records is:
a. Equipment 10,000 Inv in Branch 10,000
b. Home Office 10,000 Equipment 10,000
c. Investment in branch 10,000 Cash 10,000
d. Equipment-Branch 10,000 Inv in Branch 10,000

ANSWER: A

16. Does the branch use a Shipments from Home Office ledger account under the:
Perpetual Inventory Periodic Inventory Method Method
a. Yes Yes
b. Yes No
c. No Yes
d. No No

ANSWER: C

17. If the home office maintains in its general ledger accounts for a branch’s plant
assets, the branch debits its acquisition of office equipment to:
a. Home Office
b. Office Equipment
c. Payable to Home Office
 d. Office equipment carried by home office

ANSWER: A

18. May be Investment in Branch account of a home office be accounted for by the
Cost Method Equity Method of accounting of accounting
a. Yes Yes
b. Yes No
c. No Yes
d. No No

ANSWER: C

19.If Jibs Branch ships merchandise with a cost of $400 to Tibs Branch and the
periodic inventory system is used, the following journal entries are required except:
a. Home office 400 Shipments from Home Office 400
b. Shipments from Home Office 400 Home Office 400
c. Investment in Tibs Branch 400 Investment in Jibs Branch 400
d. All are correct.

ANSWER: D

20.The following are limitations of branch accounting except:

a. There are certain expenses which are incurred for the organization as a
whole but cannot be attributable to the branches.
b. Inter branch and intra branch comparison can be done.
c. Separate accounts for each branch are maintained which increases the
accounting charges.
d. In case of foreign branch, conversion of foreign currency into domestic
currency cannot be properly done due to regular fluctuations in exchange
rate.

ANSWER: B

21. Among the interoffice transactions in the accounting records of the home office
of Sand Company was the following: Investment in Box Branch 10,000 Shipment to
Box Branch 10,000 This journal entry indicates:
a. A transfer of merchandise from the home office at cost.
b. A payment by home office of branch expenses.
c. A transfer of merchandise from the home office at above cost.
d. A transfer of cash from the home office

ANSWER: A

22. The home office ledger account in the accounting records of a branch is best
described as as:
a. A revenue account
b. An equity account
 c. A deferred revenue account
d. None of the foregoing

ANSWER: B

23.If both the home office and the branch of a business enterprise use perpetual
inventory system, a Shipment to branch ledger account appears in the accounting
records of:
a. The home office only
b. The branch only
c. Both the home office and the branch
d. Neither the home nor the branch

ANSWER: D

24.In preparing the financial statements of the home office and its various
branches:
a. Nonreciprocal accounts are eliminated but reciprocal accounts are
combines
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combined
d. Reciprocal accounts are eliminated and nonreciprocal accounts are
combined

ANSWER: D

25.Which of the following accounts is a reciprocal account to the Investment in

Branch account?
a. Branch Income
b. Equity in Home Office
c. Home Office Capital
d. None of the above

ANSWER: C

Problems

1. Cebu branch submitted the following data to its home office in Manila for 2016,
its first year of operation:

Sales P 2,300,000
Shipments from home office 1,850,000
Operating expenses 235,000
Home Office 480,000
Shipments to the branch are billed at cost. The December 31 inventory of the
branch was P255,500.

What is the balance of the Investment in Branch account on December 15, 2016 on
the home office books?
a. P 950,500
b. P 470,500
c. P 950,000
d. P 480,000

Answer: A

Solution

Since the balance of the reciprocal accounts “Home Office” account and
“Investment in Branch”account are equal, then the balance of the Home Office
account after closing the branch profit is to be computed. The computation is:

Home Office account balance before branch profit P

480,000
Add: Profit (loss)
Sales P 2,300,000
Cost of sales:
Shipments from HO P 1,850,000
Inventory, Dec. 31 255,500 1,954,500
Gross profit P 705,500
Operating expenses 235,000
470,500
Home Office account balance, December 31, 2014 P
950,500

2. The following data pertains to the shipments of merchandise from Home Office to
Branch during 2016:
Home office’s cost of merchandise P 350,000`
Inter-office billings 420,000
Sales by branch to outsiders 520,000
Merchandise inventory on December 31, 2016 50,000

In the combined statement of comprehensive income of the Home Office and the
Branch for the year ended
December 31,2016, what amount of the above transactions should be included as
sales?
a. P 570,000
b. P 520,000
c. P 470,000
d. P 350,000

Answer: B
Solution:

In the preparation of combined statements of the home office and the branch, all
inter-office transactions are eliminated as if it had never occurred. Therefore, the
only transactions that should be presented are transactions to outsiders, which is in
this problem, the P 520,000 sales by branch to outsiders.

3. The home office in Quezon City ships and bills merchandise to its provincial
branch at cost. The branch
carries its own accounts receivable and makes its own collections. The branch also
pays its expenses.
The transactions for 2016 are reflected in the branch trial balance that follows:
Cash P 20,000
Accounts Receivable 80,000
Home Office P 180,000
Shipments from Home Office 250,000
Sales 225,500
Expenses 55,500

Total P 405,500 P 405,500

December 31, inventory P 65,000

Assuming all the transactions are properly recorded, what is the balance of the
Investment in Branch account in the
Home office books?
a. P 180,000
b. P 195,000
c. P 165,000
d. P 175,000

Answer: C

Solution

Home Office account before branch profit (loss) P

180,000
Add: Profit (loss)
Sales P 225,500
Cost of Sales:
Shipments from HO P 250,000
Inventory, 12/31 65,000 185,000
Gross profit P 40,500
Expenses 55,500 (15,000)
Home Office account balance, 12/31 P 165,000
Therefore the balance of the Investment in Branch account is also P 165,000.

4. The branch manager of Tower Cosmetics in Cebu submitted a report as of May

31, 2016 containing the following information:

Petty Cash Fund P 1,500

Sales 198,720
Sales Returns 3,600
Accounts Written Off 1,920
Shipments from Home Office 136,080
Accounts Receivable – May 31, 2015 43,800
Accounts Receivable – May 31, 2016 49,140
Inventory – May 31, 2015 37,170
Inventory – May 31, 2016 41,370
Expenses (reimbursed by H.O) 57,930

Assuming all cash collected by the branch is remitted to Tower Cosmetics home
office, the remittances for the period amounted to:
a. P 187,860
b. P 189,780
c. P 195,120
d. P 198,720

Answer: A

Solution

The P 187, 860 is computed as follows:

Accounts receivable, 5/31/2015 P 43, 800

Net Sales (P 198,720 – P 3,600) 195, 120
Total P 238, 920
Less: Accounts Receivable, 5/31/2016 P 49, 140
Accounts written off 1, 920 51, 060
Remittance P 187,860

5. On December 31, the Investment in Branch account in the home office books
shows a balance of P 50,000. The following facts are ascertained:
1. Merchandise billed at P 12,500 is in transit on December 31 from the home
office to the branch.
2. The branch collected home office accounts receivable for P 3,500. The
branch did not notify the home office of such a collection.
3. On December 30, the home office sent cash of P 7,500 to the branch, but
this was charged to General Expense; the branch has not received the cash
as of December 31.
4. Branch profit for December was recorded by the home office at P 2,400
instead of P 2,040.
 5. The branch returned supplies of P 1,500 to the home office but the home
office hasn't yet recorded the receipt of the supplies.

Assume all the other transactions have been properly recorded.

What is the unadjusted balance of the Home Office account on the branch books on
December 31?
a. P 64, 140
b. P 39, 140
c. P 14, 000
d. P 13, 000

Answer: B

Solution

P 39, 140 is computed as follows:

Investment in Branch account balance,12/31

P50,000
(Home Office books)
Add (Deduct):
Merchandise in transit
(12,500)
Collection of Home Office accounts receivable by Branch 3,500
Erroneous recording of Branch profit ( 360)
Supplies returned by Branch ( 1,500)
Home Office account balance,12/31 (Branch books) P39,140

6. A reconciliation of the Dagupan Branch account of Mandaluyong Company and

the Home Office account carried in the branch’s books showed the following
discrepancies as of December 31,2016.
1. A credit for merchandise allowance for P 300 was taken by the branch as P
360.
2. A charge by the branch of P 550 for an advance taken by the president
when he visited the branch has not yet been recorded by the home office.
3. The branch has not taken up P900 covered by a debit memo from the
home office as share in advertising expenses.

The Investment in Dagupan Branch account in the home office books had a debit
balance of P 43,000 at December 31,2016. The reciprocal accounts were in
agreement at the beginning of the year.

The unadjusted balance of the Home Office account in the branch’s books at
December 31,2016 was:
a. P 43, 500
b. P 42, 950
c. P 41, 990
d. P 41, 490

Answer: D

Solution

The P 41, 490 unadjusted balance of Home Office account is computed as follows:

Unadjusted balance, Investment in Branch account, 12/31

P43,000
Less: Merchandise allowance (error) P 60
Branch advances to President 550
Advertising expense charged to Branch 900
1,510
Unadjusted balance, Home office account, 12/31 P41,490

7. The following were found in your examination of the interplant accounts between
the Home Office and theButuan Branch:

a. Transfer of fixed assets from the Home Office amounting to P53,960 was
not booked by the branch.
b. P10,000 covering marketing expense of another branch was charged by
Home Office to Butuan
c. Butuan recorded a debit note on inventory transfers from the Home Office
of P75,000 twice.
d. Home Office recorded a cash transfer of P65,700 from Butuan Branch as
coming from Davao Branch
e. Butuan reversed a previous debit memo from Cagayan de Oro Branch
amounting to P10,500. The Home Office decided that this charge is
appropriately Davao Branch’s cost.
f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560

The net adjustments DR (CR) to the Investment in Butuan Branch account to the
Home Office account are:
Investment in Butuan Home Office
a. P (75,700) P20,950
b. 75,700 ( 20,950)
c. ( 55,700) 75,000
d. ( 65,700) ( 74,000)

Answer: A

Solution

Dr. (Cr.) Adjustment to Investment in Butuan Branch account

Marketing expense of another branch charged to Butuan (b) P(10,000)
Butuan’s remittance credited to Davao branch (d) ( 65,000)
Dr. (Cr.) adjustment to Butuan Branch
account in the home office books P(75,000)

Dr, (Cr.) Adjustment to Home Office account:

Fixed assets transfer not book by Butuan (a) P(53,960)
Inventory transfer recorded twice by Butuan (c) 75,000
Error in recording DM for P4,650 as P4,560 (f) (
90)
Dr. (Cr.) adjustment to Home Office account
In Butuan Branch books P 20,950

8. After examining on a comparative basis the inter-office account of the Bulacan

Company with its suburban branch and the similar account carried on the latter’s
books, the following discrepancies at the close of the business on June 30, 2016
were seen:
a. A charge for labor by the Home Office P500 was recorded twice by the
branch.
b. A charge of P895 was made by the Home Office for freight on merchandise,
but the amount was recorded by the Branch as P89.50.
c. A charge of P980 (furniture and fixture) on the Home Office books was
taken up by the Branch as P890.
d. A credit by the Home Office for P350 (merchandise allowances) was taken
up by the Branch as P400.
e. The Home Office charged the Branch P425 for interest on open account
which the Branch failed to take up in full; instead, the Branch sent to the
Home Office a wrong adjusting memo, reducing the charge by P100
and set up a liability for the next amount.
f. The Home Office received P5,000, from the sale of a truck which it
erroneously credited to the Branch; the Branch did not change the Home
Office therewith.
g. The Branch by mistake sent the Home Office a debit note for P370
representing its proportion of a bill for repairs of the truck; the Home Office
did not record it.
h. The Branch inadvertently received a copy of the Home Office entry dated
July 19, 2014 correcting item (f) and entered a credit in favour of the Home
Office as of June 30, 2016.

On June 30, 2016, the unadjusted balance of the Investment in Branch account on
the Home Office books showed P175,520. At the beginning of the year, the
interoffice accounts were in balance.

What is the unadjusted balance of the Home Office account on the branch books on
June 30, 2016?
a. P184,279.50
b. P160,725.50
c. P18,729.00
d. P165,279.50

Answer: A

Solution
Unadjusted balance of investment in branch account, 6/30
P175,520.00
(a) Charge for labor 500.00
(b) Charge for freight ( 805.50)
(c) Purchase of furniture and fixture ( 90.00)
(d) Merchandise allowance ( 50.00)
(e) Charge for interest ( 425.00)
(f) Proceeds from sales of truck 5,000.00
(g) Charge for truck repairs ( 370.00)
(h) Proceeds from sales of truck 5,000.00
Unadjusted balance of Home Office account, 6/30 P184,279.50

9. Rustans, Philippines has two merchandise outlets, its Home Office in Manila and
its Cebu City branch. For control purposes, all purchases are made by the Home
Office and shipped to the Cebu City branch at cost plus 10%. On January 1, 2016
the inventories of the Home Office in Manila and the Cebu City branch were P13,600
and P3,960 respectively. During 2016, the Home Office purchased merchandise
costing P40,000 and shipped 40% of it to the Cebu City branch. At December 31,
2016, the following journal entry to prepare the books for the next accounting
period was prepared by the branch”
Sales 32,000
Inventory, December 314,840

Inventory, January 1 3,960

Shipments from main store 17,600
Expenses 10,480
Home Office 4,800

What was the actual branch income for 2016 on a cost basis assuming the use of
the provisions of the Statement of
Financial Accounting Standards?
a. P4,800
b. P6,320
c. P6,480
d. P6,840

Answer: B

Solution

Sales P32,000
Cost of sales:
Inventory, Jan. 1 3,960
Shipment from Home Office 17, 600
Inventory, Dec. 31 (4,840) 16,720
Gross Profit 15,280
Expenses 10,480
Net income per branch books 4,800
Add: Overvaluation of cost of sales
Billed Price (above) 16,720
Cost to H.O ( 16, 720 / 110%) 15,200 1,520
Actual branch income at cost basis P 6,320

10. On September 1, Star Company opened a branch in Dagupan City, shipping

merchandise billed at P60,000. During the month, additional shipments were made
at a billed price of P24,000. Returns by the branch of bad-order goods were credited
for P1,680. At the end of the month, the branch reported its inventory of P33,600
and its net loss for the month at P5,200 Shipments to and from the branch were
consistently billed at 120% off cost.

a. P28,000 and P2,920, respectively

b. P28,000 and (P5,200), respectively
c. P33,600 and P2,920, respectively
d. P33,600 and P5,200, respectively

Answer: A

Solution

Branch Inventory at Cast:

Branch inventory at billed price P33,600
Divide by the billing percentage of cost 120%
Branch inventory of cost P 28,000

Branch net income as far as the Home office is concerned:

Branch net loss, as reported

(P5,200)
Add: Overvaluation of Cost of Sales of the Branch:
Total Shipment to Branch:
Billed price (P60,000 + P24,000) P84,000
Cost (84,000 120%) 70,000 P14,000
Less: Branch returns –
Billed price P 1,680
Cost(P1,680 120%) 1,400 280
Net Shipment P13,720
Less: Inventory, 9/30-
Billed price P33,600
Cost 28,000 5,600 8,120
Branch Net Income P
2,920

11. The Binondo branch of China Products Inc. buys merchandise from third
parties and receives merchandise from the home office for which it is billed at 20%
above cost. Below are excerpts from the trial balances and data on the home office
and Binondo branch for the month just ended.

Home Office
Allowance for overvaluation of branch merchandise P370,000
Shipments to Branch 850,000

Branch
Beginning inventory 1,440,000
Shipments from home office 1,020,000
Purchases 410,000
Month end additional data:
Ending inventory of branch P1,460,000
From home office at Billed Price P1,170,000
From outsiders (at cost) 290,000

The total cost of goods sold of the Binondo branch at cost (net of overvaluation) for
the month just ended amounted to.

a. P1,410,000
b. P1,385,000
c. P1,235,000
d. P1,850,000

Answer: C

Solution

Beginning inventory P1,440,000

Purchase 410,000
Shipment from home office 1,020,000
Goods available for sale 2,870,000
Ending inventory 1,460,000
Cost of sales 1,410,000
Less: Overvaluation
Beginnning inventory and shipments 370,000
Less:Ending inventory
Billed price P1,170,000
Cost(P1,170,000/120%) 975,000 195,000 ` 175,000
Cost of goods sold (net) P 1,235,00

12. Shopper Company started a branch office in Iloilo City on June 1,2016. On this
date, the company shipped to its Branch merchandise billed at P90,000. On June 15,
another shipment was made at billed prices of P36,000. During the month, the
branch was credited for P2,520 for the damaged goods returned by the branch. On
June 30,2016, branch reported the following:

Inventory, June 30 P50,400

 Net loss for the month (P7,800)

Shipments to and from the branch were uniformly billed at 120% of cost.

a. No net income or loss

b. Net income of P4,380
c. Net income of P12,180
d. Net loss of P7,800

Answer: B

Solution

According to the Home Office books, Iloilo branch will have a P4,30 net income as
computed below:
Branch net loss (P7,800)
Add: Overvaluation of Cost of Sales of branch –
Total shipment to Branch:
Billed price(90,000+P36,000) P126,000
Cost (P126,000 120%) 105,000 P21,000

Less: Branch returns

Billed price P 2,520
Cost (P2,520 120%) 2,100 420
Net Shipment to Branch P 20,580
Less: Inventory, 6/30
Billed price P 50,400
Cost (P50,400 120%) 42,000 8,400
12,180
Branch Net Income P 4,380
 THEORIES (ANNNIE)

1. A branch that maintains a general ledger is said to use a (n) accounting system?

a. Centralized c. Athoritarian

b. Decentralized d. None of the above.

ANSWER: B

2. The Investment in Branch accounting has a balance that equals the account of the
branch?

a. Home Office Current

b. Asset .

c. liability

d. None of the above.

ANSWER: A

3. 0n the home office's books, the earnings of a branch are recorded in an account
called?

a. Branch Income Summary c. Retained earnings

b. Income. Summary d. Liability account

ANSWER: A

4. Income taxes pertaining to · branch earnings are usually recorded on the books of the

a. Home Office c. Ignored

b. Branch d. None of the above.

ANSWER: A

5. Statement 1: An expense item allocated by the home office to a branch is recorded,

by the branch, by a, debit to an expense ledger account and a credit to the Home Office
account.

Statement 2: A debit to the Home office ledger account and a credit to the Trade
Accounts Receivable account in the accounting records of a branch indicate that the
home office collected accounts receivable of the branch.

a. S1-True S2-True

b. S 1-True S2-False

c. S1-False S2-True

d. S 1-False; S2-False.

ANSWER: A

6. Statement 1: Start up costs incurred by a branch in the initial months of operations

are appropriately deferred and amortised in subsequent profitable accounting periods.

statement 2 : If the home office carries branch equipment in its accounting records, an
acquisition of equipment by the branch is recorded in the home office accounting
records by a debit to the Investment in Branch ledger account and a credit to the
Equipment Branch Account

a. S1-True: S2-True c. S1-False S2.-True

b. 5S1-True S2-False d. S 1-False: S2-False

ANSWER: D
7. Statement 1: separate financial statements of home office and branch do not meet the
needs of investors, creditors, or other outside users of financial statements.

Statement 2 : In a working paper for combined financial statements of home office and
branch, the balance of the Shipments to Branch ledger account is eliminated against the
balance of the Investment in Branch account.

a. S1-True S2-True

b. 51-True 52-False

c.S1-False : S2-True

d. S1-False: S2-False

ANSWER: B

8. statement 1 : If the perpetual inventory system is used by both the home office and
the branch, the reciprocal ledger accounts used by the branch are the Home Office and
Shipments from Home Office accounts.

Statement 2 : The shipments to the branch account are added to the home office's
purchases account in determining home office Cost of goods sold.

a. S 1-True ; S2-True c. S1-False ; S2-True

b. S1-True : S2-False d. S1-False ; S2-False

ANSWER: D

9. Statement 1 : when inventory is received from the home office, a branch increases its
home office account.

Statement 2 : Reciprocal home office and branch accounts are eliminated when home
office and branch financial statements are combined for external reporting.

a. S1-True : S2-True c. S1-False ; S2,-True

b. S1-True S2-False d. S1-False: S2-False

ANSWER: D

10. Statement 1 :. The branch office account on the home office's books and the Home
office account on the branch's books are examples of nonreciprocal accounts whose
balances would be combined when the home office is preparing a balance sheet for all
its combined operations.

Statement 2 : when performing the end-of-the-period reconciliation between the Home

office account on the branch's books and the Branch Account on the home office's
books, shipments in transit from the branch back to the home office will be treated as an
addition to the home office's Branch Account.

a. S1-True; S2-True c. S1-False 52-True

b. S1-True S2-False d. S1-False: 52-False

ANSWER: B

11. statement 1: when performing the end-of-the-period reconciliation between the

Home office accounts on the branch's books and the Branch Account on the home
office's books, home office expenses which are allocated to the branch office from the
home office will be subtracted from the Home office Account on the branch's books.

Statement 2 : There are three ways to reconcile the balance in the home office's would
be to reconcile from the home office balance to the branch balance. A second way would
be to reconcile from the branch balance to the home office balance. A final home office
balance to the adjusted true balance, way would be to reconcile both the home office’s
branch balance and the branch's

a. S1-True S2-True c. S1-False S2-True

b. S1 True; S2-False d. S1-False S2-False

ANSWER: B

12. Statement 1 : The incremental profitability of a branch office may be hidden if the
home office allocates too many fixed costs to the branch office.

Statement 2 : A major disadvantage of a centralised accounting system is half the

profitability of branch operations cannot be determined because branch operations are
not accounted for in a separate general ledger.

a.S1-True S2-True c. S1-False 52-True

b. S1-True; S2-False d S1-False 52-. False

ANSWER: C

13. Statement 1: Home office allocations to a branch are not required under current
standards.

Statement 2 : Income taxes can be allocated to a branch.

a. S1-True; S2-True c. S1-False S2-True

b. S1-True; S2-False d. S1-False S2-False

ANSWER: D
14. Statement 1 : Branch fixed assets can be carried on the home office's books under a
decentralised accounting system.

Statement 2 : If branch fixed assets are recorded On the home office's-books,

depreciation expense would not be charged to branch operations.

a. S1-True; S2-True c. S1-False S2-True ·

b. S1-True S2-False d. S1-False: S2-False

ANSWER: C

15. Which of the following accounts is a reciprocal account to the Investment in Branch
account?

a. Branch Income. c. Home Office Capital.

b. Equity in Home Office. d. None of the above.

ANSWER: C

16. In preparing combined financial statements, which of the following accounts are
eliminated (brought to a zero balance) in the combining process

Branch Income or Loss Home Office Capital

a Yes Yes

b. No Yes

C. No No

d. Yes No

ANSWER: A

17. A control feature in a decentralised accounting system is

a. The balance in the Investment in Branch account must equal the balance in the Home
Office Capital account.

b. The balance in the Investment in Branch account must equal the balance in the Home
Office Capital account less the branches cumulative unremitted

profits.

C. The intercompany accounts. Are eliminated in preparing combined financial

statements.

d. The balance in the Investment in Branch account must equal the balance in the Branch
Income account.

ANSWER: A

18. Which of the following would explain why the investment in the branch account is
less than the Home office capital account?

A. cash transfer to the branch is in transit.

b An inventory shipment to the branch (at cost) is in transit.

c A home office has received and deposited a remittance from a branch

d customer but has not yet notified the branch.

e. None of the above

ANSWER: D

19. A home office, month-end allocation of previously recorded advertising expenses to

branch requires the following entry on the home office's books

Debit Credit

a. Investment in Branch Advertising Expense

b. Home office Capital Advertising Expense

c. Investment in Branch Accrued Liabilities

d. None of the above

ANSWER: A

20. A home office, month-end allocation of previously recorded advertising expenses to

branch requires the following entry on the branch's books to record the allocation

Debit Credit

a. Advertising Expense Accrued Liabilities

b. Branch Income Home Office Capital

c. Advertising Expense Branch Income

d. Home Office Capital Accrued Liabilities

e. None of the above.

ANSWER: E

21.The Shipments to Branch ledger account in the accounting records of the home office
of a business enterprise

a. Is an asset valuation account

b. Indicates that the home office uses the periodic inventory system

C. Is adjusted at the end of the accounting period to equal the unrealized

profit in the branch's ending inventories

d. Is not displayed in the home office's separate financial statements

ANSWER: B

22.The Western Branch of Rivas Company reported a net income of P60, 000 tor the
month

of January, The-appropriate journal entry (explanation omitted). For the home office of

Rivas Company is :

a. income summary 60,000

Income: Western Branch 60,000

b. Income: Western Branch 60,000

income summary 60,000

C. Investment in western branch 60,000

Income: Western Branch 60,000

d. Investment in western branch 60,000

income summary 60,000

ANSWER: C

23.Both a home office and a branch use the periodic inventory system. If at the end of an
accounting period the balance of the branch's Home Office ledger account does not
agree with the balance of the home office's Investment in Branch account because of a
shipment of merchandise in transit from the home office to the branch
a. The home office debits Investment in Branch and credits Shipments in Transit to
Branch.

b. The branch debits Home office and credits shipments in Transit from Home Office.

c. the home office debits Shipments in Transit to Branch and credits Investment

d. The branch debits Shipments in transit from Home Office and credit Home Office.

ANSWER: D

24.On September 30, 20×4, the home office of King company shipped merchandise
costing Branch did not receive the merchandise on that same clay. Both the home office
and P8, 000 to Rizal Branch and prepared an appropriate entry for the shipment. The
Rizal Branch did not receive the merchandise on that same day. Both the home office
and the branch use the perpetual inventory system

The end of period adjustments on September 3o, 2o×4 should include

a. A debit to Inventories and a credit to Home office current in the branch accounting
records.

b A debit to Branch current and-a credit to Inventories in the home office accounting
records.

C. A debt to Home Office current and a credit to Inventories in the branch accounting
records.

d. Other journal entry

ANSWER: A

25. Among the journal entries'(explanation omitted) in the accounting records of the
home

Office of Price Company was the following:

This journal entry indicates that

a. The home office acquired office equipment for the branch

b. The home office shipped office equipment to the branch

c. The branch acquired office equipment, which is carried in the accounting records of
the home office
d. None of the foregoing occurred

ANSWER: C

PROBLEM (ANNIE)

1. Tarlac Branch of Quezon City Company, at the end of its first quarter of
operations, submitted the following statement of comprehensive income:

Sales P300,000

Cost of Sales:

Shipments from Home office P280,000

Local Purchases 30,000

Total 310,000

Inventory at end 50,000 260,000

Gross margin on sales 40,000

Expenses 35,000

Comprehensive income 5,000

Shipments to the branch were billed at 140% of cost. The branch inventory as at
September 30 amounted to P50,000 of which P6,600 was locally purchased. Markup on
local purchases, 20% over cost. Branch expenses incurred by the Head Office amounted
to P2,500.

On September 30, the branch inventory at cost and the net income realised by the home
office from the Tarlac branch operation are:

Branch Inventory at Cost Net income realised

a. P37,600 P72,600
b. P50,000 P55,000

c. P31,600 P5,000

d. P37,600 P70,100

ANSWER: D

SOLUTION

P37,600 is computed as follows:

Acquired from HO:

Billed price (P50,000-P6,600) P43,400

Divide by billing percentage of cost 140% P31,000

Local purchases 6,600

Branch inventory at cost, P37,60

9/30 0

Below is the computation of Home office income from branch operation of

P70,100.

Branch net income (5,000-2,500 expense) P2,500

Add: Overvaluation of branch cost of sales:

Shipment from Home Office:

Billed price P280,000

Cost(P28,000/140%) 200,000 P80,000

Less: inventory, end -

Billed price P43,400

(50,000-6,600)

Cost(P43,400/140%) 31,000 12,400 67,600

Branch net income realized by HO P70,100

2. Ayala branch was billed by the Home Office for merchandise at 140% of cost. At the end of its
first month, Ayala branch submitted among other things, the following data:

Merchandise from Home Office (at billed price) P98,000

Merchandise purchase locally by branch 40,000

Inventory, December 31 of which P7,000 are of local purchase 28,000

Net sales for month 180,000

The branch inventory at cost and the gross profit of the branch as far as the home office is
concerned are:

Branch Inventory at Cost Gross Profit

a. P92,000 P22,000

b. P22,000 P92,000

c. P22,000 P70,000

d. P20,000 P90,000

ANSWER: B

Branch inventory, at cost, 12/31:

Acquired from HO (P21,000/140%) P15,000

Local purchases 7,000

Total P22,000

ANSWER: B
 Net sales P180,000

Cost of sales insofar as

Home office is
concerned P70,000
Shipment from HO,
at cost

(P98,000/140%)
40,000
Purchases

Cost of goods 110,00

available for sale 0

Inventory, at cost
12/31: 15,00
0
Acquired from
HO
(P21,000/140
%)

Local 7,000 22,000 88,000

purchases

Gross profit insofar as 92,000

HO is concerned

3. The Coffee Blends Corporation decided to open a branch in Manila. Shipments of

merchandise to the branch totalled P54,000 which included a 20% mark-up on cost. All
accounting records are to be kept at the home office.

The branch submitted the following report summarizing its operations for the period ended
December 31, 2013.
 Sales on account P74,000

Sales on Cash basis 22,000

Collections of 60,000
account

Expenses paid 38,000

Expenses unpaid 12,000

Purchase of merchandise for cash 26,000

Inventory on hand, December 31; 80% from home office 30,000

Remittance to home office 55,000

The branch 12/31 inventory at cost and the branch net income (loss) as far as the home
office is concerned are:

Branch inventory at cost Branch net income (loss)

a. P26,00 (P1,000)

b. P25,000 (P4,000)

c. P26,000 P1,000

d. P20,000 P 800

ANSWER: C

Below is the computation of Branch ending inventory at cost:

Acquired from HO (80% x P30,000 ) / 120% P20,000

Add: Acquired from outsiders (20% x P30,000) 6,000

Branch inventory at cost, 12/31 P26,000

The 1,000 net income is derive as follows

Sales ( 74,000 + 22,000) 96,000

Cost of sales in so far as Home office is concerned

Shipment from HO at cost 45,000

(54,000/120%)

Purchases 26,000

Cost of goods available for sale 71,000

Inventory at cot 12/31 26,000 45,000

Gross Profit 51,000

Expenses (38,000+12,000) (50,000)

Branch net income 1,000

4. 1. Trial balances before adjustments for the home office and the branch of the King Company
show the following items on December 31. The home office bills the branch at 20% above cost.

Home Office Branch

Allowance for overvaluation of branch 3,600

merchandise Shipment to branch 8,000

Purchases P2,500

Shipment from home office 9,600

Merchandise Inventory, December 1 15,000

What part of the branch inventory as of December 1 represented purchases from outsiders?

a. P3,000

b. P5,000

c. P2,000
 d. P1,800

ANSWER: A

Merchandise inventory, December 1 P15,000

Less: Merchandise acquired from HO at billed price

Overvaluation (3,600 – P1,600) P2,000

Cost (P2,000/20%) 10,000 12,000

Merchandise acquired from outsiders P3,000

5. .The Manila Sales Co. established a branch in San Pablo City early last year. It shipped
merchandise and billed the branch for P300,000 prior to its opening. For the year, it made
additional shipments at billed price of P120,000. Within the year, the branch shipped
backP7,500 inventory and got the credit memo for the said returns. On the last working day of
the year, an inventory count was made. Ending inventory of P185,000 was established
consisting of purchases from third parties at P20,000 with the balance coming from home office
shipments at billed price.. The home office billed the branch at 20% above cost. The total
purchases of the branch from outside suppliers amounted to P72,500. The total goods available
for sale by the branch at cost (net of overvaluation and returns) amounted to:

a. P416,250
b. P485,000
C. P422,500
d. P435,250

ANSWER: A

Total shipment from office P420,000

Returns (7,500)
Purchases 72,500
Goods available for sale, at billed price 485,000
Less: overvaluation of shipment:
Billed price P420,000
Cost (420,000/120%) 350,000 70,000
Returns: Billed price P7,500
Cost (7,500/120%) 6,250 (1,250) 68,750
Goods available for sale, at cost P416,250

7. The income statement submitted by the Bulacan Branch to the Home Office for the
month of December,2013 is shown below. After affecting the necessary adjustments the
true net income of the Bulacan Branch inventories were
12/01/201 12/31/2011
1
 Merchandise from P70,000 P84,000
Home Office

Local purchases 10,000 16,000

Total 80,000 100,000

Sales 600,000

Cost of Sales:

Inventory, December
1 80,000

Shipments from 350,000

home office

Local purchases 30,000

Total available for 460,000

sale

Inventory, December 100,000 360,000

31

Gross Margin 240,000

Operating expenses 180,000

Total comprehensive P60,000

for December 2011

What is the balance of the “Allowance for Overvaluation in Branch Inventory” account
at December 31, 2013?

a. P10,000
 b. P16,000

C. P24,000

d. P34,000

ANSWER: C

Branch net income, per HO P156,000

Branch net income, per branch 60,000

Realized mark-up on merchandise from the Home office

already sold by the branch P96,000

Shipment from home office P350,000

Less: increase in portion of Branch inventory

14,000
Acquired from home office

Portion already sold by branch P336,000

Less: Mark-up thereon (above) 96,000

Cost of portion already sold by branch P240,000

Per cent of billing price to cost: P336,000/240,000 140%

 Billed price P84,000

Cost (P84,000/140%) 60,000

Balance of the allowance P24,00

account 0

8. The balance of the “Allowance for Overvaluation in Branch inventory” account as

December 31,2013 after adjustment represent the overvaluation of the branch ending
inventory acquired from the home office.

The Neneng Corporation established its San Pedro branch in March 201. During the
first year of operations, the home office shipped to the branch merchandise which had
cost of P120,000. Three- fourths of these merchandise was sold by the branch for
P141,000. Operating expenses of the branch amounted to P27,000.

How much total comprehensive income will the branch report if merchandise is billed
by the home office to the branch at 25% above cost?

a. P800

b. P1,200

C. P1,500

d. P8,000

ANSWER: C

Sales P141,000

Less: cost of sales at Billed price (Sch. 1) 112,500

Gross profit 28,500

Expenses (27,000)
Total comprehensive income to be reported by the Branch P1,500

Schedule 1

Cost of shipment to branch P120,000

Add: 25% mark-up 30,000

Billed price of shipment to branch 150,000

Portion sold x¾

cost of sales at billed price P112,500

9 branch store in Marikina was established by Marco Co. on March 1. Shipments of

merchandise, billed to this branch at 125% of cost, were as follows:

March 5 120,000

March 10 50,000

March 20 35,000

On March 24, the branch returned defective merchandise worth P3,050 and on March
31, it reported a net loss of P6,200 and merchandise inventory of P85,000.

In the home office books, the branch total comprehensive income (loss) is:

a. (P6,200)

b. P17,190

c. P20,240

d. P23,390

ANSWER: B

Reported branch loss P(6,200)

Add: overvaluation in branch cost of sales

 Shipment to branch P205,000

Less: returns 3,050

Ending inventory 85,000 88,050

Cost of sales, at billed price 116,950

Cost of sales, at cost to HO

(116,950/125%) 93,560 23,390

P17,19
Branch total comprehensive 0
income, per HO books

10 The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao City.
During 2013, the home office shipped to the branch supplies costing P120,000 at a billed
price of 20% above cost. The inventories of supplies at the branch were as follows:
January 1,2013, P90,000; December 31,2013, P108,000. On December 31,2013, the home
office holds inventories of P160,500 which includes P10,500 held in consignment.

How much is the inventories in a combined statement of financial position as of

December 31,2013?

a. P210,000

b. P240,000

c. P270,000

d. P300,000

ANSWER: B
Home office (P160,500 – P10,500) P150,000

Branch, at cost (108,000/120%) 90,000

Combined inventories, 12/31 P240,000

11 The Iloilo Company operate a branch in Davao, and the profit and loss data for the
home office and the branch for 2013 follows:
Home office Branch
Sales P250,000 P75,000
Purchases from outsiders 200,000 15,000
Shipments to branch:
Cost to home office 30,000
Billing price to branch 37,500
Expenses 40,000 10,000
Inventories, Jan. 1,2013:
Home office, at cost 80,000
Branch:

From outsiders, at cost 7,500

From home office, at 20% above cost 24,000
Inventories, December 31,2013:
Home office, at cost 55,000
Branch:
From outsiders, at cost 5,500
From home office at 2013 billing 26,000

The combined total comprehensive income (loss) of the home office and the branch on
December 31,2013 is:
a. P30,800
b. P(30,800)
c. P33,800
d. P27,000

ANSSWER: C

Sales P325,000
Less: cost of sales
Jan. 1 inventories, at cost (sch 1 ) 107,500
Purchases 215,000
Merchandise available for sale P322,500
Less: dec. 31 inventories, at cost (sch 1 ) 81,300 241,200
Gross profit on sales P83,800
Less: expenses 50,000
Total comprehensive income P33,800

Schedule 1:
Inventories Jan.1 Dec. 31
Home office P80,000 55,000
Branch, at cost
Acquired from outsiders
7,500
5,500
Acquired from HO:
Jan. 1 (P24,000/120%)
20,000
Dec. 31 (P26,000/125%) 20,800
Combined P107,500 P81,300

12 . Manila Inc. established a branch in Cebu to distribute part of the goods purchased
by the home office. The home office process inventory shipped to the branch at 20%
above cost. The following account balances were taken from the ledger maintained by
the home office and the branch:

Manila Inc. Cebu branch

Sales P600,000 P210,000
Beginning inventory 120,000 60,000
Purchases 500,000 -
Shipment to branch 130,000 -
Shipment from home office - 156,000
Operating expenses 72,000 36,000
Ending inventory 98,000 48,000

All of the branch inventory is acquired from the home office –

The combined total comprehensive income of the home office and the branch is:
a. P170,000
b. P70,000
c. P278,000
d. P132,000

ANSWER: A

Sales
Cost of sales Beg. Inventory P810,000
HO P120,000
Branch, at cost
(P60,000/120%)
Purchases 50,000 P170,000

500,000
Total 670,000
Ending inventory: HO 98,000
Branch, at cost 40,000 138,000 532,000
(P48,000/120%)

Gross Profit 278,000

Operating expenses 108,000
Combined net income P170,000