ACCOUNTING 7

Instructions: Choose the most correct answer for each of the following questions. Write the letter of your
choice in CAPITAL in the FIRST PAGE OF THE GREEN BOOK PROVIDED.
Questions 1 & 2 are based on the following information.
On February 14, 2012, Therese Company established a sales agency in Tagbilaran. Upon establishment of
the sales agency, the home office sent samples costing P8,000 and a working fund of P3,000 to be
maintained on the imprest basis. During the six months period, the sales agency reported to the home
office sales orders. These were billed at P70,000 of which of P40,000 was collected) the sales agency paid
expenses of P5,800 but was reimbursed by the home office.
On August 15, 2012, the sales agency samples were valued at P2,000. It was estimated that the gross
profit on goods shipped to fill sales order averaged 40% of cost.
1. The cost of sales of the sales agency for the six months period is
a. P42,000
c. P48,000
b. P44,000
d. P50,000
2. The net income of the sales agency for the six months period is
a. P16,200
c. P10,200
b. P14,200
d. P8,200
3. A branchs ending inventory of merchandise shipped by the home office and purchased from outside
vendors amounts to P 50,000. The post-closing trial balance in the Unrealized Gross Profit in Branch
Inventory account is P 6,000 due to the home office practice of shipping merchandise at 20% above
cost. The merchandise purchased from outside vendors contained in the ending inventory of the
branch amounts to:
a. P 38,000
c. P 30,000
b. P 18,000

d. P 14,000

Questions 4 and 5 are based on the following information.

The income statement submitted by Loon Branch to the Home Office for the month of December 31, 2013
follows:
Sales
Cost of Sales:
Inventory, December 31, 2013
Shipments from Home office
Purchased locally by branch
Total
Inventory, December 31, 2013
Gross Margin
Operating Expenses
Net Income for the month

P600,000
P80,000
350,000
30,000
P460,000
100,000

The Branch inventories consisted of:

12/1/2012
P70,000
P10,000
P80,000

Merchandise purchased from home

Local purchases
Total

360,000
P240,000
180,000
P 60,000
12/31/2012
P84,000
P16,000
P100,000

After effecting the necessary adjustments, the Home Office ascertained the true net income of the Branch
to be P156,000.
4. At what percentage of cost did the home office bill the branch for merchandise shipped to it?
a. 100%
c. 120%
b. 140%
d. 150%
5. What is the balance of the Allowance for Overvaluation in the branch inventory at December 31, 2013?
a. P10,000
c. P16,000
b. P24,000
d. P34,000

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Questions 6 and 7 are based on the following information.

The following information is extracted from the books and records of Elaine Company and its branch. The
balances are at December 31, 2012 of the companys operations.
Home Office
Branch
Sales
P260,000
Shipments to branch
P 78,000
Shipments from home office
104,000
Purchases
39,000
Expenses
78,000
Inventory, January 1, 2012
26,000
Allowance for overvaluation of branch inventory
31,200
However, no shipments in transit between home office and the branch were made. Both shipments
accounts are properly recorded. The ending inventory includes merchandise acquired from the home
office in the amount of P26,000 and P7,800 acquired from outsiders acquired from the home office in
the amount of P26,000 and P7,800 acquired from outsiders for a total of P33,800.
6. What is the realized profit in branch inventory?
a. P21,000
c. P22,533
b. P31,200
d. P24,700
7. What is the amount of branch merchandise beginning inventory that was acquired from the home
office?
a. P14,000
c. P15,600
b. P19,000
d. P20,800
Questions 8 and 9 are based on the following information.
Auto Supply Company is engaged in merchandising both at its home office in Cebu City and its branch in
Toledo City. Selected accounts taken from the trial balances of the home office and the branch as of
December 31, 2012 follow:
Debits
Inventory, January 1, 2012
Toledo Branch
Purchases
Freight in from home office
Sundry Expenses

Cebu City
P 23,000
58,300
190,000
52,000

Credits
Home Office
Sales
Sales to branch
Allowance for Overvaluation of branch inventory
at January 1, 2012.

P155,000
110,000

Toledo Branch
P 11,550
105,000
5,500
28,000
P 53,300
140,000

1,000

Additional information:
The Toledo City branch gets all of its merchandise from the home office. The home office bills
the goods at cost plus a 10% mark-up. At December 31, 2012, a shipment with a billed value
of P5,000 was still in transit. Freight on this shipment was P250 and is to be treated as part of
the inventory.
Inventories on December 31, 2012, excluding the shipment in transit, follow:
Home office, at cost...
P30,000
Branch, at billed price (excluding freight of P520
10,000
8. What is the net income of the home office from own operations?
a. P30,470
c. P21,000
b. P20,000
d. P30,470
9. What is the net income of the branch in so far as the home office is concerned?
a. P870
c. P1,500
b. P10,470
d. P12,000
10. Durable Textile Company has a single branch in Bohol. On March 1, 2012, the home office accounting
records included an Allowance for Overvaluation of Inventories Bohol Branch ledger account with a
credit balance of P32,000. During March, merchandise costing P36,000 was shipped to the Bohol
Branch and billed at a price representing a 40% markup on the billed price. On March 31, 2012, 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 amount of adjustment for allowance for
Overvaluation of Inventories to reflect the true branch net income?
a. P39,257 debit
c. P39,333 debit

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b. P46,000 credit

d. P46,000 debit

Questions 11 and 12 are based on the following information.

Yul Trading Corp. operates a branch in Talisay City. At the close of business on December 31, 2012, Talisay
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:
1. An office equipment costing the home office P3,5000 was picked up by the branch as P350.
2. Insurance premium of P675 charged by the home office was taken up twice by the branch.
3. Freight charges on merchandise made by the home office for P1,125 were recorded in the branch
book as P1,215.
4. Home office credit memo representing a discount on merchandise for P800 was not recorded by the
branch.
5. The branch failed to take up a P700 debt memo from the home office representing the share of the
branch in the advertising.
6. The home office inadvertently recorded a remittance for P3,000 from the Cebu branch as a
remittance from its Talisay branch.
11. What is the balance of the Home Office account before adjustment as of December 31, 2012?
a. P225,000
c. P228,485
b. 225,770
d.
226,485
12. What is the adjusted balance of the Home Office account as of December 31, 2012?
a. P225,000
c. P225,770
b. 226,485
d. 228,770
Questions 13 and 14 are based on the following information.
PTT Corporation retails merchandise through its home office store and through a branch store in a distant
city. Separate ledgers are maintained by the home office and the branch. The branch store purchases
merchandise from the home office (at 120% of home office cost), as well as from outside supplies.
Selected information from the December 31, 2012 trial balances of the home office and branch is as
follows:
Home Office
Branch
Sales
P120,000
P50,000
Shipments to branch
16,000
---Purchases
70,000
11,000
Inventory, January 1, 2012
40,000
30,000
Shipments from home office
----19,200
Expenses
28,000
2,000
Unrealized profit in branch inventory
7,200
----Additional information:
The entire difference between the shipment accounts is due to the practice of billing the branch at
cost plus 20%.
The December 31, 2012 inventories are P40,000 and P20,000 for the home office and the branch,
respectively. (The branch purchased 16% of its ending inventory from outside supplies.)
Branch beginning and ending inventories include merchandise acquired from home office is
inventoried at 120% of home office cost.
13. What is the realized profit in branch inventory?
a. P4,000
c. P2,800
b. 7,200
d. 4,400
14. What is the net income of the branch as far the home office is concern?
a. P50,200
c. P10,600
b. 15,000
d. 12,200
Questions 15 and 16 are based on the following information.
Kulas Corporation has one branch operation located 500 miles away from the home office. The branch
office sales merchandise which is shipped to it from the home office. The merchandise is transferred at
cost but the branch pays reasonable freight charges. The branch office makes sales and incurs and pays
operating expenses. At the end of the current accounting period the true adjusted balance for the home
office account on the branchs books and the branch office account on the home offices books is
P500,000.
The following items may or may not be reconciling items. The current year is 2012.
1) The home office has shipped merchandise to the branch office which cost P10,000 and which
incurs P500 freight charges paid by the home office but charged to the branch. This
merchandise is received by the branch on January 5, 2012.

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2) The branch has transmitted P17,000 in cash back to the home office as a partial payment on
such purchased merchandise. This cash is received by the home office on January 6, 2012.
3) The branch office returns some defective merchandise to the home office. The cost of the
returned merchandise is P750. The branch office pays P25 of freight costs which will be charged
back to the home office.
4) On December 1, 2012, the home office sends a check for P25,000 to replenish the branchs
charged back to the home office.
5) The branch pays an advertising expense of P800 that should have been paid by the home office
since it applied to advertising fees incurred by the home office of its own benefit.
6) The home office allocated P12,000 of general and administrative expenses to the branch. The
branch had not entered the allocation as of the end of the year.
7) The home office pays insurance premiums on the branch store. The amount paid by the home
office is P1,000 but the branch erroneously records it as P776.00
15. What is the unadjusted balance of the Home Office account?
a. P481,425
c. P500,000
b. 452,276
d. 518,575
16. What is the unadjusted balance of the Branch account?
a. P433,701
c. P518,575
b. 500,000
d. 452,276
Questions 17 through 20 are based on the following information.
Selected information from the trial balances for the home office and the branch of Lalay Company at
December 31, 2012 is provided. The branch acquires merchandise from the home office and outside
suppliers.
Home Office
Branch
Sales
P60,000
P30,000
Shipments to branch
8,000
Allowance for overvaluation of branch inventory
3,600
Shipments from home office
10,000
Purchase (outsiders)
35,000
5,500
Merchandise inventory 12.01.12
20,000
15,000
Expenses
14,000
6,000
Additional information:
Merchandise inventory, December 31, 2012:
Home office
P20,000
Branch (P7,500 from home office and P2,500 from outsiders)
10,000
17. The billing rate of home office to branch for merchandise shipments is
a. 120% of cost
c. 130% of cost
b. 125% of cost
d. 135% of cost
18. How much of the December 1 inventory of the branch represent purchases from outsiders and goods
shipped from home office
a. Home office, P5,000 and Outsiders, P10,000
c. Home office, P8,000 and Outsiders,
P7,000
b. Home office, P15,000 and Outsiders, P00,000
d. Home office, P12,000 and Outsiders,
P3,000
19. The net income reported by the branch is
a. P4,500
b. P5,600

c. P3,500
d. P2,500

20. The combined net income for Home office and branch operations is
a. P22,500
c. P25,100
b. P24,600
d. P21,500
21. Clang-clang Corporations home office ships merchandise to its Toledo branch at a billing price of 125%
of cost. During 2012 the home office makes the following entry:
Toledo Branch
75,000
Shipments to Toledo branch
75,000
At year-end 2012, P12,000 of this merchandise remains at Toledo branch inventory.
The entry to adjust the branch income in the books of the home office will include
a. Debit to Allowance for overvaluation of branch inventory, P12,600
b. Credit to Toledo branch account, P2,400
c. Debit to Shipments to Toledo branch, P12,600
d. Credit to Toledo branch inventory, P2,400

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22. May Corporation operate two stores: the Head Office store and Rose branch. On December 31, 2012,
the Rose Branch account in the home office books has a balance of P340,000. Both stores use a
standard 120% markup on cost. However Mays home office ships merchandise to the branches at cost.
Roses ending inventory includes P20,000 of merchandise received from home office
Rose branch remitted P15,000 to home office on December 30, 2012. The Home office will not receive
the remittance until January 4, 2013. The Home office allocated P5,000 general expenses to each of the
branches but Rose branch have not yet recorded the expenses at year-end)
Rose branch paid P2,000 for advertising after Christmas sales that were to be allocated equally
between the two stores. The Home office has not recorded its share in the expenses.
The unadjusted balance of the Home office account in the books of Rose branch is
a. P324,000
c. P323,000
b. P319,000
d. P318,000
Questions 23 & 24 are based on the following information.
On December 31, 2012, the home office account on the branch books shows a balance of P9,735. The
following reconciling data are determined in accounting for the difference.
a. Merchandise billed at P615 shipped by the home office to the branch on December 28 is still in
transit.
b. The branch collected a home office accounts receivable of P2,500, but failed to notify the home
office of this collection.
c. The home office recorded the branch net income for November at P1,125. This was in error, as the
branch reported net income was P1,215.
d. The home office was charged P640 when the branch returned merchandise to the home office on
December 31. The merchandise is in transit.
23. The unadjusted balance of Branch account is
a. P9,735
b. P10,350

c. P10,990
d. P8,400

24. The adjusting entry to correct branch net income for November is
a. Debit, Branch profit and loss P90 and Credit, Branch account P90
b. Debit, Home office account P90 and Credit, Branch profit and loss P90
c. Debit, Branch account P90 and Credit, Branch profit and loss P90
d. Debit, Branch profit and loss P90 and Credit, Home office account P90
25. BONUS

---NOTHING FOLLOWS---

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