HOME OFFICE AND BRANCH ACCOUNTING #0007

PROBLEM 1.

On June 1, 2013, EliteFurn Co. established an agency in Davao, sending samples costing P4,200,000
which are useful until May 31, 2014 and have a salvage value of 20% of cost. A working fund of
P3,412,500 is to be maintained using the imprest basis. During 2013, the agency submitted to the home
office sales order amounting to P35,437,500. Sales per invoice were P27,562,500 which were duly
approved by the home office. Collections during the year amounted to P14,784,000 net of 4% sales
discount. The cost of merchandise sold during the year is equal to 70% of the gross selling price.
Vouchers for expenses amounted to P1,837,500.

How much net income would be reported by the BGC agency on December 31, 2013?

A. P4,471,250
B. P4,135,250
C. P5,535,250
D. P3,855,250

PROBLEM 2.

A home office ships inventory to its branch at a mark-up of 125% above cost. The required balance of
the allowance for overvaluation account is P1,425,000. During the year, the home office sent
merchandise to the branch costing P9,000,000. At the start of the year, the branchs Statement of
Financial Position shows P1,800,000 of inventory on hand that was acquired from the home office.

By what amount will the Allowance for Unrealized Gross Margin in Branch Inventory account be debited
at the end of the year?

A. P12,250,000
B. P10,825,000
C. P1,185,000
D. P2,610,000

PROBLEM 3.

During the year 2013 goods billed at P3,250,000 were shipped to the branch at 130% of cost. The
account Loading in Branch Inventory has a balance of P1,225,000 before adjustment. The beginning
inventory of the branch from the home office at cost is P2,375,000; the beginning inventory of the
branch from outsiders is P540,000; purchases from outsiders is P1,450,000.

How much is the total goods available for sale of the branch from the home office?

A. P5,308,335
B. P6,337,500
C. P8,090,000
D. P6,100,000

PROBLEM 4.

Metro Company has established a branch in Tacloban by sending goods costing P184,900 and P80,000
cash on July 1, 2013. Home office initiated transactions for the remainder of the year are found below.
At the end of the year, the companys controller has found out that the accounting staff assigned in
recording the transactions between the home office and the branches had failed to record all the
transactions initiated by the branch. Because of this, there is a significant discrepancy between the
balances of the reciprocal accounts.

The home office acquired computer equipment amounting to P420,000 for the branch on August 1,
2013. As per agreement, the branch will keep all the property, plant and equipment records.
Goods costing P320,000 were shipped from the home office to branch on November 9, 2013.
Additional cash amounting to P53,000 was transferred to the branch on December 2. 1013.
A branch customer has incorrectly paid P25,000 cash to the home office on December 16, 2013.

HOME OFFICE AND BRANCH ACCOUNTING #0007

HOME OFFICE AND BRANCH ACCOUNTING #0007

The home office incurred P65,000 of advertising cost and P96,000 of salaries. Tacloban branch is to
shoulder 30% and 20% of these expenses, respectively.

For the purpose of reconciling the reciprocal accounts, the controller has instructed the branch
accountant to send a copy of the Home Office Current general ledger to the home office.

Home Office Current

8/3 Equipment acquisition P420,000 7/1 Goods from HO P184,900
11/5 Cash remittance 78,000 7/1 Cash 80,000
12/20 Return of goods to HO 49,000 8/15 Collection of HOs AR 113,600
11/10 Goods from HO 230,000
12/4 Cash 50,300

Balance P111,800

Compute for the following:

Unadjusted balance of investment in Tacloban account?

A. P1,142,800
B. P1,044,800
C. P1,071,600
D. P1,058,200

Net adjustment in the Home Office Current account. Indicate whether net debit or net credit.

A. P946,400 net debit

B. P946,400 net credit
C. P996,400 net debit
D. P996,400 net credit

PROBLEM 5.

PrestigeFix Co. operates a branch in Cebu. On December 31, 2013, the Cebu branch in the home office
books showed a debit balance of P3,132,660. The interoffice accounts were in agreement at the
beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were
given: It is the policy of the home office to bill its branches at 20% above cost.

Shipments from home office to Cebu branch costing P435,000 were in transit as of year-end. Cebu
branch recorded the said transfer twice at cost: one on December 31, 2013 and the other on
January 1, 2014.
The home office allocated to the Cebu branch of the rent expenses it paid for the year ended
2013. The rent expense was P144,000. The home office sent a debit memo by debiting the home
office-current account and crediting rent payable.
The branch wrote-off uncollectible accounts amounting to P60,720. The allowance for doubtful
accounts is maintained in the books of the home office. The home office recorded the write-off as a
write-off of its own accounts receivable.
The branch collected accounts receivable from home offices customers amounting to P317,520, net
of 2% cash discount. The branch treated the said transaction as if it was a collection from its own
customers .The home office was not yet notified of the said collection.

What is the unadjusted balance of the home office-current account in the books of Cebu branch on
December 31, 2013?

A. P2,855,940
B. P2,768,940
C. P2,781,900
D. P2,754,420

HOME OFFICE AND BRANCH ACCOUNTING #0007

HOME OFFICE AND BRANCH ACCOUNTING #0007

PROBLEM 6.

Fire Company has a branch in Baguio and Davao. The reciprocal accounts between the home office and
the branches were in agreement at the beginning of 2013. However at December 31, 2013, the
following reciprocal balances are found in the home office books:

Investment in Baguio P186,500

Investment in Davao 84,000

Data for reconciliation of the reciprocal accounts are as follows:

On December 29, 2013, the home office has instructed Baguio to transfer P74,000 cash to Davao.
Baguio recorded this transaction immediately. Upon receipt, Davao has recorded this transfer at
P47,000. The home office however has not yet recorded this interbranch transaction as of the end
of the year.
Fire has transferred goods costing P28,900 to Baguio branch and paid P2,500 of shipping cost on
December 16, 2013. Baguio shipped all of these goods to Davao upon instruction of the home office
on December 30, 2013. Shipping cost is P3,600 freight collect. Had the goods were shipped directly
to Davao, P5,000 of freight cost should have been incurred. The interbranch shipment was not
recorded by the branches and the home as well.
Baguio has collected cash of P5,750 from Davaos customer. This transaction is not yet recorded by
Davao and the home office.
The home office has already allocated P11,000 and P9,000 of administrative expenses to Baguio and
Davao respectively. The branches are not yet notified.
Baguio remitted P14,300 cash to the home office on December 12, 2013. The home office has failed
to record the said remittance.
Davao returned goods costing P6,850 to the home office. The goods were shipped on December 19
and received on December 24 but no entries have been made in the home office books.

Compute for the following:

Adjusted balance of Investment in Baguio account

A. P72,550
B. P66,800
C. P86,850
D. P103,950

Adjusted balance of Investment in Davao account

A. P181,450
B. P182,550
C. P175,700
D. P145,400

Unadjusted balance of Home Office Current account in Baguios books

A. P52,150
B. P87,200
C. P107,250
D. P92,950

Unadjusted balance of Home Office Current account in Davaos books

A. P236,250
B. P122,000
C. P115,150
D. P84,850

HOME OFFICE AND BRANCH ACCOUNTING #0007

HOME OFFICE AND BRANCH ACCOUNTING #0007

PROBLEM 7.

The following transactions were entered in the branch current account of Makati Head Office for the
year 2013:

Investment in Branch Ortigas

Beg. Balance, 1/1/13 459,258 Collection of AR, 9/1 33,300
Shipments to branch, 4/1/13 212,400
Cash forwarded, 6/1/13 15,000
Operating expenses charged to the
Branch, 12/31/13 2,880

Shipments to the branch during the year were made at 20% above cost.
The balance of the Allowance for Overvaluation of Branch Inventory account was P21,300 at the
beginning, and the allowance was written down to P14,700 at year-end.
On December 10, 2013, the home office purchased a piece of equipment amounting to P36,000 for
its branch in Ortigas. The said equipment has a useful life of five years and will be carried in the
books of the branch, but the home office recorded the purchase by debiting Equipment.
The branch recorded the depreciation of the equipment by debiting the Home Office Current
account and crediting Accumulated Depreciation.
Debit memo regarding the allocation of operating expenses to the Ortigas branch was received by
the branch on January 2, 2014.
The Ortigas branch reported net income of P197,730.
It also remitted cash to the home office on December 31, 2013 amounting to P33,000, which the
home office received and recorded on January 1, 2014.
The interoffice accounts were in agreement at the beginning of the year.

How much is the adjusted balance of the Branch Current account on December 31, 2013 before the
necessary closing entries were made?

A. P701,718
B. P659,238
C. P623,238
D. P665,718

What is the amount of adjustment in the Allowance for Overvaluation of Branch inventory account?

A. P56,700
B. P49,080
C. P14,700
D. P42,000

How much is the net income of Ortigas branch that will be reported in the combined income statement
of Makati Company?

A. P236,250
B. P208,950
C. P194,250
D. P239,130

What is the amount of the Home Office Current account that will be reported in the books of Ortigas
branch after closing entries are made?

A. P856,668
B. P895,488
C. P856,368
D. P853,488

*** END ***

HOME OFFICE AND BRANCH ACCOUNTING #0007