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Since 1977

PRACTICAL ACCOUNTING 2 DE LEON/DE LEON


P2.706- Home Office and Branch OCTOBER 2009

LECTURE NOTES
Agencies and branches are established to decentralize flows are also not acceptable for general purposes.
operations or to expand into new markets. Agencies are These two different sets of financial statements are
simple extensions of the home office; branches, internal to each of the reporting entities, combined
generally, are with regulated autonomy to operate as an financial statements must be prepared for the combined
independent entity. entities (taken as one and the same) to meet the
requirements of general-purpose statements.
Because agencies do not maintain its own set of
accounting records, all its transactions are recorded in A branch and its home office represent two accounting
the books of the home office. If the home office would systems but just one accounting and reporting entity.
like to determine viabilities of the agencies, real and All entries in the accounting records of the branch are
nominal accounts for the agency are identified in the also entered, at least in summary form, in the
home office books to facilitate such determination. accounting records of the home office. The records of
Otherwise, the agency items are merged without the home office and the branch are linked by two
identification with those of the home office. reciprocal accounts; the Home Office Equity account in
the books of the Branch and the Investment in Branch
The branch has its own complete set of accounting account in the books of the Home Office. Because they
records, therefore all its transactions, including those are reciprocal, it means that the two accounts always
with the home office, are recorded in its books. It also have the same balance although the Investment in
presents its own set of financial statements: the income Branch is a debit account (as an asset in the books of
statement, the balance sheet, and the statement of the Home Office) and the Home Office is a credit
cash flows. But because the branch is but a part of the account (as an equity item in the books of the branch).
home office, therefore, these set of financial statements The two accounts frequently show different balances on
are not acceptable for general purposes. And since the a temporary basis due to errors and items in transit. A
home office is just also a part of the whole organization, very important aspect of the study of home office and
its own set of financial statements: the income branches is the reconciliation of the reciprocal balances.
statement, the balance sheet and the statement of cash

An illustration of journal entries recorded for interoffice transactions follow:

Transactions Home Office Books Branch Books


Transfer of cash from the home office Investment in branch x Cash x
Cash x Home office equity x
Transfer of cash from the branch Cash x Home Office Equity x
Investment in branch x Cash x
Transfer of mdse from HO at cost Investment in branch x Shipment from HO x
Shipment to branch x HO Equity x
Transfer of mdse from HO at above Investment in Branch x Shipment from HO x
cost Allowance for OV x HO Equity x
Shipment to branch x
Payment by HO of branch expenses Investment in branch x Expenses x
Cash x HO Equity x
Allocation of prev. paid branch exp Investment in branch x Expenses x
Expenses x HO Equity x
Transfer of Fixed asset from home Memo entry Memo entry
office to Branch
(Note: There will be no entry if all fixed assets are accounted in the books of
the home office); otherwise:
Investment in branch x Fixed Assets x
Accumulated depn x Acc Depn x
Fixed Assets x HO Equity x
To take-up branch Profit/(loss) Investment in branch x Income Summary x
Branch Income x HO Equity x
Branch loss x HO Equity x
Investment in branch x Income Summary x
To adjust the reported branch NI /NL) Allowance for Ovrvltn x No Entry
for realized allowance Branch Income x
Note: The adjusting entry to reflect the true net income or loss of the branch
from the standpoint of the home office is always favorable and only relevant
when billing policy is above cost:

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EXCEL PROFESSIONAL SERVICES, INC.

Detailed computation of realized allowance for 2. Adjust some items in the cost of sales section of the
overvaluation thru sales by the branch to outsiders during branch income statement to their true costs (as a
the period: consequence of the billing policy not equal to cost).
Billed Cost Mark-up
Price Price on Cost The working paper adjustment/elimination entries are as
Branch Beg Invty xx xx xx follows:
(from HO)) a. Billed at Cost b. Billed above cost
Current shipments xx xx xx HO Equity x HO Equity x
(from HO Investment in Branch x Investment in Branch x
Branch End Invty (xx) (xx) (xx) Accounts Payable x Accounts Payable x
(from HO) Accounts Receivable x Accounts Receivable x
Cost of Goods Sold xx xx xx Shipment to Branch x Shipment to Branch x
Shipment from Allowance for Ovrvltn x
Cost = Billed Price/100% + % mark-up on cost = Mark- Home Office x Shipment from HO x
up on cost/% mark-up on cost. The amount of allowance None Allownce for Ovrvltn x
considered realized will be the allowance carried by the Branch Beg Invty x
cost of goods sold. None Br Ending Invty (I/S) x
Branch End Invty (B/S) x
There are two pricing methods generally used by the
When a company is composed of a home office and more
home office in billing the branch for merchandise
than one branch, the home office records include a
transfers:
separate investment in branch account and a separate
1. Billed at cost – the merchandise is transferred at
allowance for overvaluation account for each branch.
cost, thus when the branch sells the merchandise,
Separate worksheet adjustments are made for each
the entire gross margin is included in the branch net
branch.
income.
2. Billed at cost plus markup – the merchandise is When assets are transferred from one branch to another
transferred at an amount between cost and the branch, the home office account on each branch’s records
selling price. This intermediate pricing method are used to record the transfers. (Inter-branch
allocates part of the gross margin to the branch and receivables and payables are not created.) In essence,
the remainder to the home office. the transferring branch reverses the entry to record the
transfer from the home office and the receiving branch
Working paper adjustments and eliminations must be
enters a transfer as if it comes from the home office.
determined in order to:
1. Eliminate inter-company balances from the combined
statements to avoid redundancy, and
- done -

MULTIPLE CHOICE THEORETICAL


Select the best answer for each of the following multiple-choice questions:

1. May be Investment in Branch account of a home office 5. Does the branch use a Shipments from Home Office
be accounted for by the ledger account under the:
Cost Method Equity Method Perpetual Inventory Periodic Inventory
of accounting of accounting Method Method
a. Yes Yes a. Yes Yes
b. Yes No b. Yes No
c. No Yes c. No Yes
d No No d. No No

2. Which of the following generally is not a method of 6. A journal entry debiting Cash in Transit and crediting
billing merchandise shipments by a home office to the Investment in Branch is required for:
branch? a. The Home Office to record the mailing of a
a. Billing at cost check to the branch early in the accounting period.
b. Billing at a percentage above cost b. The branch to record the mailing of a check
c. Billing at a percentage below cost to the home office early in the accounting period.
d. Billing at retail selling price c. The home office to record the mailing of a
check by the branch on the last day of the
3. A branch journal entry debiting Home Office and accounting period.
crediting Cash may be prepared for: d. The branch to record the mailing of a check
a. The branch’s transmittal of cash to the to the home office on the last day of the
Home Office accounting period.
b. The branch’s acquisition for cash of plant
assets to be carried in the home office accounting 7. For a home office that uses the periodic inventory
records only system of accounting for shipments of merchandise to
c. Either (a) or (b) the branch, the credit balance of the Shipments to
d. Neither (a) nor (b) Branch ledger account is displayed in the home office
separate:
4. A Home Office ‘s Allowance for Overvaluation of a. Income statement as an offset to purchase
Inventories: Branch ledger account, which has a credit b. Balance sheet as an offset to Investment in
balance, is Branch
a. an asset valuation account c. an equity account c. Balance sheet as an offset to inventories
b. a liability account d. a revenue account d. Income statement as revenue.

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EXCEL PROFESSIONAL SERVICES, INC.

8. If the home office maintains in its general ledger Equipment 10,000


accounts for a branch’s plant assets, the branch debits c. Investment in branch 10,000
its acquisition of office equipment to: Cash 10,000
a. Home Office d. Equipment-Branch 10,000
b. Office Equipment Inv in Branch 10,000
c. Payable to Home Office
d. Office equipment carried by home office 11. On January 31, 2009, East Branch of Far Company,
which uses the perpetual inventory system, prepare
9. In a working paper for combined financial statements the following journal entry.
of the home office and the branch of a business Inventories in transit 10,000
enterprise, an elimination that debits Shipments to Home Office 10,000
Branch and credits Shipments from Home Office is To record merchandise shipment in transit from home
required under: office.
a. The periodic inventory system only
b. The perpetual inventory system only When the merchandise is received on February 4,
c. Both the perpetual inventory system and 2009, East Branch should:
the periodic inventory system a. Prepare no journal entry
d. Neither the perpetual inventory nor the b. Debit Inventories and credit Home Office, P10,000
periodic inventory system c. Debit Home Office and credit Inventories in transit,
P10,000
10. The appropriate journal entry for the home office to d. Debit inventories and credit Inventories in transit,
recognize the branch’s expenditure of P10,000 for P10,000.
equipment to be carried in the home office accounting
records is: 12. If a Home Office bills merchandise shipments to the
a. Equipment 10,000 branch at a markup of 20% on cost, the markup on
Inv in Branch 10,000 billed price is:
b. Home Office 10,000 a. 16.67% c. 25%
b. 20% d. Some other percentage

STRAIGHT PROBLEMS

Problem 1 (Branch was billed at cost) Requirements:


Alet Company, which prepares financial reports at the end 1. Prepare journal entries in the books of the home
of the calendar year, established a branch on July 1, office and in the books of the branch office for the
2009. The following transactions occurred during the above transactions.
formation of the branch and its first six months of 2. Prepare closing entries in the books of the branch
operations, ending December 31, 2009. office to close its income statement accounts.
1. The Home Office sent P35,000 cash to the branch to 3. Prepare adjusting entry in the books of the home
begin operations. office to reflect the increase or decrease in the
2. The Home Office shipped inventory to the branch. branch's net assets resulting from the branch
Intracompany billings totaled P75,000, which was the operations.
Home Office's cost. (Both the Home Office and the
Branch use a periodic inventory system.) Problem 2 (Branch was billed at more than cost)
3. The branch acquired merchandise display equipment The following transactions pertain to a branch's first
which cost P15,000 on July 1, 2009. (Assume that month's operations:
branch fixed assets are carried on the home office 1. The home office sent P11,250 cash to the branch.
books). 2. The home office shipped inventory costing P50,000 to
4. The branch purchased inventory costing P53,750 the branch; the intracompany billing was for P62,500.
from outside vendors on account. 3. Branch inventory purchases from outside vendors
5. The branch had credit sales of P106,250 and cash totalled P37,500.
sales of P43,750. 4. Branch sales on account were P100,000.
6. The branch collected P55,000 of its accounts 5. The home office allocated P2,500 in advertising
receivable. expense to the branch.
7. The branch paid outside vendors P35,000. 6. Branch collections on accounts receivable were
8. The branch incurred selling expenses of P18,750 and P56,250.
general and administrative expenses of P15,000. 7. Branch operating expenses of P17,500 were incurred,
These expenses were paid in cash when they were none of which were paid at month-end.
incurred and include the expense of leasing the 8. The branch remitted P21,250 to the home office.
branch's facilities. 9. The branch's ending inventory (as reported in its
9. The home office charged the branch P2,500 for its balance sheet) is composed of:
share of insurance. Acquired from outside vendors............….. .P15,000
10. Depreciation expense on the display equipment Acquired from home office (at billing price). 25,000
acquired by the branch is P1,250 for the six-month Total .........................................………...... 40,000
period. (Depreciation expense is classified as a selling
Requirements:
expense.)
1. Prepare the home office and branch journal entries
11. The branch remitted P12,500 cash to the home office.
for these transactions, assuming a periodic inventory
12. The branch's physical inventory on December 31,
system is used
2009 is P41,250, of which P31,250 was acquired from
2. Prepare the month-end closing entries for the branch.
the home office (there was no beginning inventory).
3. Prepare the month-end adjusting entries for the
home office relating to the branch's operations for the
month.

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EXCEL PROFESSIONAL SERVICES, INC.

Problem 3 inventory:
The pre-closing trial balances of Nicole Company and its Acquired
Angeles City branch for the year ended December 31, from
2009, prior to adjusting and closing entries are as vendors P P P
Acquired
follows:
from home
office
Home Office Branch Office
Add:
Accounts Debit Credit Debit Credit Purchases
Cash P 35,000 P P10,000 (from vendors)
Accounts Shipments
receivable, from office
net 80,000 50,000
Inventory,
January 1, Total goods
2008: available for
Acquired sale
from Less: Ending
vendors 230,000 50,000 inventory
Acquired Acquired
from 20,000 from
home vendors
office Acquired
Deferred
from home
profit 25,000
office
Fixed
assets, net 870,000 90,000 Cost of goods
Investment sold
in branch 155,000
Accounts 3. Prepare the following year-end adjusting entries to:
payable 221,000 45,000 a. Record the branch income on the home office
Long-term books
debt 400,000 b. Adjust the deferred profit account to the proper
Common
stock 300,000
balance
Retained 350,000 4. Prepare the year-end closing entries for the home
Earnings, office and the branch
January 1, 5. Prepare a combining statement worksheet as of
2008 December 31, 2009, after completing requirements 1
Home
office
to 4
equity 115,000 6. From the completed worksheet prepare:
Sales 960,000 320,000 a. An income statement and balance sheet for the
Purchases 800,000 120,000 branch.
Shipments b. An income statement and balance sheet for the
from home
office 90,000 home office.
Shipments c. An income statement and balance sheet
to branch 84,000 combined for home office and branch office.
Selling
expenses 101,000 34,000 Problem 4
Administra On December 31, the Inv. in Branch account on the home
tive books shows a balance of P150,000. The following facts
expenses 69,000 _______ 16,000 _______
are ascertained:
Totals P2,340,000 P2,340,000 P 480,000 P480,000
1. Merchandise billed at P5,000 is in transit on
Inventory per physical count on December 31, 2009: December 31, from the home office to the branch.
Acquired from vendors P180,000 P 20,000 2. The branch collected a home account receivable for
Acquired from home office 30,000 P2,000. The branch did not notify the home office of
cash collection.
Additional information: 3. On December 30, the home office mailed a check of
1. Inventory transferred to the branch from the home P10,000 to the branch but the bookkeeper charged
office is billed at 125% of cost. the check to General Expenses; the branch has not
2. The home office billed the branch P15,000 for received the check as of December 31.
inventory it shipped to the branch on December 28, 4. Branch profit for December was recorded by the
2009; the branch received and recorded this home office at P8,900 instead of P9,800.
shipment on January 2, 2010. 5. Branch returned supplies of P1,000 to the home office
3. The branch remitted P25,000 cash to the home office but the home office has not yet recorded the receipt
on December 31, 2009; the home office received and of the supplies.
recorded this remittance on January 4, 2010. Required:
Requirements: a) Compute the balance of the Home Office account on
1. Prepare the year-end adjusting entries to bring the the branch book as of December 31 before its
intracompany accounts into agreement. Be sure to adjustment.
adjust the other accounts in the trial balance as b) Prepare a reconciliation statement to compute the
appropriate. adjusted balances on December 31.
2. Complete the following analysis of the branch’s
inventory Problem 5
The interoffice accounts between the main office of ABC
COMPANY and its branch in Ayala were adjusted to
Transfers Transfers P145,500 as of December 31, 2008. The transactions
Above cost __at cost__ Mark-up between the home office and the branch for 2009 were:
Beginning

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EXCEL PROFESSIONAL SERVICES, INC.

a. Remittance by the branch (P38,000 was still in transit branch inventory 49,500
as of December 31, 2009) P 178,000. Sales 900,000 540,000
b. Shipments to branch (includes goods worth P44,000 Operating Expenses 217,500 82,500
that are not yet received by the branch as of
December 31, 2009) are P470,000. The ending inventory of the branch of P54,000 includes
c. The home office has not yet informed the branch of goods from outside purchases of P12,000; the ending
its share in the advertising expense amounting to P inventory of the home office is P 112,500
15,000. 1. The amount of shipments in transit at cost
d. Accounts receivable of the branch amounting to 2. The overstatement of branch cost of sales
P30,000 was collected by home office, net ,of 4% 3. The combined net income for the year
discount. The branch has not yet been notified.
e. The home office incorrectly credited the branch by P Problem 8
10,000 for the remittance of its Cubao Branch. The Branch A was authorized by its home office to send cash
Ayala Branch made no entry. of P1,500 that it can spare to Branch B. How is this
f. The home office corrected the above entry on transfer best recorded on the books of
January 5, 2010. However, the Ayala Branch (a) Branch A
inadvertently received a copy of this memo and (b) Branch B and
entered a credit in favor of the home office as of (c) the Home Office
December 31, 2009
g. The branch returned merchandise worth P 12,500 to Problem 9
the office and was duly acknowledge by the latter The DIANNA Company has established several branches
during the year. that sell the product that it manufactures. Manufactured
1. The unadjusted balance of the Home Office units are billed to the branches at the manufacturing
Current account as of December 31, 2009. costs, the branches paying the freight charges from the
2. The adjusted balance of the interoffice accounts home office. On November 1, the home office ships goods
as of December 31, 2009. to Branch No.1 charging the branch P10,000. The branch
pays freight charges of P500. It is subsequently
Problem 6
discovered that the home office had shipped the goods to
The Armani Corp. established a branch store in Ortigas on
Branch No. 1 by mistake and the home office directs
June 30, 2009. The branch is to receive substantially all
Branch No.1 to forward to goods to Branch No.2. Branch
merchandise for sale from the home office. During the
No.2 upon receiving the goods pays freight charges from
remainder of 2009, shipments to the branch amounted to
Branch No. 1 of 150. If the shipment had been made
P240,000 that included a 20% mark-up on cost. The
directly from the home office the freight would have been
branch purchased P 180,000 additional merchandise for
P350.
cash and reported unsold merchandise for P 145,000 at
year-end. The branch made sales of P420,000, paid Give journal entries to record all of the foregoing
expenses of P105,000 and remitted to the home office all transactions on the books of (1) home office; (2) Branch
sales proceeds. No.1 and (3) Branch No. 2.
The allowance for overvaluation of branch inventory
Problem 10
account on the home office books showed a balance of
On December 31, 2009, the branch manager of Nancy
P22,500 after adjustment.
Company in Iloilo City submitted the following data to the
1. The branch ending inventory that represented
home office in Manila:
purchase from outsiders
Petty cash fund 6,000
2. The branch net income as far as the home office is
Sales 390,000
concerned.
Shipment from home office 270,000
Problem 7 Accounts receivable, January 1, 2009 86,000
Home office bills its branch for merchandise shipment at Inventory, January 1, 2009 74,000
25% above cost. The following are some of the account Inventory, December 31, 2009 82,000
balances appearing on the books of home office and its Expenses 96,000
branch as of December 31
Home Office Branch's All cash collected on Accounts Receivable amounting to
Books Books P378,000 were remitted to the Home Office.
Inventory, Jan I P 22,500 P36,000
Shipments from Home Office 210,000 Required:
Purchases 675,000 225,000 1. What is the balances of the Home Office Account on
Shipments to branch 180,000 January 1, 2009.
Allowance for overvaluation of 2. What is the balance of the Home Office Account on
January 1, 2010.

MULTIPLE CHOICE

Romy Corporation has one branch office, named Tibo Tibo mailed a check for P11,000 to Romy as a payment
Branch. Romy is performing the end-of-the-period for merchandise shipped from Romy to Tibo. Romy
reconciliation of its Tibo Branch account whose current has not yet received the check.
balance is P000,000 and Tibo’s Home Office account Tibo returned defective merchandise to Romy. The
whose current balance is P000,000. The following items merchandise was billed to Tibo at P4,000 when its
are unsettled at the end of the accounting period (you actual cost was P3,000.
may assume that the item has been reflected in the Advertising expense attributable to the branch office
accounts of the underlined entity): were paid for by the home office in the amount of
Romy has agreed to remove P750 of excess freight P5,000.
charges charged to Tibo when Romy shipped twice 1. If the adjusted balances for the Tibo Branch Account
as much inventory as Tibo requested. and the Romy Home Office Account is P500,000,
what unadjusted balance was listed in (1) Romy’s

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EXCEL PROFESSIONAL SERVICES, INC.

Tibo Branch Account and (2) Tibo’s Home Office Freight in from Home Office 5,500
Account? Sundry expenses 50,000 25,000
a. (1) P510,250 and (2) P505,000. Credit
b. (1) P515,000 and (2) P495,750. Home Office 53,300
c. (1) P514,000 and (2) P516,000. Sales 155,000 140,000
d. (1) P504,000 and (2) P500,750. Shipments to Branch 110,000
The Meycauayan branch of Marco Company, at the end of Allow. for overvaluation of
branch inventory – Jan. 1 1,000
its first quarter of operations, submitted the following
income statement: Additional information:
Sales P300,000 a. Cebu branch receives all its merchandise from
Cost of sales: the home office. The Home Office bills the goods at
Shipments from home office P280,000 cost plus 10% mark-up. At December 31, 2008 a
Local purchases 30,000 shipment with a billing price of P5,000 was in transit
Total P310,000 to the branch. Freight on this shipment was P250
Inventory at end 50,000 260,000
which is to be treated as part of inventory.
Gross margin on sales P 40,000
b. December 31, 2008 inventories, excluding the
Expenses 35,000
Net income P 5,000
shipment in transit was:
Shipments to the branch were billed at 140% of cost. Home Office, at cost 30,000
The branch inventory as at September 30 amounted to Cebu Branch, at billed value
P50,000 of which P6,600 was locally purchased. Markup (excluding freight of P520) 10,400
on local purchases, 20% over cost. Branch expenses 5. Net income of the Home Office was
incurred by home office amounted to P2,500. a. P 10,000 c. P 20,000
2. On September 30, the branch inventory at cost and b. P 15000 d. P 22,000
net income realized by the home office from the
6. True income of Cebu Branch was
branch operations, respectively are:
a. P 10,470 c. P 12,470
a. P37,600 and P72,600
b. P 11,470 d. P 13,470
b. P31,600 and P 5,000
c. P50,000 and P55,000
The following data were taken from the records of Star
a d. P37,600 and P70,100
Corporation of Manila and its Bulacan Branch for 2008:
b
Manila office Bulacan branch
A home office transfers inventory to its branch at a 20%
Sales P 530,000 P157,500
markup on cost. During 2008, inventory costing the
Inventory, Jan. 1 57,500 22,250
home office P80,000 was transferred to the branch. At
Purchases 410,000
year-end, the home office adjusted its Unrealized
Shipment to branch 105,000
Intercompany Inventory Profit account downward by
Shipment from
P18,200. The branch’s year-end balance sheet shows
home office 126,000
P4,800 of inventory acquired from the home office.
Inventory, Dec. 31 71,250 29,250
3. How much is the beginning inventory of the branch
Expenses 191,000 50,750
at cost?
In 2008, Home office billed the branch at 120% of cost
a. P 15,000 c. P 3,000
which was lower by 5% than last year’s.
b. P 18,000 d. P 16,000
7. The combined net income of the home office and the
branch for 2006 was:
Sulu, Inc. established a branch in Jolo to distribute part
a. P48,325 c. P49,850
of the goods purchased by the home office. The home
b. P48,575 d. P56,075
office prices inventory shipped to the branch at 20%
above cost. The following account balances were taken Nicole Company has a branch in Boracay established on
from the ledger maintained by the home office and the April 1, 2008. During the year 2008, the home office
branch: shipped merchandise to the branch at billed value of
Sulu, Inc. Jolo, Branch P125,000 which was 25% above cost. At the end of the
Sales P 600,000 P 210,000 year, the branch reported sales of P200,000, operating
Beginning inventory 120,000 60,000 expenses of P95,000, and a net income from the
Purchases 500,000 - operation of P15,000.
Shipment to branch 130,000 - 8. The true income of the branch was
Shipment from home office 156,000 a. P 15,000 c. P 18,000
Operating expenses 72,000 36,000
b. P 25,000 d. P 33,000
Ending inventory 98,000 48,000
Xero Corporation operates a number of branches in
All of the branch inventory is acquired from the home Metro Manila. On June 30, 2008, its Sta. Clara branch
office. showed a Home Office account balance of P27,350 and
4. On the basis of these account balances, the the Home Office books showed a Sta. Clara branch
combined net income of the home office and the account balance of P25,550. The following information
branch is: may help in reconciling both accounts:
a. P170,000 c. P278,000 1. A P12,000 shipment charged by Home Office to Sta.
b. P 70,000 d. P132,000 Clara branch was actually sent to and retained by
Sta. Isabel branch.
Bicol Company is engaged in merchandising both at
2. A P15,000 shipment, intended and charged to Sto.
Home Office in Makati and a branch in Cebu. Selected
Domingo branch was shipped to Sta. Clara branch
accounts in the trial balances of the Home Office, and
and retained by the latter.
the branch at December 31, 2008 follow:
3. A P2,000 emergency cash transfer from Sta. Isabel
Debit Home Office Branch
branch was not taken up in the Home Office books.
Inventory, January P 23,000 P 11,550
Branch 58,300 4. Home Office collects a Sta. Clara branch accounts
Purchases 190,000 receivable of P3,600 and fails to notify the branch.
Shipments from Home Office 105,000

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EXCEL PROFESSIONAL SERVICES, INC.

5. Home office was charged for P1,200 for merchandise which included a 20% mark-up on cost. The branch
returned by Sta. Clara branch on June 28. The purchased P45,000 additional merchandise for cash and
merchandise is in transit. reported unsold merchandise of P60,000 at year-end.
6. Home office erroneously recorded Sta. Clara branch's The branch made sales of P292,500, paid expenses of
net income for May, 2008 at P16,275. The branch P72,000 and remitted to the home office all sales
reported a net income of P12,675. proceeds. The allowance for overvaluation of branch
inventory account on the home office books showed a
9. What is the reconciled amount of the Home Office and balance of P7,500 after adjustment.
Sta. Clara branch reciprocal accounts? 10. Compute the: (1) branch inventory on December 31,
a. P21,750 c. P27,350 2008 at cost, and (2) the branch net income as far
b. P23,750 d.P20,150 as the home office is concerned:
a. (1) P45,000; (2) P78,000
The LL Company established a branch in Makati City on b. (1) P52,500; (2) P78,000
June 1, 2008. The branch is to receive substantially all c. (1) P52,000; (2) P55,500
merchandise from the home office. During the remainder d. (1) P50,000; (2) P79,500
of 2008, shipments to the branch amounted to P180,000

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DO-IT-YOURSELF (DIY) DRILL

The following information are extracted from the books goods shipped to bill agency sales orders average 25%
and records of PP Company and its branch. The of cost.
balances are at December 31, 2009, the third year of
the corporation's existence. 3. How much is the net income of the agency for the
Home Office month ended December 31, 2008?
Books Branch a. P 2,886 c. P 12,876
Books b. P 3,386 d. P (2,614)
Sales P600,000
Expenses 200,000 Trial balances for the home office and for the branch of
Shipments from home office 360,000 Mermaid Company show the following accounts before
Allowance for overvaluation P72,500 adjustment as of December 31, 2008. The home office
bills merchandise to the branch at 20% above cost.
The branch acquired all of its merchandise from the HO Branch
home office. The inventories of the branch at billed Unrealized intercompany
prices are as follows: inventory profit P10,800
January 1, 2009 P75,000 Shipments to branch 24,000
December 31, 2009 84,000 Purchases (other vendors) P7,500
Shipments from Home Office 28,800
1. The adjusted profit of the branch in so far as the Merchandise inventory -
home office is concerned is: December 1, 2008 45,000
a. P107,500 c. P 58,500
b. P 49,000 d. P 60,000 4. What part of the December 1, 2008 branch
inventory represents acquisitions from outside
Nicole Company’s Kalibo branch reports a profit of purchases, and what part represents acquisitions
P17,000 for the year 2009 and a balance in its Home from the home office?
Office account at the end of the year of P88,000 after Outsider Home Office
closing. The branch income currently is unrecorded by a. P9,000 P36,000
the home office. During the year, the home office had b. 10,000 35,000
shipped inventory to the branch at an intracompany c. 12,000 33,000
profit of P14,000. Of that amount, P6,000 currently is d. 15,000 30,000
unrealized.
2. Assuming the branch has made all entries to adjust Universal Textiles has a single branch in Cagayan de
and close its books for 2009, what is balance in the Oro City. On March 1, 2009, the home office accounting
home office’s Investment in Branch account? records included an Allowance for Overvaluation of
a. P 65,000 c. P 88,000 Inventories with a credit balance of P32,000. During
b. P 71,000 d. P 94,000 March, merchandise costing P36,000 was shipped to the
CDO branch and billed at a price representing a 40%
On December 1, 2009, the Dustine Company
markup on the billed price. On March 31, the branch
established an agency in Las Pinas, sending its
reported a net loss of P11,500 for March and ending
merchandise samples costing P15,750 and a working
inventories at billed prices of P25,000. Mark-up was
fund of P9,000 to be maintained on the imprest basis.
uniform on all shipments.
During the month of December, the agency transmitted
5. Calculate the overstatement of the cost of sales in
to the home office sales orders which were billed at
the branch income statement in terms of the actual
P64,380 of which 20,400 was collected. A home office
cost of sales, i.e. per home office cost.
disbursement chargeable to the sales agency is the
a. P46,000 c. P39,257
acquisition of furniture and fixtures for Las Pinas,
b. P22,000 d. P40,000
P25,000 to be depreciated at 24% per annum. The
agency paid expenses of P3,815 and received On December 31, 2009, the Branch account in the
replenishment thereof from the home office. On Manila Home Office books shows a balance of P55,500.
December 31, 2008, the agency samples were valued at You ascertain the following facts in analyzing this
P10,075. It was estimated that the gross profit on account.

Page 7 of 8 www.prtc.com.ph P2.706


EXCEL PROFESSIONAL SERVICES, INC.

1. On December 31, 2009, merchandise billed at


P5,800 was in transit from the home office to the 8. The AB Trading Co. operates a branch in Iloilo. At
branch. close of business on December 31, 2008, Home
2. The branch had collected home office accounts Office account in the branch books showed a credit
receivable of P560; the home office was not balance of P372,900. The interoffice accounts were
notified. in agreement at the beginning of the year. For
3. On December 29, 2009, the home office mailed a purpose of reconciling the interoffice accounts, the
check for P2,000 to the branch, but the accountant following facts were ascertained;
for the home office had recorded the check as a a. A furniture costing the home office P4,600 was
debit to Charitable Contributions; the branch had picked up by the branch as P460. The branch
not received the check as of December 31, 2009. will maintain and use the asset.
4. Branch net income for December 2009 was b. The branch writes-off uncollectible, accounts of
recorded erroneously by the home office at P840 P1,260. The allowance for doubtful accounts is
instead of P480. maintained on the books of the home office.
5. On December 28, 2009, the branch had returned The home office was not yet notified.
supplies costing P220 to the home office; the home c. Freight charge on merchandise made by the
office had not recorded the receipt of the supplies home office for P2,715 was recorded in the
as at Dec. 31. branch books as P7,215.
6. Calculate the adjusted balance of the reciprocal d. Home office credit memo for P9,710 was
accounts at December 31, 2009. recorded by the branch at P7,91 0.
a. P49,680 c. P46,980 e. Iloilo branch failed to take up a P2,450 debit
b. P57,480 d. P54,870 memo from the home office.
f The home office inadvertently recorded a
Excel Corporation operates a branch in Calamba City.
remittance for P3,730 from its Ilocos branch as
The Home Office ships merchandise to the branch at
remittance from its Iloilo branch.
20% of the billed price. Selected information from the
g. Insurance premium of P1,675 charged by the
December 31, 2009 trial balance are as follows:
home office was taken up twice by the branch.
Home Office Branch
h. A P14,500 branch remittance to the home office
Books Books
initiated on December 28, 2008, was recorded
Sales P600,000 P300,000
on the home office books on January 2, 2009.
Shipments to branch 200,000
i. A home office inventory shipment to Ilocos
Purchases 350,000
branch on December 29, 2008, was recorded by
Shipments from home
the branch on January 3, 2009; the billing of
office 250,000
P47,000 was at cost,
Inventory, January 1 100,000 40,000
j. A branch customer remitted a P19,000 to the
Unrealized inter-company home office, The home office recorded this cash
inventory profit 58,000 collection on December 22, 2008. Meanwhile,
Expenses 120,000 50,000 back at the branch, no entry has been made
Inventory at December yet.
31, 2009 30,000 60,000
7. Calculate the combined net income for the home Determine the balance of the Investment in Branch
office and the branch for 2009: account before adjustments:
a. P236,000 c. P280,000 a. P364,545 c. P319,545
b. P263,000 d. P326,000 b. P307,515 d. P366,545

 - end of P2.701 - 

- now do the classroom drill -

Page 8 of 8 www.prtc.com.ph P2.706