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On April 15, 2018 Sunset Corporation, a company manufacturing healthy and organic drinks, opened an agency to take
care of marketing its products in Manila. The agency was given additional instruction to offer a discount of 10% for
cash orders, and for credit upon Home Office approval on term of n/30. You are given the following transactions for the
April, May and June:
a) On April 15, samples worth P100,000 were shipped to Manila Agency. Freight of P5,000 was paid by the home
office and charged to the agency account. Equipment worth P15,000 were purchased for cash and shipped to the
agency on the same day.
b) A cash working fund of P80,000 was transferred to the agency manager on April 15 and on April 30 furniture
worth P10,000 were purchased by the manager.
c) The manager rented an office space and paid P40,000 for a one month deposit and an advance rental good for three
d) Utilities incurred amounted to P12,000 including an unpaid bill of P3,000 for the month of June.
e) Working fund was replenished and the above expenditures reimbursed.
f) Home office policy is to pay the agency manager his monthly salary of P15,000 every 5th day of the following
month by depositing it to his ATM account. Salaries for April and May were acknowledged as received by the
g) The agency performance report showed: P600,000 sales orders, P300,000 of these availed of the cash discount. Mark-up
was 100% of cost. An order for P50,000 has not been filled up as of April 30.
h) Freight was 10% of the net sales value or shipments to agency customers which was paid by home office.
i) Only half of the credit sales were collected.
j) Home office grants a 5% bonus to all managers based on net quarterly sales earned in excess of P350,000. Bonus
of agency manager was included in the June salary.
k) The above are regular transactions except for a few information that are considered adjustments such as accrued or
prepaid rent, utility, salary, depreciation under a 2% monthly rate policy, samples used based on an estimate that these are
good for six months.
Required: Entries to record agency operation.
Entries to record the adjustments.

2. Refer to ex. 1
1) Determine agency profit using T Account only.
2) Is the agency performance within the targeted net profit margin of 5%?
3) List the new accounts and the balances related to the agency transactions that will appear in the home office
statement of financial position as at June 30.
4) Determine the home office regular cost of sales and give the entry based on the following additional data:
Inventory January 1 P750,000; Purchases P1,565,000; Freight In, P35,000; Purchase Discounts P200,000;
Inventory June 30, P750,000.
3. Speed Auto Sales decided to open a branch in Cebu City at the start of 2017. The branch
operation for the first six months are supported by the following transactions:
a) Automobiles worth P6,000,000, and cash
of P500,000 were transferred by Speed Auto Sales to the newly opened Cebu Branch. Freight is 5% of the
car value, paid by the home office but charged to the branch.
b) Furniture and equipment worth P250,000 were transferred to the branch. . Fixed assets are carried in the books of
the home office.
c) Advertising costs P300,000 paid by Speed Auto Sales, 50% of which was for the account of the branch.
d) Credit sales of the branch amounted to P9,000,000. Collections amounted to P5,000,000.
e) The branch paid for commission to agency sales manager at 5% of sales.
f) Other operating expenses paid amounted to P450,000.
g) Branch stock was replenished with the purchase of automobile units, P4,700,000.Terms: on account
h) The branch returned one car which it purchased costing P1,200,000 and received credit for this.
i) Home office paid half of the branch account owing to the car supplier.
j) 2% monthly depreciation was recorded by the branch as per instruction of home office.
j) The branch submitted its financial reports and remitted cash balance (if any) to Speed in excess of the cash
which was transferred by the home office.
a) Determine the profit of the branch by using a T Account for Income and Expense Summary.
b) Determine the cash balance of the branch.
c) T Account Investment in Branch to determine its equity over branch.
d) Entries in the books of the branch.

5. U Company established a branch in Davao City. The transactions for the quarter ending March are summarized below:
a) P50,000 cash and P60,000 worth of merchandise were transferred to Davao Branch.
Freight of P6,000 was paid for the goods shipped to Davao, under the term FOB Shipping Point.
b) Fixtures and equipment were purchased by Davao Branch, P30,000, 2/10, n/30 on January 15. The branch had this
approved by the home office. All fixed assets are carried in the books of the branch.
c) Purchases on account: Branch, P140,000 and Home Office, P220,000
d) The account of Davao Branch in b) was paid by the Home Office outside of the
discount period. Discount lost was charged to Davao Branch.
e) Sales for the quarter - cash basis: Branch, P98,000; Home Office, P240,000.
on account: Branch, P175,000; Home Office, P200,000.
f) Payment to suppliers: Branch P80,000 and Home Office P160,000.
g) Expenses paid by the Branch: P5,000 for supplies P5,000 for utilities, rent P10,000.
Home Office: P6,000 utilities; P75,000 salaries; P25,000 rent;
P24,500 advertising.
h) Collections of customers’ accounts: Branch, P117,500 and Home Office P140,000.
i) It was the policy of the Home Office to require branch to deposit to its account all monies in excess of the cash
transfer made in a).
j) Home Office charged the Branch for the following expenses paid in g) above: P18,000 salaries and P10,500
k) Home Office P25,000 note which bears 9% interest for 60 days was paid by the Branch including interest. Home
Office issued this on January 29.
1) Merchandise returned by the branch to the Home Office, P7,000. FOB shipping point Freight of P700.
m) Accrued utilities of the Home Office, P15,000 and of the Branch, P5,000.
n) 12% depreciation rate on all properties. Plant assets of Home office amounted to P360,000 on January 1.
o) Books of Home Office and Branch were closed and the merchandise inventory end set up at P30.000 for the
Branch and P60,000 for the Home Office.
Required: 1) Entries in the books of the Branch to record the above transactions.
2) Entries in the Home Office books to record the above transactions in its book.
3) Closing entries in both books. Inventory beginning of home office was P105,000.
Prepare a working paper showing adjusted individual income statements and a combined income
statement using the format on page 229.

6. The following account is found in the books of Food House Center (FHC):
Home Office Equity – Food Corporation
Date Explanation Debit Credit Balance
Jan. 1 Balance 22,180 cr
3 Furniture transferred by home office to FHC 18,300 40,480 cr
4 Rent paid by home office for FHC 6,000 46,480 cr
10 Merchandise returned to home office
including freight of P600. 8,100 38,380 cr
15 Cash remitted to home office. 630 37,750 cr
20 FHC receivable collected by home office. 3,000 34,750 cr
22 Merchandise received from home office
(including P1,000 freight prepaid) 21,000 55,750 cr
28 Supplier’s account paid by home office 4,500 60,250 cr
31 Branch result of operation 5,000 55,250 cr
Required: Give the reciprocal entries in the books of Food Corporation.

7. On January 4, 2017, Manila Toy Company opened its first branch with instructions to Sylvia Cruz, the branch
manager, to perform the functions of granting credit, billing customers, accounting for receivables, and making cash
collections. The branch paid its operating expenses by checks drawn on its bank account. The branch obtained
merchandise solely from the home office. Billings for these shipments were at cost. The following are their adjusted trial
balances on December 31, 2017:

Home Office Branch

Debit Credit Debit Credit
Cash 42,000 44,600
Working Fund 20,000
Notes Receivable 7,000 35,800
Accounts Receivable (net) 80,400 37,300
Inventories 95,800 42,000
Furniture & Equipment (net) 48,100
Investment in Branch 188,000
Accounts Payable 43,300 2,200
Common Stock, P2 par 200,000
Home Office Equity 183,000
Retained Earnings 25,000
Sales 507,650 101,100
Purchases 300,500
Shipments to branch 55,350
Operating expenses 69,500 56,250
Shipments from Home Office _______ _______ 50,350 ______
Totals 831,300 831,300 286,300 286,300
Additional information:
a) Goods on hand Dec 31 are as follows: Home Office P85,000 and Branch P35,000.There was a P5,000 shipment
recorded by the home office but since it is still in transit, it was not recorded by the branch.
b) Working fund has not been replenished for the following expenses: Supplies P3,000 of which a third is still unused
and utility bills paid of P10,000.
a. Before preparing the closing journal entries in the accounting records of the branch, adjust first for the shipment in
transit and unreplenished expenditures. Inventory end must also be adjusted.
b. Prepare the entry to record the branch profit or loss as well as the closing entries in the
accounting records of the home office.
c. Prepare the financial statements using the working paper format on page 229.