ReSA The Review School of Accountancy Papa St. Cor. S. H. Loyola Sts. Sampaloc, Manila # Tel Nos. 734-39-89 & 7325-98-07 Advanced Financial Accounting HO & Branch Accounting & Reporting ~ General Procedures I - General Procedures - Inter-office Transactions Prepare the entries that are required on the books of the Home Office Parker Company and the separate book of its Manila branch to record (home office carries all depreciable assets in its own ledger): Inter-office (selected) transactions: 1. Transfer of cash by home office to branch, ?3,000 2. Transfer of merchandise by home office to the branch, P6,000. 3. At the beginning of the period, the branch office acquires branch furniture on account, P2,500, terms 2/10, 1/30 4. The home office makes payment on the invoice (refer to No. ‘3 transaction) within the discount period. 5. The home office analyzes the balance of its general and administrative expenses account and found out that P1,250 of this balance is chargeable to the branch. 6. Depreciation on the equipment is recorded at the end of the year at 108 7. Determination of a loss from branch operations, P1,000 IT - General Procedures: Cost of Goods Sold and Net Income on January 1, 2019, the Barton Company opened a new branch in @ neighboring city. A summary of transacticn for the home office and the branch for 2019 are as follows: Branch transactions: Cash received from hone office, P42, 500 b. Merchandise received from home office, P50, 20 ©. Sales on account, P66, 000 a. e. "Purchases on account, P22, 500 { Collections on account deposited to the credit of the home office, 53,400 £. Payments on account, P12,250 @. Purchases of furniture and fixtures for cash, 8,000 hh. Expenses paid, P18, 000 4. Adjusting data on December 31 Depreciation, P650 Merchandise inventory, 23,500 Prepaid expenses, P750 Accrued expenses, P300 Home office transactions: (Merchandise inventory, January 1, P40,120) ‘a. Transfer of cash to branch, P42, 509 bl Transfer of merchandise to branch biiled at cost), P50,200 cc. Sales on account, P105, 000 @. Purchases on account, P122,500 fe. Collections on account, 7113, 690 £. Payments on account, P124,000 g. Expenses paid, 26,600. hi. Cash received from branch, P53, 400. 4. Dividends paid, 10,000 4. Adjusting data on December 31: Depreciation, P1, 180 Merchandise inventory, P4é, 500 Prepaid expenses, P2,050 Accrued expenses, P1,350 AFAR-07Advanced Financial Accounting & Reporting page 2 Determing the 1. Branch (books) ner income from ite own operat Lone: Nome office nat “0 fron Jt OWN operations 3. Combined net in III ~ Gonaral Procedures Manila Corporation has been ope branch in Pampanga for a year. Mipmonts are billed to the b ¢ The branch carries its own counts receivable, makea ite own wash expenses, The Crantact tons effoct in the trial balance b pilections, and pays its own the branch for the year 2019 are given ‘aah Wome Office Currant Nipwents Crom Hom La Roce Lvabl 200, 000 Ottiee ; 1600, 666 300,000 alen Expenses - 70,800 | ~ Totals = - [Ez 000 | Fz, Fas, To The branch inventory on December 31, 2019 is P260,000 Determine: 1. On January 1, 2019, the shipment to Branch Account on the Home Office books should have an opening balance o: ae -0- ©. P 360,000 b. 1,960,000 4. 2,000,000 On December 31, 2019, compure the net’ income of the branct 4. P1, 700,000 ©. P 1,400,000 b. "360,000 a. 100,000 3. On January 1, 2020, the Branch Current account on the books of the Home Office should have a balance o a. P 760,000 ce. P 2,160,000 b. 1,000,000 a 400,000 IV ~ General Procedures On December 31, 2019, the branch manager of Rachelle Company in Marikina City submitted the foltowing data to the home office: Potty Cash Fund 10,000 364,000, — ek 000 Sales returns ‘Accounts written: 0. Shipments from hone office ~~~—~—}-——300000 ‘Accounts Feceivable, January 1, 2019 30,000 ‘Accounts receivable, Decemb 2015 700,000 Inventory, Janary 1) 2019 : eo] Inventory, December Ji, 701 — 70,000 Expenses (charged by ome Office) ~~ = 20%000 All cash collected on accounts receivable are remitted to the home 1. The balance of the Home Office Current Account om January 1, 2019 i aR -0- c. P 180,000 b. 160,000 d. 300,000 1, The net income of the Marikine Branch for ‘the year ending December 31, 2019 is: a. P140,000 cc. P 150,000 b. 144,000 4. 270,000 2. The total remittance for the year 2019 is: a. P540,000 cc. P 550,000 b. 544,000 d. 560,000 3, On December 31, 2019, the Branch Current Account on the Home Office books is: a.P -0- c. P 180,000 b. 160,000 d. 300,000 AFAR-07Financial Avoounting & Reporting page 3 Reconciliation of Reciprocal Accounts V = Adjusted Balance Method he fetlowing in the intra-company accounts home office and ity lone branch for June 20395 Inymatment in Beanoh TT Watance To, a0 | 702 Romie tance P10, 000 1 ntory shipment 12,000 | 6/08 Collection of beanch 628 Aivertiaing altocat lon to receivable 500 branch (M00 of advertiayng 6/21 equipment purchase by ure red) 4,000 branch 1,000 6/28 taventory anipne 14/000 iT Watance Ta, 200 ————_ Hons ‘offite Currant, TOF Remittance T10, 000] 6701 Ralance P55, 000 6/24 Purchase of equipment arcied on howe 6/10 Collection of home office office books) 1,600] receivable 2,000 6/29 Remittance 15,000] 6/16 Inventory shipment 12,009 6/0 inventory returned to home office 1,000] 6/28 Advertising allocation 400 6/20 _Depreciation allocation 2,000 777 talance Except for the error by the branch in recording its share of allocated advertising expense and depreciation allocation, all differences are timing differences, Compute tho adjusted balance of the reciprocal account on June 30, 2019: a. P46, 900 c. P50, 500 bd. 48,500 4. 91,000 VI - Unadjusted/Adjuated Balance Method and Adjusting Entries on December 31, 2019, the Branch Current ledger account in the accounting records of the hone office of Grace Company shows a debit balance of P55,500, You ascertained. the following facts in analyzing this account: a. On December 31, 2019, merchandise billed at P5,600 was in transit from the home office to the branch. The periodic inventory system is used by both the hone office and the branch. b. The branch had collected home office trade accounts receivable of P560; the home office was not notified. c. On December 29, 2019, the home office had mailed a check for P2,000 to the branch, but the accountant for the home office had recorded the check as @ debit to the Charitable Contribution Expense ledger account; the branch had not received the check as of December 31, 2014, d. Branch net income for December 2019, was recorded erroneously by the home office at P840 instead of ¥480. The credit was recorded by the home office in the Branch Income Summary ledger account. e. On December 28, 2019, the branch had return supplies costing P220 to the home office; the home office had not recorded the receipt of the supplies. The home office records acquisitions of supplies in the Office Supplies ledger account. £. Acquisition of equipment by the branch, P1,500. The equipment account is to be maintained in the home office books. The home office had not been notified of the acquisition. ‘A branch customer erroneously remitted P1,000 to the home office. The home office recorded this cash collection on December 29, 2019. Meanwhile, back at the branch, no entry has been made yet. Required: 1. The unadjusted balance of the Home Office Current account on the books of the branch as of December 31, 2019: a, P53, 180 cc. P49, 180 b. 51,180 d. 48,620 2. The adjusted balonce of the reciprocal account on December ji, 2019: a. P50, 180 c. P55, 980 b. 54,480 a. 56,980Advanced Financial Accounting & Reporting page 4 vir Company operates a branch in Dagupan City. At close of 2019. Dagupan Branch account in the home The interoffice For purposes trad business on December 31 ce bocks showed a debit balance of P225,770. nts were in agreement at the beginning of the year. acco Gf reconciling the interoffice accounts, the following facts were ascertained i. An office equipment costing the home office P3,500 was picked up by the branch as P35C. 2, Insurance premium of P675 charged by the hone office was taken up twice by the bran eight charge on merchandise made by the home office for P1,125 recorded in the branch books as Pl,215- office credit meno representing @ discount on merchandise f 0 was not recorded by the branch. he branch failed to take up 2 P700 debit meno from the home cffice representing the share of the branch in advertising. &. The hone office inadvertently recorded a remittance for P3,000 fron its Cebu branch as a remittance from its Dagupan branch. Compute the balance as of December 31, 2019: Unadjusted Balance Aajusted Balance of the Hione Office current ofthe Reciprocal Account a P 226, 485 2225, 770 8 228, 495 228,770 e. 225,770 226, 495 a. 226,485 228,770 Solutions: Probleas V to VII - Reconciliation of Reciprocal Accounts Probles f eo 7 ‘Branch H. Office Garrent_| "Current Unadjusted balance, 6/30/2019 = 64,500] P 25,400 Raa (bedeet Ts Rajustments———— a Erroneous recording Of aiverizing expense 7a00 So Shipeent- cin transi 14000 EL EHoneous recording ot depreciation 4000 Gfetiection of hone Office N/a 7,000 $Shipectts returned eo hose of Ize Tis S00y $yalhare to record Fenrreanes [8 000) gColiection of branch A‘A o_o wajusted batance, €/30/2019 = Ese] Feo Probles VE : Branch Ottis current_| Current Tradjusted balance 12731703 E55, 500 [Fave Had (Deduct): AdjsEments a. Shipeett an transit =e Se einetion of hone attics K/Z————— 360 Be Sean iy cransit errenecusly recorded 7000 F080 S-ovaratatenent of Branch net Income sea) SoSoppiies returned to hows office (cash Se eae tpoeee by the Be [—tnsee 5: taut collection sot recbiced by the branch Tis najutea balance, 12/31/2013 ESE es, 980 probles Vit: tte ‘Branch |W. Office current | Current Tradjusted balance, 67507018 #205, T10| F 70e AOST Rad (Deduct) Adjustments To Hetonesus recording of Ecaich eqilpBent 5155 Zo Fasursace presi recorded twice ae 5—iironecw recording eff (st i piscoont on merchandise (woo) ScFaliuve by the Br, to share In aver. 700 E-Getor By the 10 to Fecord remittance Of Cebu 3,500 [rajusted batance, 673072019" — Te Ti + The 226,485 is computed simply by working back with P228,770 adjusted Dalence as the starting point. AFAR-07Advanced Financial Accounting © Reporting page 5 VIII. Special Procedures Shipments with Unrealized Intercompany Inventory Profit / Deferred Profit Hope company operates 2 main store at its hone office and branch cere tm another city. The branch purchases most of its merchandise from the home office et 10s above home office cost. All merchandise deguired fron other suppiiers is accounted for by the branch at eiginal cost. At September 0, 2019, the records of the branch indicated the following: September Sal @6.ncn.--mer--P140,000 Inventory, September 1... 35,200 (508 from outside suppliers) Shipments from home office 55,000 (at billed price) Purchases from outsiders... 24,000 Sel Ling expenses.encenenwm 84000 General expenses. me. mm 32,000 Inventory, September 30... 30,000 (P8, 000 from outside suppliers) smarchandise voquiced fon the home office a snventoried at billed prices. Required: 1. Give the journal entries on the hom record the shipments. 2. Prepare the incone statement for the branch. 3. prepare 211 necessary entries on the home office books at September 30, 2019 to adjust the home office records for the branch operations for September. 1x - Computation of Beg. Inventory and True Branch Net Incoss the following information came fron the books and records of Pevso Corporation and its branch. The balances are as of Decenber 31, 2019 the fourth year of the corporation's wxistence. office and branch books to f Home office Branch pe. (ce pe. [Satea_____—_— _ #1700, 005), ‘Shipnants to branch - F{a50, 000) [Shipments fron hone office 7z0, 000 Purchases [==360;000 moar <= 530-000 paventory, Janwary 1/7015 7 14,00 rare aeoLit in Branch teventory | (272, 000) there are no’ shipments in transit between the home office and the seeren. Both shipments accounts are pyoperly recorded. The closing cracntory at billed prices uncludes merchandise acquired from the home attice in the amount of P108,000 and P60,000 acquired from the vendors for a total of 168,000. Required: Mir ne billing price based cn cost imposed by the home office to the branch? 2. How much of the beginning inventory was acquired from home office and from outsiders? AFAR-07 3. what is the true branch net income. x-Unrealized Inventory Profit, Merchandise Returns to Home Office ‘and Real Branch Net Income the Aramis Company bills its branch at 408 markup on the billed price. ee pecenber 31 the balance in the unrealized profit account is to be oF cuisted fron the following informacion reported by the branch: Merchandise | Merchandise from H. 0. Purchased Outsiders. onan (at cost: Total, Werchandise inventory, 12/1 i" B8,000 |» 40,400 Herchandise into stock, 12/1-12/7) 24,000 64, 500, Herchandise inventory, 12/3) 10, 000, 47,800, “nat is the balance of the uurealized profit account on the home aerice books before any adjustment is made for branch sales forAdvanced Financial Accounting & Reporting page 6 2. Assuming that the branch had a net income of P20,000 per branch books and had returned to the home office merchandise originally acquired at a billed price of P1,080. Also, branch expenses incurred and paid by Lie bame office amounted to P2,500 were not yet recorded by the branch. ihat is the real branch net incone? XI - Branch Inventory at cost and Combined Net Income ‘Tagum Supply Company is engaged in merchandising both at Home Office in Makati, Metro Manila and a branch in Davao. Selected accounts in the trial balances of the Home Office and the branch at December 31, 2019 follow: its Home Office Branch Inventory, January 1, 2019 P 23,000 P 11,550 Davao Branch 58,300 Purchases 190,000 105,000 Freight-in from home office 5,500 Sundry expenses 52,000 28,000 Credits Home office P 53,300 Sales 155,000 140,000 Sales to Branch 110,000 Allowance for branch inventory, January 1, 2019 1,000 Additional information: 1.Davao branch receives ail its merchandise fron the home office. ‘The Home Office bills the joods at cost plus 10% mark-up. At December 31, 2019, a shipment with a billing value of P5,000 was in transit to the branch. Freight on this shipment was P250 which is to be treated as part of inventory. 2. December 31, 2019 inventories excluding the shipment in transit . Home office, at Coster nm =P 30,000 —Davao-branch, at billed value (excluding freight of P520).... 10,400 The net income of the Home Office from own operations: a. P10,000 c. P20,000 b. P15, 000 a. P30,000 2. The net income (loss) of Davao branch in so far as home office is concerned: a. PC 870) cs P12, 470 b. P10,470 4. P13,470 ‘The combined net income: ‘a. P19, 130 ©. P20,470 b. 29,950 6. P40, 470 : mt Sharron Company operates a branch in Legazpi City. There are shipments in transit from home office t> the branch. The home office ship merchandise to the branch at 125% of cost in the year 2019, operating data for the hone office and the branch is as follow: coy gfttice | pranch Sales 2250, 000. P75, 000 Purchases from outeiders: 200,000} 13-000 ‘Shipments to branch: Cost to home office 30,000 Billing price to bronch . aa scd) Expenses: 40,000 | 10, 000, Inventories, January 1, 2015 Home office acquired from cutsic: 80,000 Branch: ‘Acquired from outsiders, at cost 7,500 Acquired from hone office, at billed rice, which average 20% above cost _ 24,500 Taventories, December 31, 2019 Home office, acquired from outsiders, at cost 55,000 Branch: ‘Acquired from outsiders, at cost 5,500 Acquired from home office, at 2019 billed 21,000 price (physical count) AFAR-07Advanced Financial Accounting & Reporting page 7 1. The amount of merchandise in transit: a P 7,500 r a. P10,500 2. The combined cost of goods sold: a. P240, 000 c. P242,500 b. P241, 200 d. P245, 200 3. The combined net income: a. P30,000 ce. P32, 500 b. P32, 400 d. P33, 800 XIII ~ Interbranch Cash Transfer anch AA is authorized by its Home Office to send to Branch BB P10,000 ash, How is this transfer best recorded on the books of (1) Home Office; 2) Branch AA, and (3) Branch BB. XIV - Interbranch Merchandise Transfer ‘The Manila Company maintains branches that market the products that it produces. Merchandise is billed to che branches at manufacturing costs, with the branches paying the freight charges from the home office to the branch. On November 15, Brancn No. 1 ships a portion of its ferchandise to Branch No % upon autherization by the home office. Originally, Branch No. 1 aad been billed for this merchandise at P16,000 and paid freight charges of P3,500 on the shipment from the home office. Branch No. 5, upon receiving the merchandise, pays freight charges of P2,500 on the shipment from Branch No. 1. if the shipment had been made from the home office directly to Branch No. 5, the freight cost to Branch No. 5 would have been P4,000. How should the merchandise tzansfers be recorded on the books o: (1) Home Office, 2) Branch No. 1, and (3) Branch No. 5 XIV-Interbranch Merchandise Transfer YY Corporation has two branches to which merchandise is transferred at cost plus 20%, plus freight charges. On November 30, 2014, YY corporation” shipped merchandise thar" éést PS, 500 to its CC Branch, and the P200 shipping charges were paid by YY Corporation. On December 15, 2014, the DD Branch encountered an inventory shortage, and the CC Branch shipped the merchandise to the DD Branch at a freight cost of P160 paid by the CC Branch. Shipping charges from the home office to the DD Branch would have been P175. 1. YY Corporation will record the P5,500 shipment to the CC Branch, together with the 200 shipping charge, in a journal entry that includes the following: a. Shipments from nome office, P6, 600 b. Shipments to CC Branck, °5,700 cc. Unrealized profit - brarch inventory, Pi, 100. d. Investment in CC Branch, P5,700. 2. CC Branch should record the transfer of merchandise to the DD Branch by either a debit or credit entry that includes the followin a. Shipments from home office, 5,500. b. DD Branch, P6, 975 c. Home Office, P6, 960 d. Inventory, P5, 660 3. If the merchandise is wsold at year-end, the DD Sranch will inventory the merchandise at: a. 6,000 c. P6,760 b. P6,975 4. 6,775 4, T€ the merchandise is unsold at year-end, YY Corporation will include it as an asset in its Annual Report to Stockholders in the amount of: a. P5, 500 cs P5,675 b. P5, 660 ds P5,875 5. The loss on excessive freight charges on the inter-branch transfer amounted to: ‘a. P200 c. P1785 b. P160 d. Piss AFAR-07Advanced Financial Accounting & Reporting sss 210,06 Home Office Current. Current-# 1 16,000 | Home Office, |. Shipments to & 000 | __HOC.... | Fremht-in, i ft | Gah | Branch Current-#5, 17,500 i Home Office Current.19,500. ‘SFHO. 16,000 Excess Freight. 2,000 | Freight-in 3,500 | Freight-in, 4,000 Branch Cur.-# 1. 19,500 SFHO. 16,000 Cash... 2,500 Computation of Excess Freight chargéabie to Home Office: Freight actually paid by: Branch No. 1 sete oP 3,500 Branch No. 5 2.500 Less: Freight that should be recorded in Branch No, 5 Excess Freight... —}g——~- . CC Branch Ship” from HO.....6,600 Branch Current-CC..6,600 | "Sip. to branch. 5,500 Freightan on. 200 | All. for Overval.” 1,100} Ho current Branch Current-CC... 200 1 CSP 200 Branch Current-DD...6,775 | HO Current 6,960 Excess Freight... 185 SFHO. 6,600 Branch Current-CC. 6,960} Freight-in. CTT LS resend . (c) 2 © 3. (4) ~ P6,600, at biled price in books of Branch DD + P175 = P6,775 4. (c) ~ P5,500, at cost in the com ine? statements + P175 = P5,675 5. (d) ~ (P200 + P160) - P175 = 7133 Computation of Excess Freight chargeable to Home fice: Freight actually paid by: Home Offic. 4 P 200 CC Branch, sivennsmnnens 169 P 360 Less: Freight that should be recorded by DD Branch, 15 Excess Freight. neqverkig certain fears hel hinders vs Rony nse The only thing that stonds between o man and wnct amon w