2Advanced Financial Accounting and Reporting 1

HOME OFFICE AND BRANCH ACCOUNTING (HOBA)

PART 2

Problem Set 1
Far Eastern Corporation, which prepares financial reports at the end of the calendar year, established a
branch on April 1, 2019 in Dasmariñas City. The following transactions occurred during the formation of
the branch and its operations through December 31, 2019:
1. The HO sent P35,840 cash to the branch to begin its operations.
2. The HO shipped inventory to the branch. Billings totaled P76,800, which was the HO's original cost.
Both the HO and the branch uses a periodic inventory system.
3. On July 1, 2019, the HO paid cash of P15,360 for merchandise display equipment to be used by the
branch. As a matter of company policy, branch fixed assets are carried on the HO books.
4. The branch purchased inventories costing P55,040 from outside suppliers on account.
5. The branch had credit sales of P108,800 and cash sales of P44,800.
6. The branch collected P56,320 of its accounts receivable.
7. The branch paids outside vendors P35,840.
8. The branch incurred selling expenses of P19,200 and general overhead expenses of P15,360. These
expenses were paid in cash when they were incurred.
9. The HO charged the branch P2,560 for its share of insurance.
10. Depreciation expense on the display equipment acquired by the home office for the branch, through
December 31, 2019, is P1,280.
11. The branch remitted P12,800 of cash to the HO.
12. The branch's physical inventory at the end of the year is P42,240, of which P32,000 was acquired
from the HO (there was no beginning inventories for inventories coming from the HO).

Requirements:
1. Prepare journal entries in the books of the HO and the branch for the above transactions.
2. Prepare closing entries in the books of the branch to close its income statement accounts.

Problem Set 2
The following transactions pertain to La Consolacion Company's branch second month's operations in
June of the current year:
1. The HO sent P18,000 cash to the branch as start-up fund.
2. The HO shipped inventory costing P80,000 to the branch at a billing price of P100,000. This billing
policy was also used in May of 2019.
3. Branch purchased inventory from outside suppliers amounting to P60,000.
4. Branch sales on account were P212,000.
5. The HO allocated P4,000 im advertising expense to the branch.
6. Branch collections on accounts receivables were P90,000.
7. Branch operating expenses of P35,000 were incurred, none of which were paid at the end of the
month.
8. The branch remitted P28,000 to the HO.
9. The branch's inventory balances were as follows:
06-01-2019 06-30-2019
Acquired from other vendors P22,000 P24,000
Acquired from HO 30,000 40,000
Totals P52,000 P64,000

Requirements:
1. Prepare the HO and branch journal entries for these transactions, assuming a periodic inventory
system is used.
2. Prepare the month-end closing entries for the branch.
3. Compute for the Reported Branch Net Income (RBNI) and the True Branch Net Income (TBNI).

Problem Set 3
On December 31, 2019, the Investment in Branch account on the HO's books of San Lorenzo Co. shows a
balance of P240,000. The following facts are ascertained:
a. Merchandise billed at P8,000 is in transit on December 31, 2019 from HO to branch.
b. The branch collected a HO's accounts receivable on behalf of the HO for P3,200. The branch did
not notify the HO of the cash collection.
c. On December 30, the HO mailed a check of P16,000 to the branch but the bookkeeper charged
the check to General Expense. The branch has not received the check as of December 31, 2019.
d. Branch profit for December was recorded by the HO as P14,240 instead of P15,680.
e. Branch returned supplies of P1,600 to the HO but the HO has not yet recorded the receipt of the
supplies.
Required:
1. Compute the balance of the Home office account on the books of the branch before adjustments.
2. Prepare a reconciliation statement to compute the adjusted balances on December 3, 2019.

Problem Set 4
The reciprocal accounts between the main office of Tomas Acquainas Company and its Ayala Branch in
Makati were adjusted to P291,000 as of December 31, 2018. The transactions between the Home Office
and the branch for 2019 were as follows:
a. Remittances by the branch (of which P30,400 was still in transit as of Decembee 31, 2019)
amounted to P284,400.
b. Shipments to branch (including goods worth P70,400 that are not yet received by the branch as
lf December 31, 201)) amounted to P752,000.
c. The HO has not yet informed the branch of its share in the advertising expense amounting to
P24,000.
d. Accounts receivable of the branch amounting to P48,000 was collected by the HO, net of 4%
discount. The branch has not yet been notified.
e. The HO incorrectly credited the branch by P16,000 for the remittances of its Cubao Branch. The
Ayala Branch made no entry.
 f. The HO corrected the above entry on January 5, 2020. However, the Ayala Branch inadvertently
received a copy of this memo and entered a credit in favor of the HO as of December 31, 2019.
g. The branch returned merchandise worth P20,000 to the HO and was duly acknowledged by the
latter during the year.
Required:
1. Compute for the unadjusted balance of the Home Office equity account as of December 31, 2019.
2. Compute for the adjusted balances of the reciprocal accounts as of December 31, 2019.

Problem Set 5 (Comprehensive)

The pre-closing trial balances of San Beda Corporation and its Taytay Branch for the year ended 31,
2019, prior to adjusting and closing entries are as follows:
Account Home Office Branch
Debit Credit Debit Credit
Cash 44,800 12,800
Accounts Receivable, net 102,400 64,000
Inventory, Jan. 1
- Acquired from outside 294,400 64,000
vendors
- Acquired from HO 25,600
Deferred Profit 32,000
Fixed Assets, net 1,113,600 115,200
Investment in Branch 198,400
Accounts payable 282,880 57,600
Long-term debt 512,000
Common Stock 384,000
Retained Earnings, Jan. 1 448,000
Home office 147,200
Sales 1,228,800 409,600
Purchases 1,024,000 153,600
Shipments from HO 115,200
Shipments to Branch 107,520
Operating Expenses 217,600 64,000
Totals 2,995,200 2,995,200 614,400 614,400
Inventory per physical count on December 31, 2019:
Home Office Branch
From vendors oustide P230,400 P25,600
From HO 38,400
Additional Information:
1. Inventory transferred to the branch from the home office is billed at 125% of cost.
2. The HO billed the branch P19,200 for the inventory it shipped to the branch on December 31, 2019.
The branch received and recorded this shipment on January 2, 2020.
3. The branch remitted P32,000 cash to the HO on December 31, 2019. The home office received and
recorded this remittance on the fourth of succeeding month.
Requirements:
1. Prepare the adjusting entries to bring the reciprocal accounts into agreement.
2. Complete the following analysis of the branch's inventory:
3. Prepare the following year-end adjusting entries to:
a. record the branch icome on the HO books
b. adjust the deferred profit account to the proper balance.
4. Prepare the year-end closing entries for the HO and branch.
5. Prepare the following for the year 2019:
a. An income statement and balance sheet for the branch.
b. An income statement and balance sheet for the HO.
c. Combined income statement and balance sheet.