Problem A

The ledger of Tornado Branch Store shows the following balances on December 31:

Merchandise inventory, January 1 (cost) P400,000

Shipment from home office (cost) 300,000
Freight In 50,000
Sales 500,000
Sales returns 20,000

A closing inventory is taken on December 31, and the sales prices of the merchandise is determined to
be P520,000.

1. Compute the cost of ending merchandise inventory that will be used for the combined financial
statements.

Problem B
The trial balances before the adjustment for the home office and branch of the Sphinx Co. show the
following items on December 31:

Home Office Books Branch Books

Allowance for Overvaluation of
Branch Inventory P36,000
Shipments to Branch 80,000
Purchases P25,000
Shipments from Home Office 96,000
Merchandise Inventory, December 1 P150,000

2. What part of the inventory on December 1 represent purchases from outsiders and what part
represent goods acquired from the home office? (answer both) ,

Assume that the branch ending inventory is P100,000 composed of merchandise shipped from the home
office at billed price, P84,000, and merchandise from outsiders, P16,000. (facts of number 17 remain).

3. What is the amount of allowance for overvaluation of branch inventory adjustments?

4. What amount of branch cost of goods sold is used to arrive at true branch net income? (use
facts of nos. 17 and 18)

5. What is the amount of branch cost of goods sold is from the branch’s own perspective? (use
facts of nos. 17 and 18)

Problem C
The following information came from the books of Finesse Co. and its branch. The balances as of
December 31, 2014 are taken from the corporation’s third year of operation
 Home Office Branch
Dr (Cr) Dr (Cr)

Sales (P1,500,000)
Expenses 500,000
Shipments from Home Office 840,000
Unrealized profit branch inventory (P160,000)

The branch purchased all of its merchandise from the home office. The inventories of the branch at
billed prices are as follows:

January 1, 2014 P120,000

December 31, 2014 168,000

6. Compute the percentage of profit on cost that the home office uses to ship merchandise to the
branch.

7. Compute for the true branch net income.

8. Compute for the net income from the perspective of the branch.

9. What is the balance of the unrealized profit in branch inventory after adjustment?

Problem D
Trial Balance of Rainbow Appliance Corporation and its South Branch are as follows:

Debits Rainbow Appliance South Branch

Cash P 172,000 P 10,000
Receivables 60,000 24,000
Inventories, Jan. 1 72,000 14,400
Other assets 400,000 85,600
South branch 100,000
Shipments from Home Office 60,000
Purchases 240,000
Expenses 156,000 70,000
Totals P 1,200,000 P 264,000

Credits
Accounts Payable P 140,000 P 20,000
Capital Stock 400,000
Retained Earnings 85,600
Home Office 84,000
Sales 500,000 160,000
Shipments to South 72,000
Allowance for Markup 2,400 -
Totals P 1,200,000 P 264,000
Additional Information:
a. All shipments are billed at 20% above cost.
b. Ending inventories of the home office and branch are P64,000 and P16,800, respectively. Branch
inventories are at billed prices. Shipments in transit are still excluded.
c. Goods in transit to South are at billed price of P12,000. Cash in transit from home office to South are
for operating expenses to amounting P4,000.
d. The allowance for markup represents unrealized profit on branch beginning inventory.

10. What is the amount of combined net income?

11. What is the amount of the home office’s income from its own operations?

12. What is the amount of the inventories in the combined f\s?

13. How much is the overstatement of the cost of goods sold of the branch?

14. How much is the combined total assets?

Problem E
On December 31, the branch current amount in the books of the home office is P100,000 and does not
reconcile with the home office current account in the books of the branch. An examination of the
records revealed the following:

a. Merchandise billed at P25,000 is in transit on December 31 from the home office to the branch.
Gross profit ratio of the home office on all shipments is 20%.
b. The branch collected a home office receivable for P7,000 but failed to notify the home office.
c. On December 31, the home office sent P15,000 cash to the branch but this was erroneously charged
to general expense. The branch has not received this as of December 31.
d. The branch has not received the memo issued by the home office charging it for allocated expenses
of P2,200.
e. December branch profit was reported at P8,800 and recorded by the home office before the P6,500
adjustment for realized profit on merchandise shipments.

15. What was the unadjusted balance of the home office current account?

16. What was the adjusted balance of the branch current account?

17. What is the amount of the true branch net income?

Problem F
The German Manufacturing Company of Quezon City opened a branch in Manila on January 1, 2017 to
expand the market of its product. Merchandise shipped during 2017 to Manila branch totaled P104,000
which included a profit of 25% based on cost. At year-end, the inventory at billed price was P12,500.
Other transactions affecting the branch are as follows: Sales on account, P117,000; cash collections,
P84,000 after allowing cash discount of P1,480; expenses, P20,000, including unpaid of P1,300; cash
remittance to home office, P65,000.
 18. In the books of the branch, the net income or loss is

19. The true branch net income or loss is

20. The overstatement of the cost of goods sold amounted to

Problem G
The branch account in the home office’s books of Sunrise Co. and the home office account in the
branch’s books on January 31, 2014 are shown below:

Branch Current

Jan. 1 Balance P 62,815 Jan. 15 Remittance P 10,600

5 Merchandise shipments: 3,785 22 Merchandise returns 410

100 units of Product A @
P37.85

12 Merchandise shipments:
200 units of Product A @
P37.85
200 units of Product B @
P44.95 16,560

15 Advertising chargeable
To branch 600

29 Merchandise shipments 4,400

Home Office Current

Jan. 13 Remittance 10,600 Jan. 1 Balance P 62,815

18 Merchandise returns 410 8 Merchandise returns 3,875

22 Understatement of 540 16 Merchandise shipments 16,650

Depreciation in 2013

31 Remittance 16,000 20 Collection of home office 750

Account
Reconcile the reciprocal accounts as of January 31, 2014.

21. What is the adjusted balance of the reciprocal accounts?

22. The net adjustment in the branch current account is

23. The net adjustments in the home office current account is

Problem H
The Serg Corporation has two branches: Branch X and Branch Y. The home office shipped P100,000 of
merchandise to Branch X and paid freight charges of P6,000. A short time thereafter, Branch X was
instructed by the home office to reship the merchandise to Branch Y at a prepaid freight costs of
P10,000. Freight charges for this merchandise normally cost P12,000 when shipped from the home
office directly to Branch Y.

24. How much is the excess freight recorded in the books of the home office?

25. How much was credited to the Branch Current X account on the home office’s books to record
the transfer of merchandise from Branch X to Branch Y?

Problem I
On December 1, 2017, the Joselito Jordas Company established an agency in Davao, sending its
merchandise samples costing P10,000 and a cash working fund of P3,750 to be maintained on an
imprest basis. During the month of December, the agency submitted to the home office sales orders
which were billed at P87,500 of which P50,000 was collected. The agency paid expenses of P3,500 and
received replenishment thereof from the home office. On December 31, the agency samples were
valued at P7,500. It was estimated that the gross profit on the goods shipped to its customers averaged
25% of sales.

26. The cost of the agency sales to be recorded by the home office is

27. The net income from agency operation for the month of December is

Problem J
The following are the transactions of the home office and its Concepcion branch during April:

a. Purchases made by the home office, P120,000, of which P50,000 was shipped to Concepcion.
Likewise, cash transfers to Concepcion amounted to P25,000.
b. Freight charges paid by the home office for shipments to branch amounted to P1,200.
c. Account sales were made by the home office and branch are P100,000 and P60,000 respectively.
Collections were 80% of sales.
d. Expenses paid by the home office are as follows: Salaries P22,000, Advertising P10,000, and Utilities
P5,000. Expenses paid by the branch are as follows: Salaries P3,000, Utilities P1,500, and Supplies
P2,000.
e. Furniture bought for cash by home office for branch use amounted to P15,000. Home office records
all properties and charges 10% depreciation. Home office properties listed (before the furniture
purchase) in its ledger amounted to P235,000.
f. Home office charged 50% of the advertising to the branch.
g. Inventory beginning of home office, P24,000.
h. Inventory ending: home office, P38,000, and branch, P20,000 plus allocated freight.

28. After giving effect to the above transactions, what is the balance of the reciprocal accounts?

29. How much is the combined net income?

30. How much is the branch net income?

31. How much is the combined cost of goods sold?

Problem K
Pateros Co. of Metro Manila operates branches in Bacolod and Cebu. The following were some of the
intercompany transactions for the month of August:

a. Cebu made a fund transfer to Bacolod per Home Office instructions, P10,000.
b. Cebu collected Bacolod Branch receivables of P8,500 less 2% discount.
c. Bacolod shipped merchandise costing P15,000 to Cebu.
d. Home office shipped merchandise costing P20,000 to Bacolod and paid freight of P300. Bacolod paid
additional freight of P300.
e. Bacolod re-shipped one half of the goods received in d0 to Cebu. Cebu paid for the freight cost,
P200. Normal freight from Home Office is only P400.
f. Home office transferred machinery costing P3,000 to be depreciated at 10%. It is home office policy
that fixed assets be recorded only in home office books. The transfer was acknowledge by Bacolod.
g. The machinery is to be depreciated at the end of the month.
h. Cebu reported a net loss in the amount of P9,500, while Bacolod reported a net income of P32,750.

What are the balances of the home office equity accounts?

32. Cebu Books
33. Bacolod Books
34. In connection with transactions d and e, how much is the excess freight?
35. Which entity will record the depreciation expense? Which entity will record the accumulated
depreciation? (answer both) ,