Bryle Jay P.

Lape BSA-III

Let’s Check!

A company has an external sales agency. The company allows the sales agency to incur and pay for
all its expense and approved asset purchases. The company has never transferred any tangible assets
to the agency and created the agency by simply establishing an agency working capital fund of
225,000. Whenever the sales agency needs more working capital it transmits the receipts for what it
has spent back the main office which then sends cash back to the agency to cover the remitted items.
Small amounts of merchandise inventory are sent to the agency for display and demonstration
purposes. These items are transferred at cost.

1. An operation such as the one described above most closely resembles a(n):
a. Voucher system
b. Petty Cash system
c. Accounts Receivable subsidiary ledger
d. Accounts Payable subsidiary ledger

2. The primary advantages of the system described is that it:

a. Is adequate for effective control over agency expenses
b. Is adequate for measuring the contribution of agency operations to enterprise income
c. It is simple to establish and maintain
d. It provides a basis for determining if agency operations are being performed efficiently

3. Which of the following statements most correctly describes the types of information that a sales
agency would have to collect for the home office to properly determine the sales agency's
profitability?
a. Only agency sales, operating expenses, and cost of sales
b. Only agency sales and operating expenses
c. Only agency sales, cost of sales, operating expenses, and the actual or average amount of fixed
assets located at the agency locations.
d. Only agency sales, operating expenses, and the ending balances of accounts receivable.

4. Which of the following statements correctly describes the relationship between the accounting
used for o sales agency when compared to the accounting systems used for a branch office:
a. The sales agency accounting system cannot be set up to measure the profitability of the sales
agency but the branch accounting system can be set up to measure the profitability of the branch
b. The sales agency accounting system can be set up to measure the profitability of the sales agency
but the branch accounting system cannot be set up to measure the profitability of the branch
c. The accounting system of the sales agency is not usually considered a separate segment of
company's entire accounting system but the accounting system of the branch office is usually
considered a separate segment of the company's entire accounting system
d. None of the above

5. In preparing the financial statements of the home office and its various branches:
a. Nonreciprocal accounts are eliminated but reciprocal accounts are combined
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combined
d. Reciprocal accounts are eliminated and nonreciprocal accounts are combined