[HOME OFFICE AND BRANCH ACCOUNTING]

SOLUTIONS TO MULTIPLE CHOICE PROBLEMS

PROBLEM 1

Branch Current Home Office Current

Unadjusted balances P 496,000 P 440,000
Adjustments:
a. Collection of the branch accounts
receivable by the home office (8,000)
b. Shipments to branch in transit 32,000
c. Acquisition of furniture by branch
to be maintained on the home office books (12,000)
d. Return of excess merchandise by the branch (15,000)
e. Cash remittance by the branch (5,000) _______
Adjusted balances P 464,000 P 464,000 (A)

PROBLEM 2

Branch Current Home Office Current

Unadjusted balances P 85,000 P 44,000
Adjustments:
a. Branch remittance recorded by Home
Office on January 4, 2014 (10,000)
b. Shipment to branch recorded on
January 5, 2014 20,000
c. Allocated expenses to branch 5,000
d. Erroneously remittance by customer (3,000)
e. Shipment to branch of 43,000
Taken up by branch 34,000 _______ 9,000

Adjusted balances P 75,000 P 75,000 (C)

PROBLEM 3

Accounts receivable, December 31, 2008 ……………………………………………………………. P 85,200

Sales ………………………………………………………………………………………………….. 272,700
Sales returns ………………………………………………………………………………………….. (4,800)
Accounts receivable written off ……………………………………………………………………… (2,000)
Accounts receivable, December 31, 2009 …………………………………………………………… (88,800)
Total remittances P 262,300 (A)

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PROBLEM 4

Billed Price ÷ Billing Rate = Cost Allowance for mark up

Shipments from HO P 303,050 110% P 275,500 27,550
Less: Ending Inventory 61,050 110% 55,500 5,550
Realized mark up or overvaluation 22,000

Branch profit (loss) as reported ………………………………………………………………… P (5,500)

Add: Realized mark up on branch inventory …………………………………………………... 22,000
True Branch Profit (Loss) P 16,500 (B)

PROBLEM 5

Inventory, September 30 (9,000 – 2,000) …………………………………………………….. P 7,000 (B)

It may recognized only a realized mark up on branch inventory and make an adjustments once the inventory has
been sold to outsiders. As far as home office is concerned, it will not recognize any profit from the merchandise
ships to branch. (D)

PROBLEM 6

The sales to outsiders reported by branch in its income statements should be the sales revenue to be reported to
the combined income statements. (B)

PROBLEM 7

Branch Current Home Office Current

Unadjusted balances P 41,490 P 43,000
Adjustments:
a. Overstatement in credit for
Merchandise allowance 60
b. Advance taken by President (550)
c. Share in advertising expense 900 _______
Adjusted balances P 42,450 P 42,450

PROBLEM 8

Sales ……………………………………………………………………………………………. P 2,300,000

Less: Cost of Sales
Shipments from home office ……………………. P 1,850,000
Less: Inventory, ending …………………………. 255,500 1,594,500
Gross profit ……………………………………………………………………………………. 705,500
Less: Operating expenses …………………………………………………………………….... 235,000
Net Income P 470,500

Home Office Current balance …………………………………………………………………. P 480,000

Add: Branch Income ………………………………………………………………………….. 470,500
Investment in Branch Current balance P 950,500 (C)

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PROBLEM 9

Billed Price ÷ Billing Rate = Cost Allowance for mark up

Beginning inventory from HO P 60,000 120% P 50,000 10,000
Add: Shipments from HO 24,000 120% 20,000 4,000
Total before adjustments 14,000
Less: Returns by branch 1,680 120% 1,400 280
Ending inventory 33,600 120% 28,000 5,600
Realized mark up or overvaluation 8,120

Branch profit (loss) as reported ………………………………………………………………… P (5,200)

Add: Realized mark up on branch inventory …………………………………………………... 8,120
True Branch Profit (Loss) P 2,920 (A)

PROBLEM 10

Billed Price ÷ Billing Rate = Cost Allowance for mark up

Beginning inventory from HO P 7,560 140% P 5,400 2,160
Add: Shipments from HO 28,280 140% 20,200 8,080
Total before adjustments 10,240 (D)

PROBLEM 11

Cost of goods available for sale at cost:

Shipments from home office …………………………………………………………. P 300,000
Additional shipments …………………………………………………………………. 120,000
Returns to home office ……………………………………………………………….. (7,500)
Shipments from home office at billed price (net of return) ………………………….. P 412,500
Multiplied by Cost ratio ……………………………………………………………… 100/120
Shipments from home office at cost ………………………………………………… P 343,750
Purchases from outsiders at cost …………………………………………………….. 72,500
Cost of goods available for sale at cost P 416,250 (A)

PROBLEM 12

Unrealized Gross Profit in Branch Inventory …………………………………………………. P 6,000

Divided by mark up on cost ………………………………………………………………………… 20%
Branch Ending Inventory at cost ……………………………………………………………… P 30,000
Multiplied by mark up on cost………………………………………………………………………. 120%
Branch Ending Inventory at billed price P 36,000

Ending Inventory (including purchases from outsiders) …………………………………….. P 50,000

Less: Ending inventory from home office …………………………………………………… 36,000
Ending inventory purchased from outsiders P 14,000 (D)

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PROBLEM 13

Billed Price ÷ Billing Rate = Cost Allowance for mark up

Shipments from Home office:
March 5 P 120,000 125% P 96,000 24,000
March 10 50,000 125% 40,000 10,000
March 20 35,000 125% 28,000 7,000
Total before adjustments 41,000
Less: Returns by branch 3,050 125% 2,440 610
Ending inventory 85,000 125% 68,000 17,000
Realized mark up or overvaluation 23,390

Total goods available for sale at cost (96,000 + 40,000 + 28,000 – 2,440) …………………… P 161,560
Less: Ending inventory at cost …………………………………………………………………. 68,000
Cost of goods sold at cost P 93,560 (A)

Branch income (loss) as reported ……………………………………………………………… P (6,200)

Add: Realized mark up on branch inventory …………………………………………………. 23,390
True Branch Income (Loss) P 17,190 (B)

PROBLEM 14

Unrealized intercompany inventory profit …………………………………………………… P 10,800

Less: Allowance for overvaluation of shipments (28,800 – 24,000) ……………………….. 4,800
Allowance for overvaluation of beginning branch inventory ………………………………. P 6,000
Divided by Mark up on cost …………………………………………………………………. 20%
Merchandise inventory at cost, December 1, 2009 …………………………………………. P 30,000
Add: Allowance for overvaluation of beginning branch inventory ………………………… 6,000
Merchandise inventory at billed price, December 1, 2009 P 36,000 (A)

Merchandise inventory, December 1, 2009 per branch books …………………………….. P 45,000

Less: Merchandise inventory at billed price ……………………………………………….. 36,000
Merchandise inventory, December 1, 2009 – outsiders P 9,000

PROBLEM 15

Inventory, January 1, at billed price …………………………………………………………. P 165,000

Shipments received from home office at billed price ……………………………………….. 110,000
Cost of goods available for sale at billed price ……………………………………………… P 275,000
Less: Cost of goods sold, from home office at billed price:
Sales …………………………………………………. P 169,000
Less: Sales returns and allowance ………………….. 3,750
Sales price of merchandise purchased from outsiders
(P 7,500 × 120%) …………………………... 9,000
Net sales of merchandise acquired from home office P 156,250
Divided by billed rate ……………………………… 125% 125,000
Inventory, March 15 at billed price ………………………………………………………….. P 150,000
Divided by Billed Rate ………………………………………………………………………. 125%

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Merchandise inventory at cost destroyed by fire P 120,000 (A)

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PROBLEM 16

Cost of goods sold – Home Office …………………………………………………………. P 590,000

Cost of goods sold at cost – Laguna Branch (300,000 – 20,000) ………………………… 280,000
Combined cost of goods sold P 870,000 (B)

PROBLEM 17

Sales ……………………………………………………………………………………….. P 95,000

Less: Sales discount (P 81,000 ÷ 90% × 10%) ……………………………………………. 9,000
Net Sales ...….……………………………………………………………………………... P 86,000
Less: Cost of goods sold [(P 95,000 x 70%) + P 2,000 freight] ………………………….. 68,500
Gross profit ………………………………………………………………………………... P 17,500
Less: Expenses:
Selling expenses ……………………………………. P 5,500
Administrative expenses (P 95,000 × 5%) ………... 4,750
Samples expense (P 8,200 – P 4,550) ……………... 3,650 13,900
Net Income P 3,600 (A)

PROBLEM 18

Shipments to branch in Home Office books …………………………………………………… P 328,125

Less: Cost of goods sold by the branch at cost (P 81,250 ÷ 40%) …………………………….. 203,125
Branch inventory at cost …….. ……………………………………………………………….. P 125,000
Multiply by billed rate …………………………………………………………………………. 140%
Branch inventory at billed price ……………………………………………………………….. P 175,000
Add: Beginning inventory …………………………………………………………………….. 105,000
Branch ending inventory per books P 280,000 (C)

PROBLEM 19

Branch Current Home Office Current

Unadjusted balances P 77,000 P 61,000
Adjustments:
a. Error in recording the shipment (10,000)
b. Error in recording the expenses (5,000)
c. Unrecorded cash remittance (31,000) ______
Adjusted balances P 46,000 P 46,000 (A)

PROBLEM 20

**********TO FOLLOW THE SOLUTIONS**********

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