1. How many of the following statements below are false?

I. A net loss reported by a branch is recorded by the home office by a debit to

the Investment in Branch ledger account.
II. If branch trade accounts receivable are carried in the home office accounting
records, doubtful accounts expense of the branch is recorded by the home
office by a debit to Branch Loss and a credit to Investment in Branch.
III. If a remittance of cash by a branch has not been recorded by the home
office, the balance of the branch’s Home Office ledger account exceeds the
balance of the home office’s Investment in Branch account.
IV. Freight costs on merchandise shipments from Cody Branch to Dana Branch in
excess of normal freight costs from the home office to Dana Branch should
be recognized as operating expenses of Dana Branch.

a. 1 b. 2 c. 3 d. 4.

2. Home office ships merchandise P50,000 with a P5,000 freight FOB Shipping Destination.
The accounting treatment for this will be
a. branch debits shipments from home office P55,000 and credits home office equity
for the same amount.
b. branch debits shipments from home office and credits home office equity for
P50,000.
c. branch debits shipments for P50,000 and freight P5,000 and credits home office
equity for P50,000 and cash for P5,000.
d. branch debits shipments for P50,000 and freight P5,000 and credits the reciprocal
account for P55,000.

3. How many of the following statements below are true?

I. Both the Home Office ledger account and the Investment in Branch account
are displayed in the combined financial statements for the home office and
the branch.
II. The Investment in Branch ledger account is displayed as a noncurrent asset
in the separate balance sheet of the home office, and the Home Office
account is displayed as a long-term liability in the separate balance sheet of
the branch.
III. In a working paper for combined financial statements of a home office and
branches, the balance of the Shipments to Branch ledger account is
eliminated against the balance of the Home Office account.
IV. In a separate balance sheet for a home office, the balance of the Allowance
for Overvaluation of Inventories: Branch ledger account is deducted from the
balance of the Investment in Branch ledger account.

a. 1 b. 2 c. 3 d. 4
4. Home office maintains and controls all plant assets. To record depreciation, the
accounting treatment will include the following:
a. Branch debits depreciation and credits home office equity.
b. Home office debits depreciation and credits investment in branch.
c. Branch debits depreciation, home office credits the investment account.
d. Branch debits home office equity and home office credits the accumulated
depreciation.

5. Which of the following ledger accounts is displayed in the combined financial

statements for a home office and branch?
a. Shipments to Branch
b. Home Office
c. Dividends Declared
d. Allowance for Overvaluation of Inventories: Branch

6. The following will be debited to the home office equity account except
a. expenses paid by branch for the home office.
b. loss from branch operation.
c. cash transfers made to home office.
d. assets transferred to branch by home office.

7. Plant assets of branch are controlled and maintained in the books of the home office.The
accounting treatment if branch bought the plant asset will include the following:
a. home office credits investment in branch, branch debits plant asset.
b. home office debits branch assets, branch credits cash or accounts payable.
c. home office credits cash or accounts payable, branch debits home office equity.
d. home office debits branch asset, branch prepares a memo entry.
8. Cash in transit from home office to branch, if unrecorded by branch, will create the
following error:
a. home office equity will be overstated, while cash will be understated.
b. home office equity and cash will both be overstated
c. home office equity will be understated, while cash will be overstated.
d. both home office equity and cash will be understated.

9. Expenses were paid by home office and some were allocated to branch This will include
the following accounting treatment:
a. home office debits investment in branch, branch debits expenses.
b. home office debits investment in branch, branch credits cash.
c. home office credits cash, branch credits home office equity.
d. no entry by home office, branch debits expenses and credits home office.

10. When home office ships merchandise at a billed price, effect on branch books will be:
a. overstatement on gross profit and net profit.
b. overstatement in cost of sales and home office equity.
c. overstatement in cost of sales and unsold inventory.
 d. understatement in profit and home office equity.
11. ATMOSPHERE ENTERPRISES bills its branch for merchandise shipments at 25%
above cost. The following are some of the account balances appearing on the books of
the HOME OFFICE and its branch as of December 31, 2014.

HO Books BO Books
Inventory, January 1 P36,000 P63,000
Shipments from Home Office 360,000
Purchases 1,080,000 360,000
Shipments to Branch 288,000
Allowance for overvaluation 84,600
Sales 1,440,000 864,000
Operating expenses 348,000 132,000
Inventory, December 31 180,000 110,400
There were no purchases from outside vendors in the year 2013; the ending
inventory in the branch includes goods from outside purchases of P19,200.
Calculate the combined net income for the year-ended December 31, 2014.
A. P569,760 C. P596,760
B. P569,960 D. P 657,960

12. A home office transfers inventory to its branch at a 20% markup on cost. During
2007, inventory costing the home office P320,000 was transferred to the branch.
At year-end, the home office adjusted its allowance for overvaluation account
downward by P72,800. The branch’s year-end balance sheet shows P19,200 of
inventory acquired from the home office. How much is the beginning inventory of
the branch at cost?
a. P64,000 b. P72,000 c. P12,000 d. P60,000

13. On November 2,2013, the home office of Toby Sports Company recorded a shipment of
merchandise to its Bulacan as follows:

Investment in branch–Bulacan 60,000

Shipments to branch 50,000
Allowance for overvaluation of branch inventory 8,000
Cash (for freight charges) 2,000
The Bulacan branch sells 40% of the merchandise to outside customers during the rest of
the period. The books of the home office are closed on December 31of each year.On
January 10,2014, the Bulacan branch transfer half of the original shipment to the Baguio
branch, and the Bulacan branch pays P1,000 freight for the shipment. If the shipment had
been made by the home office to Baguio branch, the freightcharges would have been
P1,500.What is the entry in the home office books to record the inter-branch transfer
on January 10,2014?
a. Investment in branch–Baguio 30,500
Excess freight 1,500
Investment in branch–Bulacan 32,000
b. Investment in branch–Baguio 30,500
Investment in branch–Bulacan 30,500
c. Investment in branch–Bulacan 32,500
Investment in branch–Baguio 32,500
d. Investment in branch–Baguio 30,500
 Excess freight 500
Investment in branch–Bulacan 31,000

14. Mama, Inc. opened a sales agency in San Pedro Laguna in 2013. The following is a summary of
the
transactions of the sales agency:
 Sales orders sent to home office P120,000
 Sales orders filled by home office in 2013 95,000
 Freight on shipment of agency 2,000
 Collections, net of 10% discount 81,000
 Selling expenses paid from the agency working fund 5,500
 Administrative expenses charged to agency 5%gross sales
 Samples shipped to agency:
Cost 8,200
Inventory, December 31,2013 4,550

The company’s gross profit rate on agency sales is 30% excluding the freight cost on
shipments to
agency. What is the total comprehensive income of the agency for2013?
a.P3,600 b.P5,600 c.P1,600 d.P6,300

15. “The Capitol” Inc. has established a branch in District 5 by sending goods costing P184,900 and
P80,000 cash
on July 1, 2013. Home office initiated transactions for the remainder of the year are found below. At
the end of
the year, the company’s controller has found out that Seneca Crane, the accounting staff assigned in
recording
the transactions between home office and the branches, had failed to record all the transactions
initiated by the
branch. Because of this, there is a significant discrepancy between the balances of the reciprocal
accounts.

 The home office acquired computer equipment amounting to P420,000 for the branch on August
1, 2013.
As per agreement, the branch will keep all the property, plant and equipment records.
 Goods costing P320,000 were shipped from the home office to branch on November 9, 2013.
 Additional cash amounting to P53,000 was transferred to the branch on December 2, 2013.
 A branch customer has incorrectly paid P25,000 cash to the home office on December 16, 2013.
 The home office incurred P65,000 of advertising cost and P96,000 of salaries. District 5 branch
is to shoulder
 30% and 20% of these expenses, respectively.

For purpose of reconciling the reciprocal accounts, the controller has instructed the branch accountant
to send a
copy of the Home Office Current general leger to the home office.

Home Office Current

8/3 Equipment acquisition P420,000 7/1 Goods from HO P184,900
 11/5 Cash remittance 78,000 7/1 Cash 80,000
12/20 Return of goods to HO 49,000 8/15 Collection of HO’s AR 113,600
11/10 Goods from HO 230,000
12/4 Cash 50,300
P111,800
Determine the following:
16. Unadjusted balance of the Investment in District 5 account:

a. P1,142,800 b. P1,044,800 c. P1,071,600 d.

P1,058,200