Home Office

and Branches

Suggested Solutions
de Leon/ de Leon/ de Leon
 STRAIGHT PROBLEMS
Problem 1. Branch was billed at cost by Home Office

1.1 JEs: HOME OFFICE BOOKS BRANCH OFFICE BOOKS

1. Branch 35,840 Cash 35,840

Cash 35,840 Home Office 35,840

2. Branch 76,800 Shipment from HO 76,800

Shipment to Branch 76,800 Home Office 76,800

3. Fixed Asset-Branch 15,360 Memo entry

Cash 15,360

4. No entry. Purchases 55,040

A/P 55,040

5. No entry Cash 44,800

A/R 108,800
Sales 153,600
6. No entry Cash 56,320
A/R 56,320
 STRAIGHT PROBLEMS
1.1 JEs: HOME OFFICE BOOKS BRANCH OFFICE BOOKS
A/P 35,840
7. No entry Cash 35,840

SE 19,200
8. No entry GAE 15,360
Cash 34,560

9. Branch 2,560 Insurance expense 2,560

Insurance expense 2,560 Home Office 2,560

10. Branch 1,280 Depreciation exp 1,280

Acum Depn 1,280 Home Office 1,280

11. Cash 12,800 Home Office 12,800

Branch 12,800 Cash 12,800
 STRAIGHT PROBLEMS
HOME OFFICE BOOKS BRANCH OFFICE BOOKS

1.3 Adjusting Entries Adjusting Entries - (Not Applicable)

Branch 25,600
BIS (RBNI) 25,600
1.2 Closing Entries
Sales 153,600
MI, end 42,240
Sh from HO 76,800
Purchases 55,040
SE 19,200
GAE 15,360
Insurance exp 2,560
Depreciation exp 1,280
Income Summary 25,600

Income Summary 25,600

Home Office 25,600
 STRAIGHT PROBLEMS
Problem 2. Branch was billed at more than cost by Home Office.
2.1 JEs HOME OFFICE BOOKS BRANCH OFFICE BOOKS

1. Branch 18,000 Cash 18,000

Cash 18,000 Home Office 18,000

2. Branch 100,000 Sh from HO 100,000

Sh to Branch 80,000 Home Office 100,000
AFOVOBI 20,000

3. No entry Purchases 60,000

A/P 60,000

4. No entry A/R 212,000

Sales 212,000

5. Branch 4,000 Advertising exp 4,000

Advertising exp 4,000 Home Office 4,000
 STRAIGHT PROBLEMS
2.1 JEs HOME OFFICE BOOKS BRANCH OFFICE BOOKS

Cash 90,000
6. No entry
A/R 90,000

7. No entry Operating exp 35,000

A/P 35,000

8. Cash 28,000 Home Office 28,000

Branch 28,000 Cash 28,000
 STRAIGHT PROBLEMS
HOME OFFICE BOOKS BRANCH OFFICE BOOKS
2.3 Adjusting entries Adjusting entries (Not applicable)
Branch 25,000 2.2 Closing Entries
BIS (RBNI) 25,000
Sales 212,000
MI, end 64,000
AFOVOBI 18,000 MI, beg 52,000
BIS (R/A) 18,000 Sh from HO 100,000
Purchases 60,000
BP Cost Mark-up Advertising exp 4,000
MI, beg (OV) 22,000 22,000 - Operating exp 35,000
Income Summary 25,000
(HO) 30,000 24,000 6,000
Purch (OV) 60,000 60,000 -
Shpmnt (HO) 100,000 80,000 20,000 I/S (RBNI) 25,000
Home Office 25,000
TGAS 212,000 186,000 26,000
MI, end (OV) (24,000) (24,000) -
(HO) (40,000) (32,000) ( 8,000)
COGS (HO) 148,000 130,000 18,000
 STRAIGHT PROBLEMS
Problem 3. Accounting Procedures at Year-end
3.1 Basic reconciliation for reciprocal balances
HOME OFFICE BOOKS BRANCH OFFICE BOOKS

Cash 32,000 Sh from HO 19,200

Branch 32,000 Home Office 19,200

3.2 Analysis of Branch Merchandise Balances

Transfers Transfers
above Cost @ cost Mark-up
BI: from OV 64,000 64,000 -
HO 25,600 20,480 5,120
Add: Purchases from OV 153,600 153,600 -
Shipments from HO 134,400 107,520 26,880
Total goods available 377,600 345,600 32,000
EI: from OV (25,600) (25,600) -
HO (57,600) (46,080) (11,520)
COGS 294,400 273,920 20,480
 STRAIGHT PROBLEMS
3.3 Working Paper Elimination Entries (WPEE)

WPEE #1 WPEE #3

Home Office 166,400 DP 26,880

Branch 166,400 Sh to Branch 107,520
Sh from HO 134,400
WPEE #2
DP 5,120 WPEE #4
Branch BI 5,120 Branch EI (IS) 11,520
Branch EI (BS) 11,520

3.4 Adjusting Entries to take-up HO share in net income of Branch

 STRAIGHT PROBLEMS
3.5 Closing Entries in Individual Books of Home Office and Branch Office
BRANCH OFFICE BOOKS

Sales 409,600
MI, end 83,200
IS (RBNI) 51,200
MI, beg 89,600
Purchases 153,600
Sh from HO 134,400
OE 64,000

IS (RBNI) 51,200
Home Office 51,200
 STRAIGHT PROBLEMS
3.3 Working Paper Elimination Entries (WPEE)

WPEE #1 WPEE #3

Home Office 166,400 DP 26,880

Branch 166,400 Sh to Branch 107,520
Sh from HO 134,400
WPEE #2
DP 5,120 WPEE #4
Branch BI 5,120 Branch EI (IS) 11,520
Branch EI (BS) 11,520

3.4 Adjusting Entries to take-up HO share in net income of Branch

HO Books: Branch 51,200

BIS (RBNI) 51,200

Deferred Profit 20,480

BIS (Realized DP) 20,480
 STRAIGHT PROBLEMS
3.5 Closing Entries in Individual Books of Home Office and Branch Office
HOME OFFICE BOOKS BRANCH OFFICE BOOKS

BIS 71,680 Sales 409,600

IS (TBNI) 71,680 MI, end 83,200
IS (RBNI) 51,200
Sales 1,228,800 MI, beg 89,600
MI, end 230,400 Purchases 153,600
Sh to Branch 107,520 Sh from HO 134,400
IS (HONI) 30,720 OE 64,000
MI, beg 294,400
Purchases 1,024,000 IS (RBNI) 51,200
OE 217,600 Home Office 51,200

IS (CNI) 102,400
Retained Earnings 102,400
 STRAIGHT PROBLEMS

3.6 Income Statements for HO, Branch, and Combined

HO BO HO BO
Sales 1,228,800 409,600 1,638,400
MI, beg 294,400 89,600 378,880
Purchases 1,024,000 153,600 1,177,600
Shipments ( 107,520) 134,400 -
MI, end ( 230,400) (83,200) (302,080)
Cost of sales 980,480 294,400 1,254,400
Gross Profit 248,320 115,200 384,000
OE (217,600) (64,000) (281,600)
Net Income 30,720 51,200 102,400
 STRAIGHT PROBLEMS
3.7 Balance Sheets for HO, Branch, and Combined
HO BO HO BO
Cash 76,800 12,800 89,600
A/R 102,400 64,000 166,400
MI, end 230,400 83,200 302,080
Fixed Asset 1,113,600 115,200 1,228,800
Branch 217,600
DP ( 11,520) 206,080 - -
Totals 1,729,280 275,200 1,786,880

A/P 282,880 57,600 340,480

LTD 512,000 - 512,000
Capital Stock 384,000 - 384,000
Retained Earnings 550,400 - 550,400
Home Office - 217,600 -
Totals 1,729,280 275,200 1,786,880
 STRAIGHT PROBLEMS
Problem 4. Reconciliation of reciprocal balances.

HO Books Branch Books

Branch A/C HO Account
UBs 240,000 235,040
Adjustments: (1) 8,000
(2) 3,200
(3) 16,000 16,000
(4) 1,440
(5) (1,600)

ABs 259,040 259,040

 STRAIGHT PROBLEMS
Problem 5. Reconciliation, comprehensive illustration.

HO Books Branch Books HO Books Branch Books

Branch A/C HO Account Branch A/C HO Account

ABs, 1/1 291,000 291,000 UBs, 12/31 730,920 684,200

Transactions Adjustments
(a) TD (254,000) (284,400) (a) (30,400)
(b) TD 752,000 681,600 (b) 70,400
© TD 24,000 © 24,000
(d) TD (46,080) (d) (46,080)
(e) Error (16,000) (e) 16,000
(f) Error 16,000 (f) (16,000)
(g) NRI (20,000) ( 20,000) (g) -

UBs 730,920 684,200 ABs 716,520 716,520

 STRAIGHT PROBLEMS
Problem 6.0 Additional Year-end Illustrations

6.1

Total shipment @ billed price (360,000 x 125%) P450,000

Amount recorded in the branch books 420,000
Shipments in transit @ billed price P 30,000
Divide by 125%
Shipments in transit @ cost P 24,000
 STRAIGHT PROBLEMS

BP Cost DP
Beg Inv
OV 27,000 27,000 -
HO 45,000 36,000 9,000
Purchases 450,000 450,000 -
Shipments 450,000 360,000 90,000
TGAS 972,000 873,000 99,000
End Inv
OV (24,000) (24,000) -
HO (114,000) (91,200) (22,800)
COGS 834,000 757,800 76,200

BI: 72,000- 45,000= 27,000

EI: 108,000 + 30,000= 138,000

138,000 - 24,000= 114,000
 STRAIGHT PROBLEMS

6.2
Overstatement of branch cost of sales:
AFOVOBI ( before adjustment for realized allowance) P 99,000
Less required allowance on BEI from HO (114,000/125%)x25% 22,800
Realized allowance arising from branch sales to outsiders P 76,200
 STRAIGHT PROBLEMS
HO: Branch
Sales 1,800,000 Sales 1,080,000
COGS: BI 45,000 COGS: BI 72,000
Purch 1,350,000 Purch 450,000
Shpmnt (360,000) Shpmnt 450,000
EI (225,000) (810,000) EI (138,000) (834,000)
Gross Profit 990,000 Gross Profit 246,000
OPEX (435,000) OPEX (165,000)
HONI 555,000 RBNI 81,000

HONI 555,000
RBNI 81,000
Realized Allowance 76,200
Combined NI 712,200
 STRAIGHT PROBLEMS

Branch
Sales 1,080,000
COGS: BI 63,000
Purch 450,000
Shpmnt 360,000
EI (115,200) (757,800)
Gross Profit 322,200
OPEX (165,000)
TBNI 157,200

HONI 555,000
TBNI 157,200
Combined NI 712,200
 STRAIGHT PROBLEMS

6.3

OR Prepare a Combined Income Statement

Sales (1,800,000 + 1,080,000) P 2,880,000

Cost of Sales: MI, beg (45,000+ 63,000) P 108,000
Purchases (1,350,000 + 450,000) 1,800,000
MI, end ( 225,000 + 115,200) ( 340,200) 1,567,800
Gross profit P 1,312,200
Operating expenses (435,000 + 165,000) 600,000
CNI P 712,200
 STRAIGHT PROBLEMS
Problem 7. Inter-branch transfer of cash

Books of Branch A Books of Branch B Books of Home Office

HO 2,400 Cash 2,400 Branch B 2,400
Cash 2,400 HO 2,400 Branch A 2,400
Problem 8, Inter-branch transfer of merchandise.
Books of Home Office Books of Amer Br Books of Balgan Branch
Amer Br 16,000 Sh fr HO 16,000
Sh to Amer Br 16,000 F-in 500
Cash 500
HO 16,000

Balgan Br 16,320 HO 16,500 Sh fr HO 16,000

Exc freight 180 F-in 500 F-in 560
Amer Br 16,500 Sh fr HO 16,000 Cash 240
HO 16,320
Sh to Amer Br 16,000
Sh to Blgan Br 16,000
Suggested Solutions: Multiple Choice Items

1. B HO Corp BRA Branch

Branch A/C HO A/C
UBs 412,000 396,600
Adjustments:
(a) ( 600)
(b) ( 8,800)
© ( 3,200)
(d) 4,000
ABs 400,000 400,000
Suggested Solutions: Multiple Choice Items
2. D

Branch EI @ cost:
Total BV P 40,000
Less Branch EI from OV 5,280 x 100% = P 5,280
Branch EI from HO P 34,720 / 140% = 24,800
Amount P 30,080

True Branch NI
RBNI (P4,000 - P2,000) P 2,000
Plus Realized allowance:
[(224,000 - 34,720) / 140%] x 40% 54,080
TBNI P56,080
Suggested Solutions: Multiple Choice Items

3. A
BP Cost Mark-up
MI, beg (HO) 12,000 2,400
C/S (HO) 64,000 12,800

TGAS (H0) 15,200

COGS (HO) (14,560)

MI, end (HO) 3,840 3,200 640

Realized allowance (given) P14,560

Add allowance on Branch EI (3,840/120%) x 20% 640
Allowance before adjustment P15,200
Less allowance on current shipment (64,000 x 20%) 12,800
Allowance on Branch BI from HO P 2,400
Divide by 20%
Branch BI @ cost P 12,000
 Suggested Solutions: Multiple Choice Items

4. A

HO: Branch
Sales 480,000 Sales 168,000
COGS: BI 96,000 COGS: BI 48,000
Purch 400,000 Shpmnt 124,800
Shpmnt (104,000) EI (38,400)
EI ( 78,400) (313,600) 134,400
Gross Profit 166,400 Divide by 120% (112,000)
OPEX (57,600) Gross Profit 56,000
HONI 108,800 OPEX (28,800)
TBNI 27,200
HONI 108,800
TBNI 27,200
Combined NI 136,000
Suggested Solutions: Multiple Choice Items

5. D

Sales P124,000
Less Cost of Sales
Inventory, beg P 18,400
Purchases 152,000
Shipment to Branch ( 80,000)
Inventory, end ( 24,000) 66,400
Gross Profit P 57,600
Sundry expenses 40,000
Net income P 17,600
 Suggested Solutions: Multiple Choice Items
6. D

Sales P 112,000
Less Cost of sales
Inventory, beginning P 8,440
Shipment from HO (P80,000 + 4,400 + 200) 84,600
Inventory, end (P11,200 + 416 + 200) (11,816) 81,224
Gross profit P 30,776
Sundry expenses 20,000
Net income P 10,776
AFOVBI 8,800:
Shipments 80,000* 10%= 8000
Beg Inv 800

Beg Inv (including freight):

At billed price 9,240
Less: AFOVBI 800
At cost 8,440
End Inv: (8,320 + 4,000)/ 1.1 = 11,200
 Suggested Solutions: Multiple Choice Items

7. D
Sales (424,000 + 126,000) P550,000
Less Cost of Sales
MI, beg (46,000+ 14,240) P 60,240
Purchases 328,000
MI, end (57,000 + 19,500) ( 76,500) 311,740
Gross profit P238,260
Less Operating expenses (152,800 + 40,600) 193,400
CNI P 44,860

MI, beg (Branch) 17,800/ 125% = 14,240

MI, end (Branch) 23,400/ 120% = 19,500
Suggested Solutions: Multiple Choice Items

8. D
RBNI P 12,000
Plus Realized allowance 14,400
TBNI P 26,400

Sales 160,000
COS 72,000
Gross Profit 88,000
OPEX 76,000
Net Income 12,000

Realized Allowance: 72,000/ 1.25 * .25 = 14,400

Suggested Solutions: Multiple Choice Items

9. B
HO Books Branch Books
Branch A/C HO Account
UBs 20,440 21,880
Adjustments (1) (9,600)
(2) 12,000
(3) - -
(4) (2,880)
(5) ( 960)
(6) (2,880)
ABs 19,000 19,000
Suggested Solutions: Multiple Choice Items
10. B

Branch EI from HO @ BP 48,000

Less: Deferred Profit from the EI 6,000
Branch EI @ cost 42,000

Branch
Sales 234,000
COGS:
Purch 36,000
Shpmnt 120,000
EI (42,000) (114,000)
Gross Profit 120,000
OPEX (57,600)
TBNI 62,400

Shipments: 144,000/1.20 = 120,000