Chapter 12 Home Office and Branch Accounting- General Procedures

QUIZ AC3

I. THEORIES:

1. Which one of the following is not a reciprocal account?

a. Home office account

b. Investment in Branch
c. Inter-company accounts
d. Investment in subsidiary stock

2. When an asset is transferred to a branch from the home office, which of the following occurs?

a. Only a memo entry is made

b. A credit to Home office account
c. A debit to Home office account
d. A credit to Investment in Branch account

3. A branch’s Home Office account is a (n)?

a. Asset
b. Aseet and liability
c. Asset and capital account
d. Liability or capital account

4. A home office’s Investment in Branch account is a(n)?

a. Asset
b. Contra liability
c. Unrealized income
d. Liability

5. Remittances from a branch to its home office are recognized by the home office as:

Income An increase in the Investment in Branch Account

a. Yes Yes
b. No No
c. Yes No
d. No Yes

6. Which of the following is correct?

a. A sales agency normally accounts for its operations on its own set of books.
b. Branches normally maintain only minimum accounting records.
c. A sales agency generally operates with a greater degree of autonomy than does a
branch.
 d. A branch generally operates with a greater degree of autonomy than does a sales
agency.

7. Which of the following statements is incorrect regarding branch accounting?

a. A branch’s Home Office account appears in the asset section of a balance sheet
prepared for the company as a whole.
b. A branch’s Home Office account appears in the equity section of the branch’s separate
balance sheet.
c. Most branches maintain a complete set of books which includes a self-balancing set of
accounts.
d. Sales agencies usually do no keep a complete self-balancing set of accounts.

8. When a home office pays expenses of a branch and apportions the expense against branch
income without notifying the branch, the following accounts increase:

Home Office Investment in Branch

a. Yes Yes
b. Yes No
c. No Yes
d. No No

9. When a home office pays expenses of a branch and notifies the branch of the expenditure,
the following account increase:

Home Office Investment in Branch

a. Yes Yes
b. Yes No
c. No Yes
d. No No

10. Of the following two statements, which one(s) is (are) correct, if any?

A transfer of merchandise from the home office to one of its branches should be
recorded with:

I. Decrease in the branch’s Home Office account.

II. Increase in the home office’s Investment in Branch account.
a. I and II.
b. I only.
c. II only.
d. Neither I nor II.
II. PROBLEMS

1. On January 2, 201, Jose Company established a sales agency in Pasig City. During the year
the following transactions occurred:

1. Transfer of P 10 000 worth of merchandise to Pasig Agency to establish a working fund.

2. Receipts of sales orders from the agency, P 100,000.
3. Collection of agency accounts by the home office, P70,000.
4. Home office disbursements representing agency expenses, P 9,000.
5. Replenishment of the agency working fund upon receipt of expense vouchers for P
4,500.
6. Cost of goods sold identified with the agency sales, P 12,000.

What is the net income (loss) of the agency for the year, 2013?

a. P14,500
b. P4,500
c. (P14,500)
d. P14,000

2. On December 31, 2013 the Investment in Branch account on the home office books of Lady
Company shows a balance of P 84,000, and the Home office account on the books of the
branch shows a balance of P 97,350. The following dates are determined in accounting for the
difference.

1. Merchandise billed at P 6,150 was shipped by the home office to the branch on
December 28. The merchandise is in transit and had not been recognized on the books
of the branch.
2. The branch collected a home office accounts receivable of P 25,000, but failed to notify
the home office of this collection.
3. The home office recorded incorrectly the branch net income at P 11,250. The branch
reported net income of P 12,150.
4. The home office was charged P 6,400 when the branch returned merchandise to the
home office on December 31. The merchandise is in transit.

What is the reconciled amount of the reciprocal accounts on December 31?

a. P103,500
b. P102,600
c. P 78,500
d. P 97,350

3. Luzon Corporation starts a branch operation in a nearby town. Merchandise costing P 80,000
is shipped to the branch along with equipment costing P 50,000. During the initial year, the
home office assigns P 8,000 in expense to the branch. The branch sells 70 percent of the
inventory that it received for P 80,000 and remits P 40,000 in cash to the home office. What is
the correct Home Office account balance on the records of the branch? Closing entries have not
been made.

a. P 98,000
b. P104,000
c. P122,000
d. P178,000

III.TRUE OF FALSE
________1.Sales agency usually carries a line of sample or displays merchandise and carry
stocks of it.
________2.The branch office account on the home office books represents the branch’s equity
in the home office.
________3.In case of indirect routing of interbranch transfer of merchandise, a branch should
not be charged with excessive freight.

________4.The reciprocal account on the books of the home office often called the home office
current.
________5.Under the Perpetual Inventory System, purchases is debited instead of Inventory
Account.
________6.Freight cost incurred in shipping merchandise from the home office to a branch
becomes part of the cost of the branch inventory.
________7.If branch plant assets are recorded in the books of the branch, and plant assets are
purchased by the home office for the branch, an entry is required only on the home
office.
________8.In the preparation of combined financial statements for the company, Reciprocal
account balances must be eliminated.
________9.Branches normally maintains only minimum accounting records.
________10.A branch’s Home Office account appears in the equity section of the branch’s
separate balance sheet.