Professional Documents
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PRACTICAL ACCOUNTING 2
2013-2014
Problem 2. On June 1, 2013, The Capitol Inc. established an agency in District 12, sending samples costing
P4,200,000 which are useful until May 31, 2014 and have a salvage value of P840,000. A working fund of
P3,412,500 is to be maintained using imprest basis. During 2013, the agency submitted to the home office sales
order amounting to P35,437,500. Sales per invoice were P27,562,500 which were duly approved by the home office.
Collections during the year amounted to P14,784,000 net of 4% sales discount. The cost of merchandise sold during
the year is 70% of the gross selling price. Vouchers for the expenses amounted to P1,837,500. How much is the net
income would be reported by District 12 agency on December 31, 2013?
a. P 4,471,250 b. P 4,135,250 c. P 5,535,250 d. P3,855,250
Problem 3. Journalize the following District 2 Agency transactions: (Assume Perpetual Inventory method)
Agency Transactions Home office books
a. January 1.
Receipt of P1,000 revolving fund from home office.
b. January 1 – 31
Orders sent by agency to home office and approved
by the home office amounting to P200.
(mark-up on cost is 66 2/3 %)
c. January 1 – 31
P50 disbursement from the revolving fund.
d. January 31
Replenishment of the revolving fund.
e. January 31
Closing entry to determine the profit attributable to
the agency.
Problem 1. A home office ships inventory to its branch at 125% of cost. The required balance of the deferred profit
account is
P 78,750. During the year, the home office sent merchandise to the branch costing P 784,000. At the start of the
year, the branch’s Statement of Financial Position shows P315,000 of inventory on hand that was acquired from the
home office. By what amount is the cost of goods sold (COGS) overstated?
a. P -0- b. P180,250 c. P196,000 d.
P1,076,250
Problem 2. A home office ships inventory to its branch at a mark-up of 125% above cost. The required balance of the
allowance for overvaluation account is P 1,425,000. During the year, the home office sent merchandise to the branch
costing P 9,000,000. At the start of the year, the branch’s Statement of Financial Position shows P1,800,000 of
inventory on hand that was acquired from the home office. By what amount will the Allowance for Unrealized Gross
Margin in Branch Inventory account be debited at the end of the year?
a. P2,610,000 b. P1,185,000 c. P10,825,000 d. P12,250,000
Problem 3. During the year 2013, goods billed at P3,250,000 were shipped to the branch at 130% cost. The account
Loading in Branch Inventory has a balance of P1,225,000 before adjustment. The beginning inventory of the branch
from the home office at cost is P2,375,000; the beginning inventory of the branch from outsiders is P540,000;
purchases from outsiders is P1,450,000.
Questions:
1. How much is the total goods available for sale of the branch?
a. P5,308,335 b. P6,100,000 c. P6,337,500 d.
P8,090,000
2. How much is the total goods available for sale of the branch from the home office?
a. P5,308,335 b. P6,100,000 c. P6,337,500 d.
P8,090,000
Problem 4. The District 4 branch of The Capitol Inc. submitted trial balance as of December 31, 2013 after the first
year of operations:
Debit Credit
Cash P10,400
Accounts receivable 63,200
Shipments from home office 168,000
Expenses 10,800
Sales P134,400
Home office current 118,000
P111,800
Determine the following:
1. 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
2. Net adjustment in the Home Office Current account. Indicate whether net debit or net credit:
a. P946,400 net debit b. P946,400 net credit c. P996,400 net debit d. P946,400 net
credit
Problem 6. Lea Products Corporation has two branches, Kalibo and Altavas, to which merchandise is billed at 20%
above cost. Partial trial balance accounts of the three entities at December 31, 2013 are summarized as follows:
Home Office Kalibo Branch Altavas Branch
Inventory P 800,000 P 180,000 P 240,000
Investment in Kalibo Branch 450,000
Investment in Altavas Branch 420,000
Shipments from Home Office 600,000 360,000
Purchases 1,600,000
Expenses 900,000 250,000 200,000
Home Office 450,000 300,000
Loading – Kalibo Branch 130,000
Loading – Altavas Branch 120,000
Sales 1,950,000 900,000 750,000
Shipments to Kalibo Branch 500,000
Shipments to Altavas Branch 400,000
Additional Information:
Physical inventories on hand as counted by the three entities at December 31, 2013 were as follows:
Problem 8. On December 31, 2013, the home office of Rhada Company recorded a shipment of merchandise to its
Calamba branch as follows:
Calamba branch 30,000
Shipment to Calamba Branch 25,000
Unrealized profit in branch inventory 4,000
Cash (freight charges) 1,000
The Calamba branch sells 40% of the merchandise to outside entities during the rest of December 2013. The books
of the home office and Calamba branch are closed on December 31 of each year. At what amount should the 60% of
the merchandise remaining unsold at December 31, 2013 should be included in the published statement of financial
position of Rhada Company at December 31, 2013?
a. P 15,600 b. P 15,000 c. P 18,000 d. P 18,600
Problem 9. During 2013, goods were shipped to the branch at 120% above cost. The reciprocal account in the
income statement of the home office amounted to P237,500. The balance of the contra branch current account
reports a balance of P375,000 before adjustment. The beginning inventory of the branch from the home office at cost
is P360,000 and from outsiders, P93,000. The branch purchased goods from outsiders during the year amounting to
P125,200. The ending inventory of the branch as reported in the combined statement of financial position is
P345,000. The branch income as reported in the combined financial statements and as reported in the branch’s
books are P201,125 and P120,750, respectively. How much is the cost of goods sold to be reported in the branch’s
income statement for the year ended December 31, 2013?
a. P 551,075 b. P 514,500 c. P 470,700 d. P 790,500
Problem 10. Rob. Co. operates a branch in Cebu. On December 31, 2013, the Cebu branch in the home office books
showed a debit balance of P3,132,660. The interoffice accounts were in agreement at the beginning of the year. For
purposes of reconciling the interoffice accounts, the following facts were given: It is the policy of the home office to bill
its branches at 20% above cost.
• Shipments from home office to Cebu branch costing P435,000 were in transit as of year-end. Cebu branch
recorded tha said transfer twice at cost: one on December 31, 2013 and the other on January 1, 2014.
• The home office allocated to the Cebu branch ¾ of the rent expenses it paid for the year ended 2013. The
rent expense was P144,000. The home office sent a debit memo to Cebu branch for the allocated amount, but
the branch recorded the said debit memo by debiting the home office – current and crediting rent payable.
• The branch wrote-off uncollectible accounts amounting to P60,720. The allowance for doubtful accounts is
maintained in the books of the home office. The home office recorded the write-off as a write-off of its own
accounts receivable.
• The branch collected accounts receivable from home office’s customers amounting to P317,520, net of 2%
cash discount. The branch treated the said transaction as if it was a collection from its own customers. The
home office was not yet notified of the said collection
• Baguio has collected cash of P5,750 from Davao’s customers. This transaction is not yet recorded by Davao and
the home office.
• The home office has already allocated P11,000 and P9,000 of administrative expenses to Baguio and Davao,
respectively. The branches are not yet notified.
• Baguio remitted P14,300 cash to the home office on December 12, 2013. The home office has failed to record the
said remittance.
• Davao returned goods costing P6,850 to the home office. The goods were shipped on December 19 and received
on December 24 but no entries have been made in the home office books.
Problem 12. The following transactions were entered in the branch current account of Makati Head Office for
the year 2013:
Investment in Branch – Ortigas
Beg. Balance, 1/1/13 33,300 Collection of AR
459,258 9/12/13
Shipments to branch, 4/1/13
212,400
Cash forwarded, 6/1/13
15,000
Operating expenses charged to the
Branch,12/31/13
2,880
• Shipments to branch during the year were made at 20% above cost.
• On December 10, 2013, the home office purchased a piece of equipment amounting to P36,000 for its branch in
Ortigas. The said equipment has a useful life of five years and will be carried in the books of the branch, but the
home office recorded the purchase by debiting the Equipment.
• The branch recorded the depreciation of the equipment by debiting the Home Office Current account and crediting
Accumulated Depreciation.
• Debit memo regarding the allocation of operating expenses to the Ortigas branch was received by the branch on
January 2, 2014.
• It also remitted cash to the home office on December 31, 2013 amounting to P33,000, which the home office
received and recorded on January 1, 2014.
Problem 13. The home office transfers inventory worth P600,000 to Branch#1. Freight paid by the home office is
P40,000. Later on, the home office instructs Branch#1 to transfer the merchandise to Branch#2. Branch#1 pays
freight of P12,000. If the merchandise had been shipped from home office to Branch#2, freight cost would have been
P56,000. Entries to record the transactions described includes
a. a credit to savings on freight of P 4,000 in the books of Branch#1.
b. a credit to savings on freight of P 4,000 in the books of Branch#2.
c. a credit to savings on freight of P 4,000 in the books of the home office.
d. none of these.
Problem 15. The Capitol Inc. has two branches to which merchandise is transferred at cost plus 20%, plus freight
charges. On November 30, 2013, home office shipped merchandise that cost P5,500 to its District 1 branch, and the
P200 shipping charges was paid by the home office. On December 15, 2013, the District 2 branch encountered an
inventory shortage , and District 1 branch shipped the merchandise to the District 2 branch at a freight cost of P160
paid by District 1 branch. Shipping charges from the home office to the District 2 branch would have been P175.
Question:
1. If merchandise is unsold at year end, the District 2 branch will inventory the merchandise at what amount?
2. If merchandise is unsold at year end, how much would the home office include as inventory in its report to
shareholders?