HOME OFFICE AND BRANCH ACCOUNTING PRACTICAL ACCOUNTING 2

Problem 1. Good Buy Trading Co, operates a branch in Bacolod. At close of the business on
December 31, 2012, the Home Office account in the books of the Bacolod branch showed a
credit balance of P2,784,300. The interoffice accounts were in agreement at the beginning
of the year. For purposes of reconciling the interoffice accounts, the following facts were
ascertained:
a. On December 29, 2012, the branch sent a check for P13,500 to its suppliers. The
branch erroneously recorded the transaction as a remittance to the home office and
sent a copy of the debit memo to the home office. The home office recorded this
upon receiving the debit memo on January 4, 2013.
b. The home office allocated promotions and insurance expense totaling P18,000 to
Bacolod branch. The home office inadvertently charged the said expense to Davao
branch. Bacolod branch had not entered the allocation at year-end.
c. Home office debit memo for P20,700 regarding transfer of funds was recorded twice
by the branch by debiting its reciprocal account.
d. A branch customer remitted P15,000 to the home office. The home office recorded
this as a cash collection of its own receivable on December 23, 2012, Upon
notification on the same year, the branch debited the amount to Receivable from
Home Office and credited its reciprocal account.
e. A P105,000 shipment, charged by home office to Bacolod branch, was actually sent
to and retained by Leyte branch.
f. The home office failed to take up a P12,000 credit memo from the branch.
g. Branch store insurance premiums of P9,600 were paid by the home office. The home
office debited Insurance expense and credited Cash in its books. The branch
recorded the amount of P96,000 as a liability
h. Inventory costing P39,000 was sent to the branch by the home office on December
12, 2012. The branch recognized a liability by crediting Accounts Payable upon the
receipt of the inventory.
i. Freight charge of P12,600 on merchandise shipped to the branch was paid by the
home office and was recorded in the branch books as P1,260.
j. A branch customer remitted P63,000 to the home office. The home office recorded
this cash collection on December 28, 2012. Upon receiving a credit memo, the
branch recorded the transaction twice on December 30,2012.
The unadjusted balance of the branch current account as of December 31, 2012 is:
A. P2,970,840
B. P3,075,240
C. P3,051,240
D. P2,962,140

Problem 2. On October 1, 2012, the Eastwood Main Office established a sales agency in
Pasay City.
 The main office sent samples of its merchandise amounting to P42,000 and a
working fund amounting to P360,000 to be maintained on the imprest basis.
 The samples sent were intended to last until June 1, 2013. During the first two
months of operations, the agency transmitted to the home office sale of goods costing
PI,458,000, but the home office were not able to fill-up 25% of the said transmitted
sales orders.
 Collections from customers amounted to P369,705, net of 2% sales discount.
 Payments made by the agency during October and November were as follows: annual
rent of P288,000, advertising expense worth P28,000 and utilities amounting to
P36,000.
 It also purchased an equipment worth P45,000 which will be depreciated at 20% per
annum.
 The gross profit rate on sales agency order is 20% of sales.
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Net income of the agency for the two months ended November 30, 2012 is
A. P149,375
B. P134,330
C. P87,155
D. P141,830

Problem 3. Taguig Head Offlce opened a sales agency in Vigan on January 1, 2012. The
following is a summary of the transactions of the sales agency
Volume Discount 1.5% and 2.5%
Invoice Price P642,000
Freight on shipment of agency 10,500
Collections, 20% of which were able to avail of the 5%discount 420,375
Selling expenses paid from the agency fund 22,500
Administrative expenses allocated to the agency 4% of net sales
Samples shipped to the agency amounting to P33,000 are to be properly depreciated to
its carrying amount of P28,617 as of December 31, 2012.
Remaining receivables are estimated to be 95% collectible
The company’s gross profit rate based on invoice price is 30% excluding the freight cost
on shipments to the agency.
What is the net income of the agency in 2013?
A. P124,929
B. P114,429
C. P118,854
D. P115,467

Problem 4. Home office bills its branch for merchandise shipments at 30% above cost. The
following are some of the account balances on the books of home office and its branch as of December
Home Office Books Branch Books
Inventory, January 1 35,000 101,500
Shipments from Home Office 263,900
Purchases 1,575,000 350,000
Shipments to Branch 253,750
Branch Inventory Allowance 91,875
Sales 2,000,000 1,260,000
Operating Expenses 507,500 192,500
Per physical count, the ending inventory of the branch is P73,500 including goods from
outside purchases of P48,475; the ending inventory of the home office is P210,000.
Required:
a. The amount of the unrealized profit in the separate books of the home office on
January 1, 2013;
b. The branch beginning inventory in 2012 that came from outside purchases;
c. Cost of goods available for sale of the branch;
A. P21,000 ; P48,475 ; P715,400
B. P15,750 ; P33,250 ; P781,375
C. P21,000 ; P33,250 ; P781,375
D. P15,750 ; P48,475 ; P715,400

a. The total ending inventory to be shown on the combined financial statements;

b. The combined net income for the year;
A. P277,725 ; P957,950
B. P328,475 ; P942,725
C. P277,725 ; P942,725
D. P328,475 ; P957,950

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Problem 5. On September 1, 2012, Alabang Main Office established two branches: Ortigas
and Makati branches
 The home office transferred P320,000 worth of cash and P1,400,000 worth of
inventory to its Ortigas branch. The home office transfers merchandise to its branch
at a mark-up of 25% above cost.
 The home office instructed Ortigas to transfer 75% of the goods and cash received
to Makati.
 In addition, on October 1, 2012, shipments from home office were received by
Ortigas amounting to P500,000 at cost and the branch paid freight costs amounting
to P26,000.
 60% of the said shipments were sold to outsiders.
 On November 1, 2012, Ortigas transferred 50% of the remaining October shipments
from Aiabang to Makati, with Makati branch paying freight costs of P10,000.
 Had the merchandise been shipped from Aiabang to Makati City branch, only P7,600
worth of freight would have been incurred.
How much is the balance of the Makati branch account on the Home Office books?
A. 1,675,100
B. 1,012,300
C. 1,387,600
D. 1,395,200

Problem 6. The following transactions were entered in the branch current account of The
Fort Head Office for the year 2012:

Branch Current - Rockwell

Debits:
Beg. Balance, 1/1/12 2,296,290
Shipments to branch, 4/1/12 1,062,000
Cash forwarded, 6/1/12 75,000
Operating expenses charged to the Branch 14,400
Credits:
Collection of AR, 9/12/12 166,500

Shipments to the branch during the year were made at 20% above cost.
 The balance of the Allowance for Overvaluation of Branch Inventory account was
P106,500 at the beginning, and the allowance was written down to P73,500 at year-
end.
 On December 10, 2012, the home office purchased a piece of equipment amounting
to P180,000 for its branch in Rockwell. 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 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 Rockwell branch
was received by the branch on January 2, 2013.
 The Rockwell branch reported net income of P988,650.
 It also remitted cash to the home office on December 31, 2012 amounting to
P165,000, which the home office received and recorded on January 1, 2013.
 The interoffice accounts were in agreement at the beginning of the year.
How much is the adjusted balance of the Branch Current account on December 31, 2012
before the necessary closing entries were made?
A. P3.116,190
B. P3,328,590
C. P3,508,590
D. P3,296,190

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What is the amount of adjustment in the Allowance for Overvaluation of Branch Inventory
account?
A. P73,500
B. P210,000
C. P283,500
D. P245,400

How much is the net income of Rockwell branch that will be reported in the combined income
statement of The Fort Company?
A. P971,250
B. P1,195,650
C. P1,181,250
D. P1,044,75

What is the amount of the Home Office Current account that will be reported in the books of
Rockwell branch after closing entries are made?
A. P4,283,340
B. P4,477,440
C. P4,281,840
D. P4,267,440

Problem 7. Romblon Trading Co. operates a branch in Dagupan City. On December 31,
2012, the Home Office Current account in the branch books showed a credit balance of
P1,045,824. The interoffice accounts were in agreement at the beginning of the year. For
purposes of reconciling the interoffice accounts, the following facts were determined:

Dagupan branch paid P65,000 representing registration and seminar fee of the senior vice
president for marketing of the company, when the vice president attended a convention. Of
the amount paid, 2/5 was charged to Romblon Trading, 1/5 to Dagupan, and the remaining
amount to Romblon's other branch located in Tacloban City. Dagupan recorded a
receivable from the home office at the said amount and credited Cash. Romblon Trading
was not yet notified of the said event.

Total general expenses were P173,100. Romblon Trading allocated 40% of the expenses to
Dagupan City branch. The branch erroneously debited 40% of the allocated amount to its
reciprocal account twice.

Romblon Trading transferred inventory costing P90,000 to Dagupan and the branch paid
the corresponding freight of P5,000. Dagupan was instructed by Romblon to transfer 75%
of the said inventories to Tacloban branch and to shoulder the freight costing P7,000.
Dagupan made the transfer on its books but it recorded the transfer at 25% of the original
inventories and credited the payment for freight at P700 by mistake.

Dagupan branch recorded a machinery costing P42,464 purchased for its own use on
December 31, 2012. The machinery will be recorded in the books of the home office.
Romblon Trading recorded the memo received from the branch by debiting its reciprocal
account and crediting liability account to Dagupan in the amount P42,644.

What is the unadjusted balance of the Investment in Branch account on Dec. 31, 2011?
A. P1,161,068
B. P1,132,524
C. P1,174,068
D. P1,201,764
Problem 8. New Horizon Trading Co. operates a branch in Baguio City. At close of the
business on December 31, 2010, Baguio Branch account in the home office books showed a
debit balance of P485.600. The interoffice accounts were in agreement at the beginning of
the year. For purposes of reconciling the interoffice accounts, the following facts were
ascertained:
a. Equipment costing the home office P23.000 was picked up by the branch as P2,300.
The branch will maintain the records of the asset used.
b. Freight charge on merchandise made by the home office for P1.350 was recorded in
the branch books as P3,150.
c. Home office credit memo for P2,400 was recorded twice by the branch.
d. The branch failed to take up a P3.000 debit memo from the home office.
e. Branch store insurance premiums of P3,200 were paid by the home office. The
branch recorded the amount of P32,000.
f. A branch customer remitted P8,000 to the home office. The home office recorded this
cash collection on December 22, 2010. Upon notification on the same year, the
branch debited the amount to Accounts Receivable and credited to Home Office
Current.
g. A P32.000 shipment, charged by home office to Baguio branch, was actually sent to
and retained by Bulacan branch.
h. The branch writes off uncollectible accounts of P7,500. The allowance for doubtful
accounts is maintained on the books of the home office. The home office is not yet
notified about the write-off.
i. On December 27, 2010, the branch sent a check for P10,000 to its suppliers on
account. The branch erroneously recorded the transaction as a remittance to the
home office and sent a copy of the debit memo to the home office. The home office
recorded this upon receiving the debit memo on December 29, 2010.
j. The home office allocated advertising and rent expense totaling P11,000 to Baguio
branch. The home office charged the said expense to Bicol branch by mistake, Baguio
branch had not entered the allocation at year-end.
k. A home office customer remitted P9,000 to the branch. The branch inadvertently
recorded this transaction on December 26, 2010 as a transfer of cash from the home
office. The home office made no entry during the year.
l. Inventory costing P5,000 was sent to the branch by the home office on December 12,
2010. The branch recorded the transaction as a purchase of merchandise on account
from outsiders by mistake.
m.A branch customer remitted P7,000 to the home office. The home office recorded this
cash collection on December 21, 2010. Upon receiving a credit memo, the branch
recorded the transaction twice on December 23, 2010.
Compute the unadjusted balance of the home office current account as of December 31.