PRACTICAL ACCOUNTING 2 (SY 2017 – 2018) – HOME OFFICE AND BRANCH ACCOUNTING

NAME:___________________________________________________ DATE:___________________
Questions 1 to 5 are based on the following:
Comparative trial balance of the home office and the two branches of Norway Corporation
at December 31, 2014 were as follows:

Home office Branch 1 Branch 2

Cash P 5,000 P15,000 P22,000
Accounts receivable (net) 80,000 30,000 40,000
Inventories 150,000 60,000 48,000
Branch No. 1 170,000
Branch No. 2 165,000
Plant assets (net) 730,000 250,000 200,000
Purchases 900,000
Shipments from home office 300,000 240,000
Expenses 300,000 75,000 50,000
Total P2,500,000 P730,000 P600,000

Accounts payable P100,000 P45,000 P30,000

Other liabilities 80,000 15,000 5,000
Loading in branch inventories 108,000
Capital stock, P10 par 500,000
Retained earnings 262,000
Home office 170,000 165,000
Sales 1,000,000 500,000 400,000
Shipments to branches 450,000 0 0
Total P2,500,000 P730,000 P600,000

Additional information:
Home office and Branch inventory at December 31, 2014 were:
Home office (at cost) P120,000
Branch No. 1 (at billed price) 72,000
Branch No. 2 (at billed price) 96,000

1. What is the mark-up rate on merchandise transfers to branch?

a. 20 percent of billed price c. 16-2/3 percent of billed price
b. 25 percent of cost d. 25 percent of billed price

2. How much is the beginning inventory of Norway Corporation?

a. P150,000 b. P258,000 c. P240,000 d. P90,000

3. How much is the ending inventory of Branch No. 1 at cost?

a. P72,000 b. P57,600 c. P60,000 d. P54,000

4. How much is the correct net income of Branch No. 2 as far as home office is concerned?
a. P190,000 b. P158,000 c. P185,000 d. P94,000

5. How much net income will the home office report in its separate income statement?
a. P220,000 b. P595,000 c. P494,000 d. P100,000

Questions 6 to 7 using the following information:

The Dagupan City branch of Andy Enterprise, Manila was billed for merchandise shipments
from home office at cost plus 25% in 2013 and cost plus 20% in 2014. Other pertinent data
for 2014:

Dagupan branch Home office

Sales P63,000 P212,000
Inventory beginning 8,900 (at billed price) 23,000 (at cost)
Purchases 164,000
Inventory transfers 50,400 (at billed price) 42,000 (at cost)
Inventory, end 11,700 (at billed price) 28,500 (at cost)
Expenses 20,300 76,400

6. What will be the combined cost of sales of Dagupan branch and Andy’s home office that
must be shown in the combined income statement?
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PRACTICAL ACCOUNTING 2 (SY 2017 – 2018) – HOME OFFICE AND BRANCH ACCOUNTING

a. P22,430 b. P155,815 c. P155,870 d. P22,040

7. What will be the combined net income of Dagupan branch and Andy’s home office?
a. P22,430 b. P22,600 c. P22,133 d. P22,040

Questions 8 to 10 using the following information:

At the end of 2008, the branch reported an inventory of P15,625. The home office bills
this branch at 125% of cost. During 2009, goods costing P300,000 were shipped to the
branch. The account “allowance for overvaluation of branch inventory” after adjustment,
shows a balance of P16,250 at the end of the year.

8. What was the amount of inventory at January 1, 2009 at cost?

a. P12,500 b. P15,625 c. P19,531 d. P28,125

9. What was the amount of ending inventory at billed price?

a. P309,37 b. P247,500 c. P81,250 d. P65,000

10. What was the amount of allowance for overvaluation before adjustment?
a. P61,875 b. P78,125 c. P20,312 d. P20,000

11. The following data pertains to the shipments of merchandise from Home Office to
Branch during 2013:

Home office’s cost of merchandise P350,000

Inter-office billings 420,000
Sales by branch to outsiders 520,000
Merchandise inventory on December 31, 2013 50,000

In the combined statement of comprehensive income of the Home Office and the Branch
for the year ended December 31, 2013, what amount of the above transactions should be
included as sales?
a. P570,000 b. P520,000 c. P470,000 d. P350,000

12. The Bicol Corporation operates a branch in Naga City. The information from the
December 31, 2011 trial balance are as follows:

Home office Naga branch

Sales P840,000 P420,000
Shipments to branch 280,000
Purchases 490,000
Shipments from home office 350,000
Inventory, January 1, 2011 140,000 56,000

Compute the realized inventory profit of home office from sales made by the branch
(the overvaluation of cost of goods sold)?
a. P56,000 b. P120,400 c. P64,400 d. P80,000

Questions 13 to 14 using the following information:

Mariano operates a branch in Laoag City. At close of the business on December 31, 2016,
Laoag Branch account in the home office books showed a debit balance of P234,900. 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. Computer equipment costing the home office P27,000 was sent to Laoag branch. The
home office will maintain the records of the asset used by the branch. Meanwhile,
back at the branch no entry was made.
b. The branch acquired a machinery costing P18,000. The home office will maintain the
records of the asset used by the branch. The home office was not yet notified.
c. The home office charged the branch for freight amounting to P2,220. It should have
been charged to its customer.
d. The home office inadvertently recorded a Laoag branch remittance of P4,200, as
collection from its customers on account.
e. On December 24, 2016, the branch sent a check for P9,600 to its suppliers on
account. The branch erroneously recorded the transaction as a remittance to the

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PRACTICAL ACCOUNTING 2 (SY 2017 – 2018) – HOME OFFICE AND BRANCH ACCOUNTING

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 29,2016.
f. On December 26, 2016 the branch returned P6,600 of excess merchandise to the home
office. The merchandise was received by the home office on December 30, 2016 and
credited Lanao Branch Current.
g. The home office allocated advertising and rent expense totaling P5,400 to Laoag
branch. The home office charged the said expense to Laguna branch by mistake; Laoag
branch had not entered the allocation at year-end.
h. A home office customer remitted P3,600 to the branch. The branch inadvertently
recorded this transaction on December 28, 2016 as a transfer of cash from the home
office. The home office made no entry during the year.
i. Inventory costing P36,000 was sent to the branch by the home office on December 14,
2016. The branch recorded the transaction as a purchase of merchandise on account
from outsiders by mistake.

_____13. What is the unadjusted balance of the home office current account as of December
31, 2016?
a. P222,480 b. P171,480 c. P188,880 d. P178,320

_____14. What is the adjusted balance of the reciprocal accounts as of December 31, 2016?
a. P200,280 b. P247,320 c. P222,480 d. P262,320

_____15. The home office ships merchandise to its branch above cost. What journal entry
should the branch make to record receipt of the shipment?
a. Home Office
Shipment from Home Office
b. Home office
Shipment from Home Office
Allowance for Overvaluation of Home Office Inventory
c. Shipment from Home Office
Allowance for Overvaluation of Home Office Inventory
d. Shipment from Home Office
Home Office

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