Digital Exam Questions on Installment Sales Accounting

11/9/21, 9:35 AM Exam.
net - Easy-to-use and secure digital exams
Angelica Rubios 2021-10-25
4/10p
1.
RP Company started a branch office in Sorsogon on June 1, 2018. On this date, the company shipped to its branch,
merchandise billed at P90,00. On June 15, another shipment was made at billed prices of P36,000. During the month
the branch was credited for P2,520 for damaged goods returned by the branch.

What is the Sorsogon Branch Cost of Goods Sold in the books of the Home Office?

P73,080
P60,900

P123,480
P171,360
Correct answer. 0/2p
https://exam.net/pdf-builder/164679/students/31822720?expires=1636853162&locale=en&signature=e2bd2b57257bb12702b4cdee65c8a085ddc6f58… 1/4
11/9/21, 9:35 AM Exam.net - Easy-to-use and secure digital exams
2.
Isarog Sales has a branch in Iriga. The Iriga branch buys merchandise from third parties and receives merchandise
from the Home Office for which it is billed at 20% above cost.

Below are excerpts from the trial balances and data on the Home Office and Iriga branch for the month just ended:

The amount of allowance for overvaluation that was realized from the Branch sales for the month just ended
amounted to

P200,000
P370,000
P195,000

P175,000
3.
Trial balances for the home office and the branch of the Zenith Company show the following items, before
adjustment, on December 31. Differences in the shipments account balances result from the home office policy of
billing the branch for the merchandise at 20% above cost.

How much is the branch inventory at cost?

P1,500,000
P1,000,000
P1,300,000
P1,250,000
4.
The Midas Company bills its branch for merchandise at 135% of cost. On December 31, the balance in the unrealized
profit account is to be calculated from the following information reported by the branch.

Assuming that the branch had returned to the home office merchandise originally acquired at a billed price of P5,400,
how much is the realized intercompany inventory profit for December?
45,500
44,100
49,000
59,535
5.
Profit and loss data for Apex Co. of Manila and its Naga branch for 2023 follow:

Records show that Naga Branch was billed for merchandise shipments as follows:

2022, cost + 25%; 2023, cost + 20%

The correct branch profit (loss) for 2023 is:

(P24,500)
P41,150
P16,650
P65,650
Accounting for Special Transactions C. N. Dait
Installment Sales
INSTALLMENT SALES
Installment sales contract is a special type of credit arrangement which provides for a series of payments
over a period of months or years.
Gross Profit Recognition under Installment Sales Method
When there is uncertainty as to the collectibility of the sales price, generally accepted accounting principle
requires that revenue recognition should await the actual receipt of cash. The most commonly applied method of
dealing with the uncertainty of cash collections is the installment sales method. Under this method of accounting, the
recognition of gross profit is deferred until cash is collected. Each cash collection on a contract is regarded as
including both a return of cost and a realization of gross profit in their ratio to the selling price.
Installment Sales of Merchandise – Pro-Forma Entries

1. Upon sale
Installment contracts receivable xx
Installment sales xx
Cost of installment sales xx

Inventory (or Shipments on installment
sales if periodic system) xx
2. Year-end adjusting/closing entries

Installment sales xx
Cost of installment sales xx
Deferred gross profit xx
Recognition of gross profit

Deferred gross profit xx
Realized gross profit (Collections X GPR) xx
To close the balance of Realized Gross Profit

Realized gross profit xx
Income summary xx
Gross Profit Rate (GPR) Calculations
GPR = (Gross profit/ Installment sales)
GPR = (DGP, beg. / Installment contract receivable, beg.)
GPR = ( DGP, end. / Installment contract receivable, end.)
Realized Gross Profit (RGP) Calculations

RGP = GPR X Collection
RGP = (DGP, beg – DGP, end)
Defaults and Repossessions

1. When a buyer fails to make any further installment payments, the seller may:
a. repossess the merchandise or property sold.
b. Recondition the merchandise, and
c. Resell the merchandise to recover the loss on the original sale.
2. Repossessed merchandise is recorded at market value or net realizable value.
Estimated resale price XX
Less reconditioning cost and normal profit margin XX
Net realizable value XX
===
3. The uncollected installment receivable balance of the defaulted contract is cancelled.
4. The balance of the DGP pertaining to the uncollected receivable is written off.
5. The resulting gain or loss on repossession is determined:
FMV of the repossessed merchandise XX
Less unrecovered cost : Installment contract receivable XX
Less DGP XX XX
Gain (Loss) on repossession XX
===
Trade- Ins
1. Part of down payment
2. Recorded at the actual value (same as FMV of repossessed merchandise)
Estimated resale price XX
Less expected reconditioning cost and normal profit margin XX
Actual value XX
1
===
3. Trade-in value allowed to customer is compared with actual value.

The excess of trade-in value over the actual value is an overallowance which must be deducted
from selling price of new merchandise.
4. Pro-forma entry:
Cash XX
Merchandise inventory – traded in XX
Installment contract receivable XX
Installment sales XX
Cost Recovery Method
When collections are so uncertain and when the nature of services or products sold do not permit
repossession or when the customers’ notes have no fair market value, the applicable method is the cost recovery
method. Under this method, no income is recognized on a sale until the cost of the item sold is fully recovered
through cash receipts. Collections are first applied to recovery of the cost of property sold. After the full recovery of
cost, all subsequent collections are treated as realization of gross profit.
END
2
Benson Appliance corporation reports income on installment basis and uses perpetual inventory system. The following
data are available:
Sales made during
Gross profit rate 46% 42% 40%
Installment contract receivable 30,000 50,000
Collections during 2018 30,000 34,000 60,000
Entries for the year 2018, recognition of gross profit at the end of 2018
ANSWER:
ICR 200k
sales(60k+140K) 200k
Cos of IS(60% *200k) 120k

Inventory 120k
Cash 124k
ICR 2018 60k
ICR 2017 34k
ICR 2016 30k
Sales 200k
Cost of IS 120k
DGP 2018 80k
DGP 2018(60k*40%) 24k

DGP 2017(34k*42%) 14,280
DGP 2016(30k*46%) 13,800
RGP 52,080
RGP 52,080
Income summary 52,080
A sale on installment basis was made in 2017 for P16,000 at a gross profit of P5,600. At the end of 2018, when the
installment account receivable had a balance of P7,000, it was ascertained that the customer would not be able to make
further payments. The merchandise was then repossessed. It was estimated that the repossession can be resold for P6,000
after reconditioning the same at P1,500 and commission of 10%.
Entries of repossession
ANSWER:
GPR=P5,600/P16,000-35%
NRV of Repossessed Merchandise

Estimated SP 6,000
less: Reconditioning cost 1,500
Commission (10% x P6,000) 600 (2,100)
NRV 3,900
ICR bal 7,000
DGP bal (P7,000 x 35%) 2,450
Unrecovered cost 4,550 (7,000 * 65%)
NRV 3,900
Unrecovered cost 4,550
Loss on repossession 650
Entry
Loss on repossession 650
Repossessed Mdse 3,900
DGP, 2017 2,450
ICR, 2017 7,000
GPR-2017 =
DGP 2017, beg/ICR 2017, beg
P44,000/P200,000
22%
GPR-2016 =
DGP 2016, beg/ICR 2016, beg
P100,000/P400,000
25%
RGP,2017
Collection * GPR
200k-400k * 22%
35,200
RGP,2016
Collection * GPR
400k-100k * 25%
75,000
The Video Store accounts for installment sales on the installment basis. At the beginning of 2018, ledge
ccounts include the following balances:
Installment Contract Receivable, 2016 Installment Contract Receivable, 2017

Deferred Gross Profit, 2016
P150,000
480,000
63,000
At the end of 2018, account balances before adjustment for realized gross profit on installment sales are
180,000
Installment Contract Receivable, 2016 Installment Contract Receivable, 2017
None
120,000
650,000
63,000
Installment Contract Receivable, 2018
180,000
installment sales in 2018 were made at 66 2/3% above cost of merchandise
Entries and gross profit realized in 2018
ANSWER:
Complete the following table
Computronics accounts for installment sales by reporting income in proportion of collections to s price. On December
31, 2018, the books show account balances as follows:
Installment contract receivable
2016 10,000
2017 40,000
2018 90,000
Deferred gross profit

8,000
26,000
105,000
The gross profit rates were 2016, 35% ; 2017, 30%; 2018, 40%.
Instructions:
1. Prepare the required adjusting entries on December 31, 2018.
2. Determine the cash collections in 2018 on accounts receivable of each year.
MM Company began operations on January 1, 2023 and appropriately uses the installment method of accounting. The
following data are available for 2023 and 2024:
Installment sales 1,200,000 1,500,000
Cash collection:
2023 400,000 500,000
2024 600,000
Gross profit on sales 30% 40%
The realized gross profit for 2024 is:
a. P240,000
b. 390,000
c. P440,000
d. 600,000
GRP * collection
Leyte Company, which began business on January 1, 2024, appropriately uses the installment sales method of
accounting The following data are available for 2024:
Installment accounts receivable, 12/31/24 200,000
Deferred gross profit 12/31/24 before recognition of RGP 140,000
Gross profit on sales 40%
The cash collection and the realized gross profit on installment sales for the year ended
D RGP 60,000 collection 150,000
The books of Harry Co. show the following balances on December 31, 2024:
Accounts receivable 313,750
deferred gross profit 38,000
Analysis of the accounts receivable reveal the following:
Regular accounts 207,500
Sales on an installment basis in 2023 were made at 30% above cost, in 2024, at 33 1/3 above cost Expenses paid was
P1,500 relating to installment sales. How much is the net income on installment sales?
D 10,250
LONG TERM CONSTRUCTION CONTRACT

On January 1, 2005, Cleveland Enterprises obtained a contract to construct a building. It was estimated at the beginning
of the contract that it would take three years to complete the project at an expected cost of P200,000. The contract price
was P250,000. The following information describes the status of the job at the close of production each year.
Compute the items listed below for each year assuming (round all percentages to two decimals) 1. The use of the
overtime/percentage-of-completion cost-to-cost method, and 2. The point-in-time/cost recovery (zero-profit) method.
Monroe Construction Company uses the percentage-of-completion (overtime) met accounting. In 20x4, Monroe began
work on a contract it had received which provided a contract price of P15.000.000. Other details follow:
Costs incurred during the year 7,200,000
Estimates costs to complete as ond december 31 4,800,000
Billing during the year 6,600,000
Collections during the year 3,900,000
What should be the gross profit recognized in 2024?
B 1,800,000
Cost to incurred 7,200,000
Estimate cost 4,800,000
Total estimate cost 12,000,000
Total estimate gross profit 3,000

Stage of completion 60% (7.2/12m)
Gross profit 1,800,000 (60% * 3,000)
Gamet inc began work in 20x4 on contract #3814 which provided for a contract price of 200.000 Other details follow
Costs incurred during the year 1,200,000 3,675,000
Estimates costs to complete as on december 31 3,600,000 0
Billing during the year 1,350,000 5,400,000
Collections during the year 900,000 5,850,000
Assume that Gomez uses the percentage-of-completion (overtime) method of accounting the portion of the total gross
profit to be recognized as income in 20x4 is
B 600,000
Gross profit 25*2,400,000 = 600,000
Assume that Gomez uses the cost recovery method (point-in-time) of accounting. The portion of the total gross profit to
be recognized as income in 2015 is
C 2,325,000
Tyro Construction Company has two projects for which it imported, as of December 31, 2015.
the following information:
Contract price.
20x4: Costs incurred. Percent completed.
2015 Corts incurred
P 4,800
P 3,400
75%
Using the percentage-of-completion (overtime) method on Project A to be recognized in 20x4 would be:
A 200,000
(75% * 267,000) = 200,000
Hayes Construction Corporation contracted to construCT Duiding for P1.500.000 Construction began in 20x4 and was
completed in 20x5. Data relating to the contract are summarized below:
Costs incurred.
20x4
Year Ended December 31
20x5 P450,000
Estimated costs to complete.
Hayes uses the percentage-of-completion method (overtime) as the basis for income
P600,000
recognition. For the years ended December 31, 20x4, and 20x5, respectively. Hayes should
C 300,000 150,000
Ube Construction Company has consistently used the overtime/percentage-of-completion method On January 10, 20x4,
Ube began work on a P6.000.000 construction contract. At the inception date, the estimated cost of construction was
P4,500,000. The following data relate to the progress of the contract:
Income recognized at
How much income should ube recognized for the year ended december 31, 2025?
A 300,000
Installment Sales
Quiz
August 25, 2021
1. Lane Company, which began operations on January 1, 2021, appropriately uses the installment method of
accounting. The following information pertains to Lane’s operations for the year 2021:
Installment sales ........................................................................ P1,000,000

Regular sales ............................................................................ 600,000
Cost of installment sales ............................................................ 500,000
Cost of regular sales ................................................................. 300,000
General and administrative expenses .......................................... 100,000
Collections on installment sales .................................................. 200,000
The deferred gross profit account in Lane’s December 31, 2021 balance sheet should be:
P150,000
P320,000
P400,000*
P500,000
a. P150,000 c. P400,000
b. 320,000 d. 500,000
ANS C
2. DT Company sells appliances on the installment basis. Below are information for the past three years:
2024 2023 2022

Installment sales ................................ P750,000 P600,000 P400,000
Cost of sales ..................................... 450,000 375,000 260,000
Collections on:
2024 installment sales ................... 275,000
2023 installment sales ................... 180,000 240,000
2022 installment sales ................... 125,000 120,000 150,000
Repossessions on defaulted accounts included one made on a 2024 sale for which the unpaid balance
amounted to P5,000. The depreciated value of the appliance repossessed was P2,500
The realized gross profit in 2024 on collections of 2024 installment sales was:
P108,000
P110,000*
P221,250
P221,500
a. P108,000 c. P221,250
b. 110,000 d. 221,500
ANS B
Installment Sales
Quiz
August 25, 2021
3. The Central Plains Subdivision sells residential subdivision lots on installment basis. The following
information was taken from the company’s records as at December 31, 2024.
Installment Accounts Receivable:

January 1, 2024 .............................................................. P755,000
December 31, 2024 ........................................................ 840,000
Unrealized Gross Profit, January 1, 2024 ........................... 339,750
Installment Sales ................................................................. 950,000
How much is the balance of Unrealized Gross Profit as at December 31, 2024?
P378,000*
P339,750
P427,500
P389,250
a. P378,000 c. P427,500
b. 339,750 d. 389,250
ANS. A
4. Vic Corporation, which began business on January 1, 2020, appropriately uses the installment sales method
of accounting. The following data are available:
12/31/2020 12/31/2021
Balance of deferred gross profit on sales account:
2020 ................................................................. P300,000 P120,000
2021 ................................................................. 440,000
Gross profit rate on sales ........................................ 30% 40%
The installment accounts receivable balance at December 31, 2021 is:
P1,000,000
P1,100,000
P1,400,000
P1,500,000 *
a. P1,000,000 c. P1,400,000
b. 1,100,000 d. 1,500,000
ANS D
Installment Sales
Quiz
August 25, 2021
5. A refrigerator was sold to Rona for P16,000, which included a 40% markup on selling price. She made a
down payment of 20%, paid four of the remaining sixteen equal payments, and then defaulted on further
payments. The refrigerator was repossessed, at which time the fair value was determined to be P6,800.
The repossession resulted in the following loss/gain:
P56.80
P1,040.00*
P2,960.00
P4,056.80
a. P56.80 c. P2,960.00
b. 1,040.00 d. 4,056.80
ANS B
6. Gizelle, Inc. started operation at the beginning of 2020, selling home appliances exclusively on the
installment basis. Data for 2020 and 2021 follows:
2020 2021
Installment sales .................................. P600,000 P750,000
Cost of installment sales ....................... 420,000 450,000
2020 installment accounts, end .............. 285,000 22,500
2021 installment accounts, end .............. - 300,000
On May 31, 2021, a 2020 installment account of P37,500 was defaulted and the appliance was
repossessed. After reconditioning at a cost of P750, the repossessed appliance would be priced to sell for
P30,000. This selling price allows Gizelle to earn a normal margin on sales for the year.
The gain (loss) on repossession amounted to:
P3,000
(P9,000)*
P9,000
(P3,750)
a. P3,000 c. P9,000
b. (9,000) d. (3,750)
ANS B
Installment Sales
Quiz
August 25, 2021
7. The Blue Estate Realty Corporation sold a plot of real estate for P8,000,000. The property originally costing
P2,500,000 was subsequently improved for P3,560,000. The term of the sale were: 20% down payment,
balance payable in 12 monthly installments plus 36% interest per annum on the unpaid balance payable at
the start of each month. The present value of annuity of 1 in the contract is 9.954004.
After receiving the second monthly installment, the total collections to be applied to interest is:
P192,000
P240,000
P370,471*
P364,711.30
a. P192,000
b. P240,000
c. P370,471
d. P364,711.30
ANS C
8. The Blue Estate Realty Corporation sold a plot of real estate for P8,000,000. The property originally costing
P2,500,000 was subsequently improved for P3,560,000. The term of the sale were: 20% down payment,
balance payable in 12 monthly installments plus 36% interest per annum on the unpaid balance payable at
the start of each month. The present value of annuity of 1 in the contract is 9.954004.
After receiving the second monthly installment, the total realized gross profit from total collection is:
P629,367.30
P221,995.00
P1,240,165.70
P609,995.00*
a. P629,367.30
b. P221,995.00
c. P1,240,165.70
d. P609,995.00
ANS D
Installment Sales
Quiz
August 25, 2021
9. The recognition of realized gross profit is recorded by
Debiting Cash and Crediting Realized Gross Profit

Debiting Cash and Crediting Installment Contract Receivable
Debiting Deferred Gross Profit and Crediting Realized Gross Profit*
Debiting Realized Gross Profit and Crediting Deferred Gross Profit
10. Unrecovered cost is equal to the account defaulted balance multiplied by the cost percentage.
True*
False
11. If the market value of the old property traded in is less than the given trade in allowance, there
is an overallowance which is deducted from the installment sales price.
True*
False
12. Under cost recovery method, no income is recognized on a sale until the total installment
sales receivable is fully collected.
True
False *
END
ACCP303 Accounting for Special Transactions
Prelims, September 08, 2021
C. N. Dait
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. The New Heights Subdivision sells residential subdivision lots on installment basis. The
following information was taken from the company’s records as at December 31, 2023:
Installment Accounts Receivable

Jan. 1, 2023 P 755,000
Dec. 31, 2023 840,000
Deferred Gross Profit, Jan. 1 ,2023 339,750
Installment Sales 950,000
How much is the balance of Deferred Gross Profit as at December 31, 2023?
P378,000*
P339,750
P427,500
P389,250
____ 2. The Avenson, Inc. began operating at the beginning of the calendar year 2022 and, using the
installment method of accounting, presented the following data for the first year:
Installment Sales P400,000

Gross margin based on cost 66 - 2/3%
Inventory, Dec. 31, 2022 P 80,000
General and administrative expenses 40,000
Accounts receivable, Dec. 31, 2022 320,000
The balance of the deferred gross profit account as at Dec. 31, 2022 should be
P192,000
P128,000*
P96,000
P80,000
C. N. Dait
____ 3. Pontmercy Enterprise uses the installment method of accounting and it has the following data at
the year-end:
Gross margin on cost .............................................................. 66-2/3%

Deferred gross profit ........................................................... P192,000
Cash collections including down payments ............................ 360,000
What was the total amount of sales on installment basis?
P480,000
P552,000
P648,000
P840,000 *
____ 4. The following data pertain to installment sales of Journey’s Store. Down payment is 30%. Cost
of installment sales: 2009, P2,725,000; 2010, P3,925,000; 2011, P4,840,000. Mark up on cost is
40%. Collections after down payment are 45% during the year of sale; 35% during the year after
sale: 20% on the third year. What is the amount of deferred gross profit at December 31, 2010 to
be presented in the Statement of Financial Position?
P757,050*
P659,400
P431,750
P604,450
C. N. Dait
____ 5.
The following data were taken from the records of Charlie Company, before the accounts are
closed for the year ended December 31, 2012. The Company sells exclusively on installment
basis and uses installment method of recognizing revenue.
For the year ended For the year ended For the year ended
Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2012
Installment Sales P2,800,000 P3,500,000 P4,200,000
Cost of goods sold 2,100,000 2,100,000 2,730,000
Salaries expense 84,000 91,000 98,000
Rent expense 42,000 42,000 42,000
Balances as of December 31, 2010 December 31, 2011 December 31, 2012
Installment AR, 2010 P1,750,000 P840,000 P210,000
Installment AR, 2011 2,660,000 980,000
Installment AR, 2012 3,430,000
Deferred gross 437,500 210,000 210,000
profit,2010
Deferred gross 1,064,000 1,052,800
profit,2011
Deferred gross 1,470,000
profit,2012
On January 1, 2012, a customer defaulted and Charlie Company repossessed merchandise

appraised at P17,500 after costs of reconditioning of P2,520. The merchandise had been
purchased in 2011 by a customer who still owed the company a certain amount at the date of
repossession.
How much was the gain or loss on repossession?
P11,200 gain
P3,780 gain
P13,020 loss
P1,820 loss*
C. N. Dait
____ 6. C&A Builders Construction Company entered into two construction jobs which both commenced
in 2021.
Project 1 Project 2
Construction revenue P10,500,000 P 7,140,000
Construction cost incurred 6,000,000 7,000,000
Estimated future cost 3,000,000 1,560,000
Gen. & admin. expenses 500,000 250,000
Billings to clients 6,300,000 6,000,000
Collection 5,600,000 5,000,000
Based on the information given, how much gross profit(loss) would C&A Builders report in its
2021 income statement under the cost recovery method?
P1,000,000
(P1,420,000) *
(P 420,000)
(P1,000,000)
____ 7. On July 1, 2021, Fix Company contracted to construct a factory building for Galaxy Mfg. for a
total contract price of P2,688,000. The building was completed by December 1, 2023. The
company uses the input measures - cost to cost method.
2021 2022 2023

Contract cost incurred P1,024,000 P 832,000 P 464,000
Estimated cost to complete the 1,024,000 464,000 -
contract
Billings to Galaxy 1,024,000 1,120,000 544,000
What is the amount of profit(loss) to be recognized for the year ended December 31, 2022?
Excess of Construction in Progress over Progress Billings/Progress Billings over Construction in
Progress in 2021?
(P25,600); P320,000 current liability

P294,400; P320,00 due to
P25,600; P320,000 due from
(P25,600); P320,000 current asset*
C. N. Dait
____ 8. On January 1, 2021, Elektra Construction Corp began constructing a P3,500,000 contract. As of
year-end, the following are relevant information provided by the corporation:
2021 2022 2023

Construction in Progress P 735,000 P 2,248,750 ?
Estimated cost to complete 2,666,250 1,251,250 ?
Costs incurred 708,750 1,615,000 P 1,126,250
How much is the gross profit(loss) in 2022 using the percentage of completion method?
(P48,750)
(P101,250) *
(P75,000)
P125,000
____ 9. On January 1, 2021, Brave Construction Corporation began constructing a P2,100,000 contract.
The following are relevant information provided by the corporation: Brave uses percentage of
completion method. For the year ended December 31, 2022, Brave Construction billed its client
an additional 55% of the contract price.
2021 2022 2023

Construction in Progress P441,000 ? ?
Estimated cost to complete ? ? -
Costs incurred 425,250 969,000 P675,750
Excess of Construction in 84,000 330,750 -
Progress over Billings Current liability Current liability
How much is the estimated remaining cost in 2021?

P1,599,750*
P1,155,000
P1,680,000
P1,584,000
C. N. Dait
10. On January 2, 2022, Blake Company sold a used machine to Cooper, Inc. for P900,000,
resulting in a gain of P270,000. On that date, Cooper paid P150,000 cash and signed a
P750,000 note bearing interest at 10%. The note was payable in three annual installments of
P250,000 beginning January 2, 2023. Blake appropriately accounted for the sale under the
installment method. Cooper made a timely payment of the first installment on January 2,
2023, of P325,000, which included accrued interest of P75,000. What amount of deferred
gross profit should Blake report at December 31, 2023?
P150,000*
P172,500
P180,000
P225,000
11. On December 31, 2022, Mill Company sold construction equipment to Drew, Inc. for
P1,800,000. The equipment had a carrying amount of P1,200,000. Drew paid P300,000 cash
on December 31, 2022 and signed a P1,500,000 note bearing interest at 10% payable in five
annual installments of P300,000. Mill appropriately accounts for the sale under the installment
method. On December 31, 2023, Drew paid P300,000 principal and P150,000 interest. For the
year ended December 31, 2023, what total amount of revenue should Mill recognize from the
construction equipment sale and financing?
P250,000*
P150,000
P120,000
P100,000
12. Omega sells automatic voltage regulators (AVRs) at a price of P1,200 and its cost is P700.
Charlie Computer buys a dozen AVRs on installment and trades-in 6 of the old units at an
allowance value of P300 each. Omega spends P25 to recondition a unit and sells them for
P315. Omega expects a 10% profit on used AVRs. How much is the over allowance for
trade-in granted by Omega.
P189
P249*
P339
P150
C. N. Dait
13. Grand Construction, Inc. has consistently used the percentage-of-completion

method of recognizing income. During 2023, Grand started work on a P3,000,000 fixed-
price construction contract. The accounting records disclosed the following data for the
year ended Dec. 31, 2023:
Cost incurred P 930,000

Estimated cost to complete 2,170,000
Progress billings 1,100,000
Collections 700,000
How much loss should Grand have recognized in 2023?
P230,000
P100,000*
P30,000
P-0-
14. Robin Construction Company has consistently used the percentage-of-completion

method of recognizing income. During 2021 Robin started work on a P7,500,000 fixed-
price construction contract which was completed in 2024. The accounting records
disclosed the following data:
Cumulative contract costs Estimated costs at

incurred completion
At 12/31/2021 P500,000 P5,000,000
At 12/31/2022 2,750,000 5,500,000
At 12/31/2023 5,000,000 6,000,000
How much income should Robin have recognized on this contract for the year ended Dec.
31, 2023?
P250,000*
P416,667
P500,000
P562,500
C. N. Dait
15. Denzel Construction Company uses the percentage-of-completion method of accounting.

During 2023, Denzel contracted to build an apartment house for Ryan for P10,000,000.
Denzel estimated that total costs would amount to P8,000,000 over the period of construction.
In connection with this contract, Denzel incurred P1,000,000 of construction costs during
2023. Denzel billed and collected P1,500,000 from Ryan in 2023. How much gross profit
should Denzel recognize in 2023?
P300,000
P250,000*
P187,500
P125,000
16. When using the installment sales method
gross profit is deferred until all cash is received, but revenues and costs are recognized in
proportion to the cash collected from the sale.
gross profit is recognized only after the amount of cash collected exceeds the cost of the item sold
revenue, costs, and gross profit are recognized proportionally as the cash is received from the sale
of product.
total revenues and costs are recognized at the point of sale, but gross profit is deferred in
proportion to the cash that is uncollected from the sale. *
17. The interest charge to installment sales which is payable together with the installment
payment is not recognized as income.
True
False*
18. The property received as trade-in is not considered as part of collection by the seller in
determining the realized gross profit.
True
False *
19. If the market value of the property received as trade in is less than the trade-in allowance ,
there is an overallowance which is deducted for the sales price to get the adjusted sales.
True*
False
20. To determine the deferred gross profit relating to the account defaulted, gross profit rate is
multiplied by
C. N. Dait
Cost of the repossessed merchandise
Fair market value of the repossessed merchandise
Original sales price of the repossessed merchandise
Account defaulted relating to the repossessed merchandise*
21. The realized gross profit represents the profit residing in the ending balance of the Installment
Contract Receivable.
True
False*
22. The sale of real estate on an installment basis by a non-dealer is similar to a sale of regular
asset except that the gain on sale is deferred.
True*
False
23. In accounting for a long-term construction contract for which there is a projected profit,
the balance in the Construction in Progress asset account at the end of the first year of work using
the percentage-of-completion method would be
Zero
equal to the actual cost incurred during the year
the same as the balance of Progress Billings on Construction contracts
equal to the sum of the actual cost incurred and the recognized gross profit during the year *
24. Under cost-to-cost method , the degree of completion is determined by comparing costs
already incurred with the most recent estimates of the total expected costs of the project.
True *
False
25. The “Construction- in- Progress” account contains cost incurred plus recognized profit.
True*
False
C. N. Dait
26. At the completion of the contract the total of Progress Billings will equal the contract price.
True*
False
27. Under the cost recovery approach/zero profit approach, no profit is recognized during a given
period even if a loss on the contract is projected prior to completion.
True
False*
28. The percentage-of-completion method of inventory valuation of long-term construction

contract
recognizes income upon completion of work.

recognizes income based on collection billings.
recognizes income based on the progress of work.*
does not recognize income at the balance sheet date.
29. A company uses the percentage-of-completion method to account for a four-year construction
contract. Progress Billings sent in the second year that were collected in the third year would
be included in the calculation of the income recognized in the second year

be included in the calculation of the income recognized in the third year
be included in the calculation of the income recognized in the fourth year
not be included in the calculation of the income recognized in any year*
30. At the completion of the contract, Construction-in-Progress and Progress Billings accounts
should be closed.
True*
False
END
HOME OFFICE AND BRANCH ACCOUNTING:
GENERAL PROCEDURES
CHAPTER 13
Introduction
In seeking out for increased sales, business organizations are constantly reaching out into more
distant areas. The establishment of sales control center in several areas may be the means of
achieving such marketing objective. Selling activities are conducted from sales offices at different
locations under the direction of the home office. Clients deal, not with the home office of the
business, but with a remote sales unit. Contact with the organization is more easily and quickly made.
The desired goods or services are more readily available in their area or location.
Agency and Branch Distinguished
The establishment of an outlying selling unit may take the form of an agency or a branch. The distinction between
an agency and a branch is based upon the functions assigned to the organization as well as the degree of
independence that it assumes in the exercise of such functions.
An agency is an organization in which:

1. It is established to display merchandise. Samples of the merchandise offerings as well as advertising
materials are provided by the home office
2. It does not stock merchandise to fill customer’s orders or pass on customer’s credit.
3. Merchandise orders obtained are sent to the home office for approval. If the sales price and the credit
terms are acceptable, the home office fills the orders and ships the goods to customers.
4. It is normally provided with a working fund that is to be used for the payment of expenses that can be
more conveniently settled through the agency. The imprest system is often adopted for the control of
agency cash.
5. It has no separate accounting or business entity. The home office may bear the responsibility for
maintaining the accounts that arise out of sales, billing the customers, and making collections. Expenses of
operating the agency other than those paid by the agency from its working fund are met by the home
office.
6. Its transactions are recorded in the books of the home office either at:
a. Separate records from the home office transaction, or
b. No separate records from the home office transaction.
In contrast, a branch is an organization that:
1. Sells goods out of a stock that it maintains;
2. Possesses the authority to engage in transactions as an independent business;
3. Makes sales to customers, passes on customer credit, collects receivables, incurs
expenses and performs other functions normally associated with the operations of a
separate business enterprise; and
4. Has a separate branch accounting systems similar to the systems of independent
businesses except in the manner of accounting for ownership equities and in
recording transactions between branches and the main office of the business.
The typical agency does not require a complete set of books. Ordinarily, summaries of
working fund receipts and disbursements and records of sales to customers are
sufficient, which when accompanied by supporting evidence in the form of paid
vouchers are sent to the home office. When the local manager or salespeople are to
be paid according to the volume of sales completed, sales records supply this
information.
Illustration 13-1: Agency Accounting
Assume that Anton Trading established a sales agency, the Junior Agency. The results of operations
are recorded separately from those of the other sales agencies.
The accounting entries prepared by the home office as a result of the establishment of Junior Agency
and their related transactions for the year 20x4, assuming the use of periodic inventory method:
Entries - Agency Transactions
7. End of the year adjustments:

a. Cost of goods sold identified with Junior Agency,P60,000
Cost of goods sold – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Shipments to Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
b. Depreciation expense for agency equipment, P2,000
Depreciation expense – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Accumulated depreciation – equipment – Junior Agency . . . . 2,000
Transactions 20x4
1. Establishment of petty cash fund, P10,000
c. Replenishment of agency’s working fund
Working Fund – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Utilities expense – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Advertising expense – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Other expenses – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
2. Shipped merchandise to agency for use as samples, P4,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Samples inventory – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Shipments to Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
d. Agency samples inventory amounted to P1,000 net realizable
Value
3. Purchase of agency equipments, P20,000
Advertising expense – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Equipment – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Samples inventory – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
8. Closing entries:
4. Payment of salaries to employees of agency, P5,000
a. To close sales revenue account:
Salaries expense – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Income Summary – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
5. Sales orders from agency are filled and customers are billed,
b. To close cost of goods sold account:
P100,000 and goods are delivered by the home office
Income Summary – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Cost of goods sold – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Sales – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
c. To close expenses account:
6. The following expenses were incurred out of working fund:
utilities, P2,000; advertising expense, P3,000 and other
Salaries expense – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
expenses, P4,000.
Depreciation expense – Junior Agency . . . . . . . . . . . . . . . . . . . . . 2,000
No entry required – imprest fund system
Utilities expense – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Advertising expense – Junior Agency (P3,000 + P3,000) . . . . . . . 6,000
Other expenses – Junior Agency . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
d. To close the Agency Income Summary to General Income

Summary
Income Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000
In adopting the imprest fund system for the agency working fund:
1. The home office writes a check to the agency for the amount of the fund.
2. Establishment of the working fund is recorded on the home office books by a debit to the
agency working fund account and a credit to Cash.
3. The agency will request fund replenishment whenever the fund runs low and at the end of
each fiscal period. Such request is normally accompanied by an itemized and authenticated
statement of disbursements and paid vouchers.
4. Upon sending the agency a check in replenishment of the fund, the home office debits
expense or other accounts for which the disbursements from the fund were reported and
credits Cash.
Agency Accounting Records Not Separate from the Home Office
The home office may record transactions of the agency in the revenue and expense accounts used
for its own transactions if there is no desire to summarize agency operations separately. After these
accounts are closed, the income summary account reports the results of combined operations.
Agency Accounting Records Separate from the Home Office
If the home office wishes to determine the net income of each of its agencies as well as of the home
office:
1. It will maintain separate sales revenue and expense accounts for the individual sales units. A
supplementary record of the cost of goods sold by each sales unit must also be kept.
2. The shipments to agency account balance are subtracted from the sum of the home office
beginning inventory and purchases in determining the merchandise available for home office
sales. The ending inventory, when subtracted from merchandise available for home office sales,
gives the cost of goods identified with home office sales.
3. Following the adjusting entries, agency sales revenue and expenses accounts are closed into an
income summary account for each agency. Agency income summary accounts are
subsequently transferred to the general income summary account in which the income or loss
from home office activities will also be summarized.
Accounting for Branches
Although a branch operates as a separate business unit, it is subject to control by the home office.
The degree of self-management to be exercised by a branch is determined by the home office.
General policies and standards adopted by the business are usually applied to all of the branches.
Outside of this realm, however, the branch manager may be given complete authority, with
effectiveness of management and control judged on the basis of the branch financial reports. Other
procedures to be observed by the branch are as follows:
1. A branch’s cash and merchandise and such other assets as may be needed are supplied by
the home office.
2. The branch may purchase merchandise from outsiders to satisfy certain local needs for goods
not available from the affiliated unit.
3. The branch ships merchandise, bills its customers, makes collections on account, and deposits
the sums in its own bank account. The bank balance is drawn upon making payment for
purchases of goods and services.
A system is sometimes adopted whereby both the branch and the home office maintain detailed
records of branch transactions.
At the end of the period the home office adjusts and closes the branch accounts and determines
the branch net income.
Records Maintained at the Branch
Generally, the branch accounting system is maintained at the branch. The branch keeps the books of original
entry and posts to ledger records. Financial statements are prepared by the branch periodically and are
submitted to the home office. Statements that are submitted by the branch are usually verified by the company’s
internal auditors.
Reciprocal Accounts
When complete self-balancing books are kept by the branch, an account called Home Office Current takes the
place of the customary capital accounts. The Home Office account is a quasi-ownership account equity that
shows the net investment by the home office in the branch.
This home office current account is credited:

1. Cash, goods, or services received from the home office, and
2. For profits resulting from branch operations.
On the other hand, the account is debited:

1. For remittances made by the branch to the home office, and
2. For losses from operations.
When the branch closes its books at the end of every accounting period, the Branch Income
Summary account is closed to Income Summary Account which will eventually be disposed to the
Home Office Current account.
The home office, in turn, keeps a reciprocal account, called Branch Current, or Investment in
Branch.
This noncurrent asset (Branch Current or Investment in Branch) account is debited:

1. For cash, goods, or services transferred to the branch and
2. For branch income.
Conversely, the account is credited:

1. For remittances from the branch or other assets received from the branch and
2. For branch losses.
Thus, the Investment in Branch account reflects the equity method of accounting. A separate
investment account is generally maintained by the home office for each branch.
If there is only one branch, the account title is likely to be Investment in Branch; if there are
numerous branches, each account title includes a name or number to identify each branch.
Property, Plant and Equipment Used by the Branch
Depreciable branch assets are normally carried on the home office books. This procedure may be
followed when depreciation rates are to be uniformly applied to certain groups of assets, whether
used by the branch or the home office, and when insurance policies are to be acquired by the
home office for all assets.
Accounting for Property, Plant and Equipment Used by the Branch
Equipment is purchased by the home office for the branch; the entry for the acquisition on the:
Home office books:
Equipment—Branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxx
Cash or Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . xxx
Branch books:
No entry required.
In contrast, if the branch will purchase the equipment, then the entry for the acquisition:
Home office books:
Equipment—Branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxx
Branch Current (or Investment in Branch) . . . . . . . . . . . xxx
Branch books:
Home Office Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxx
Cash or Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . xxx
Expenses Incurred by the Home Office but Charged to Branch
Certain expenses relating to the branch operations are sometimes paid by the home office. Branches are notified by
the home office of expenses incurred in their behalf, and such charges are recorded on the branch books so that
branch income statements may provide complete summaries of the operations of the separate sales organizations.
Billing Methods for Merchandise Shipped to Branch
Three alternative methods are available to the home office for billing merchandise shipped to its branches. The
shipments may be:
1. At home office cost (at original cost)
2. At billed price or a percentage above home office cost (original cost plus mark-up based on cost), or
3. At the branch’s retail selling price (mark-up based on billed price).
It should be noted that shipment of merchandise to a branch does not constitute a sale because ownership of the
merchandise does not change.
Billing at home office cost is the simplest procedure and is widely used. It avoids the complication of unrealized gross
profit in inventories and permits the financial statements of branches to give a meaningful picture of operations.
The first method is illustrated all throughout this chapter and this practice is under the general procedures in
accounting for inter-office transactions. In contrast, the second and third methods are part of the special procedures
discussed in the next chapter.
Accounting for the Operations of a Branch
Assume that on January 1, 20x4 the Manila Company establishes its first branch in Bulacan. Separate
books are to be kept by the branch, and financial statements are to be submitted to the home office
at the end of each month. Merchandise is to be billed at cost. Depreciable assets are to be carried
on the books of the home office. Both the home office and the branch books use the periodic
inventory method. Transactions during 20x4 for the month of branch operations are as follows:
Journal entries to record these transactions and related year-end events on the books of Bulacan
branch are shown below. The illustration also shows entries on the home office books to reflect
reciprocal home office items, and adjusting and closing entries.
Journal and Adjusting Entries – Home Office and Branch
1. Received cash of P40,000 from the home office.

Home Office Books Branch Books
1. Branch Current . . . . . 40,000 Cash . . . . . . . . . . . . . . . . . . . . . 40,000
Cash . . . . . . . . . . . . 40,000 Home Office Current. . . . . 40,000
2. Purchased equipment with a five-year life for P20,000 cash.

2. Equipment—Branch . . 20,000 Home Office Current . . . . . . . 20,000
Branch Current . . . 20,000 Cash . . . . . . . . . . . . . . . . . . 20,000
3. Received merchandise shipments from home office at the P32,000

home office cost.
3. Branch Current . . . . . . . . 32,000 Shipments from home office . . 32,000 Adjusting entries:
Shipment to branch cost 32,000 Home Office Current . . . . . . 32,000 a. Salaries payable at year-end were P2,000. depreciation of
4. Purchased merchandise from outside suppliers for P8,000 cash equipment for the year was P4,000
4. Purchases . . . . . . . . . . . . . . . . . . 8,000 a. Salaries expense . . . . . . . . . . . . 2,000
Cash . . . . . . . . . . . . . . . . . . . . 8,000 Salaries payable . . . . . . . . . 2,000
5. Sold merchandise for P60,000 cash b. depreciation of equipment for the year was P4,000
5. Cash . . . . . . . . . . . . . . . . . . . . . . 60,000
Sales . . . . . . . . . . . . . . . . . . . . 60,000 b. Branch Current . . . . . . . . 4,000 Depreciation expense . . . . . . . 4,000
Accumulated Home Office Current . . . . . . 4,000
6. Returned P2,000 of the merchandise acquired from home office. Depreciation-
6. Shipment to branch cost 2,000 Home Office Current . . . . . . . . 2,000 Equipment—Branch. . 4,0000
Branch Current . . . . . . 2,000 Shipments from Home Office 2,000 P20,000/5 years=P4,000
7. Paid expenses as follows: Salaries, P12,000; Utilities, P2,000; Rent

expense, P6,000; Miscellaneous expenses, P4,000
7. Salaries expense . . . . . . . . . . . . 12,000
Utilities expense . . . . . . . . . . . . . 2,000
Rent expense . . . . . . . . . . . . . . . 6,000
Miscellaneous expenses . . . . . . 4,000
Cash . . . . . . . . . . . . . . . . . . . 24,000
8. Remitted P30,000 to the home office.
8. Cash . . . . . . . . . . . . . . . . . 30,000 Home Office Current . . . . . . . . 30,000
Branch Current . . . . . . 30,000 Cash . . . . . . . . . . . . . . . . . . . 30,000
After the above entries have been posted, the reciprocal Branch Current account on the books of the home office will
show a debit balance of P24,000 before income summary accounts are closed. The balance of the account is
determined as follows:
Home Office books:

Branch Content
Cash sent to branch ……………………………… P40,000 Equipment acquired by branch …………………… P20,000
Shipment to branch ………………………………. 32,000 Shipment returns ……………………………………….. 2,000
Depreciation charged to branch ……………… 4,000 Remittance …………………………………………… 30,000
Balance forwarded …………………………………… 24,000
Total ………………………………………………….. P 76,000 Total ……………………………………………………… P 76,000
Balance …………………………………………….. P 24,000
After the above entries have been posted, the reciprocal Home Office Current account on the books of the branch will
show a credit balance of P24,000 before income summary accounts are closed. The balance of the account is
determined as follows:
Branch books:
Home Office Current
Equipment acquired ……………………………… P 20,000 Cash sent to branch ………………………………….. P 40,000
Shipment returns …………………………………… 2,000 Shipment from home office ………………………… 32,000
Remittance ………………………………………… 30,000 Depreciation charged by home office ………….. 4,000
Balance forwarded ……………………………… 24,000
Total …………………………………………………. P 76,000 Total ……………………………………………………… P 76,000
Balance …………………………………………………. P 24,000
The related closing entries on the books of the home office and the branch are given below:
10. Merchandise branch inventory at year-end consisted of P2,000 merchandise acquired from outside suppliers and P10,000
acquired from home office.
Home office: sales, P95,000; beginning inventory, P40,000; purchases, P90,000; ending inventory, P25, 000
Closing Entries – Home Office and Branch

Closing Entries Closing Entries
10. Sales . . . . . . . . . . . . . . . . . . . . . . 95,000 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Shipments to branch . . . . . . . . 30,000 Merchandise inventory,
Merchandise inventory, December 31 . . . . . . . . . . . . . . . . . . . . 12,000
December 31 . . . . . . . . . . . . . 25,000 Purchases . . . . . . . . . . . . . . . . . . .. . 8,000
Merchandise inventory, Shipments from home office . . . . . 30,000
January 1. . . . . . . . . . . . 40,000 Salaries expense . . . . . . . . . . . . . . . 14,000
Purchases . . . . . . . . . . . . 90,000 Utilities expense . . . . . . . . . . . . . .. . 2,000
*Salaries expense . . . . . . . 3,000 Rent expense . . . . . . . . . . . . . . . . . 6,000
*Utilities expense . . . . . . 2,000 Depreciation expense . . . . . . . . . . 4,000
*Depreciation expense . . . 2,500 Miscellaneous expense . . . . . . .. . . 4,000
*Miscellaneous expense. . 2,500 Income Summary . . . . . . . . . . . .. . . 4,000
Income Summary . . . . . . . 10,000
Branch Current . . . . . . . . . . 4,000 Income Summary . . . . . . . . . . . . . . . . . . 4,000

Branch Income Summary 4,000 Home Office Current . . . . . . . . . . . . 4,000
Branch Income Summary. . 4,000

Income Summary . . . . . 4,000
Income Summary . . . . . . . . 14,000

Retained Earnings . . . . . 14,000
* figures are assumed.
Preparation of Branch and Home Office Statements
The trial balances as of December 31, 20x4 of Manila Company and its branch are shown below. Figures previously assumed in the
preceding illustration are recorded therein including other figures which are deemed essential for illustration purposes
Debit Credit Debit Credit
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P106,500 P 18,000
Marketable securities . . . . . . . . . . . . . . . . . . . . 10,000 -
Merchandise inventory, January 1 . . . . . . . . . 40,000 -
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000 -
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Accumulated depreciation -Equipment . . . . 2,500
Equipment – branch . . . . . . . . . . . . . . . . . . . . . 20,000
Accumulated depreciation – equipment
– branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Branch Current . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 14,000
Depreciation expense – equipment –branch 4,000
Depreciation expense – equipment . . . . . . . . 2,500 -
Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 2,000
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . - 6,000
Miscellaneous expenses . . . . . . . . . . . . . . . . . . 2,500 4,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 -
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 20,000
Salaries payable . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Retained earnings, January 1 . . . . . . . . . . . . . . 70,000 -
Home Office Current . . . . . . . . . . . . . . . . . . . . . 24,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000 60,000
Shipments to branch . . . . . . . . . . . . . . . . . . . . . 30,000
Shipments from home office . . . . . . . . . . . . . . 30,000
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __90,000 ________ ___8,000 _______
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P371,500 P371,500 P 86,000 P 86,000
Additional information:
Merchandise inventory, December 31:
Home office books, P25,000
Branch books, P12,000
Based on the preceding data, income statements and balance sheets prepared individually for the home office and the branch are shown below:
Individual Income Statements
Manila Company – Home Office

Income Statement
For the Year Ended December 31, 20x4
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 95,000
Less: Cost of Goods Sold:
Merchandise inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . P 40,000
Add: Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __90,000
Cost of goods available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 130,000
Less: Shipments to branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __30,000
Cost of goods available for own sale . . . . . . . . . . . . . . . . . . . . . . . . . P100,000
Less: Merchandise inventory, December 31 . . . . . . . . . . . . . . . . . . . __25,000 __75,000
Gross profit on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 20,000
Less: Operating expenses:
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 3,000
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___2,500 __10,000
Net income from own operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 10,000
Add (deduct): Branch net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . ___4,000
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 14,000
Manila Company – Bulacan Branch

Income Statement
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 60,000
Merchandise inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . P 0
Add: Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Shipments from home office . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Cost of goods available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 38,000
Less: Merchandise inventory, December 31 . . . . . . . . . . . . . . . . . . __12,000 __26,000
Gross profit on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 34,000
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 14,000
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___4,000 __30,000
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 4,000
Individual Balance Sheets
Manila Company – Home Office

Balance Sheet
December 31, 20x4
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 106,500
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Merchandise inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 25,000
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___2,500 22,500
Equipment – branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 20,000
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___4,000 16,000
Branch Current (P24,000 + P4,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___28,000
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 253,000
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 20,000
Stockholders’ Equity:
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 150,000
Retained earnings:
Retained earnings, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 70,000
Add: Combined Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __14,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 84,000
Less: Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___1,000 ___83,000
Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 233,000
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . P 253,000
Manila Company – Bulacan Branch

Balance Sheet
December 31, 20x4
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 18,000
Merchandise inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __12,000
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 30,000
Liabilities and Capital
Salaries payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 2,000
Home Office Current
Home Office Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,000
Add: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___4,000 _ 28,000
Total Liabilities and Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 30,000
Preparation of Combined Statements for Home Office and Branches
Worksheet for Combined Financial Statements, December 31, 20x4
Adjusted Trial Balances Eliminations Combined Income Statement Combined Balance Sheet
Debits Home Office Branch Dr. Cr. Dr. Cr. Dr. Cr.
Cash . . . . . . . . . . . . . . . . P106,500 P18,000 P124,500
Marketable securities … 10,000 10,000
Merchandise
inventory, January 1… 40,000 P40,000
Shipments from home
Office . . . . . . . . . . . . . . 30,000 30,0001
Purchases . . . . . . . . . . . 90,000 8,000 98,000
Land . . . . . . . . . . . . . . . . 45,000 45,000
Equipment * . . . . . . . . . . 45,000 45,000
Branch Current . . . . . . . 24,000 24,0002
Salaries expense . . . . . . 3,000 14,000 17,000
Depreciation expense.. 2,500 4,000 6,500
Utilities expense . . . . . . . 2,000 2,000 4,000
Rent expense . . . . . . . . 6,000 6,000
Miscellaneous
expenses . . . . . . . . . . . 2,500 4,000 6,500
Dividends paid . . . . . . . ___1,000 _______ 1,000
Total . . . . . . . . . . . . . . P371,500 P86,000
Merchandise
inventory, December
31 (to Balance Sheet).. P25,000 P12,000 37,000
Credits Home office Branch Dr. Cr. Dr. Cr. Dr. Cr.
Accumulated depreciation –
equipment . . . . . . . . P 6,500 P 6,500
Accounts payable . . . . 20,000 20,000
Salaries payable . . . . . . 2,000 2,000
Capital stock . . . . . . . . . 150,000 150,000
Retained earnings,
January 1 . . . . . . . . . . 70,000 70,000
Home Office Current . . 24,000 24,0002
Sales . . . . . . . . . . . . . . . . 95,000 60,000 P155,000
Shipments to branch . . __30,000 _______ 30,0001
Total . . . . . . . . . . . . . . P371,500 P86,000
Merchandise
inventory, December
31 (to Income
Statement) . . . . . . . . . . P25,000 P12,000 _______ ______ _______ __37,000 ________ _______
P54,000 P54,000 P178,000 P192,000 P262,500 P248,500
Net Income
(to Balance Sheet) . . . __14,000 ________ ________ __14,000
Total . . . . . . . . . . . . . . P192,000 P192,000 P262,500 P262,500
1 To eliminate
reciprocal accounts
2 To eliminate shipments
*The equipment of the home office and the branch are maintained under one account
Based on the working paper prepared in the preceding page, the following combined statements of Manila Company are presented:
Manila Company
Combined Income Statement
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 155,000
Merchandise inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . P 40,000
Add: Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __98,000
Cost of goods available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . P 138,000
Less: Merchandise inventory, December 31 . . . . . . . . . . . . . . . __37,000 _101,000
Gross profit on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 54,000
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 17,000
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,500
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___6,500 __40,000
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 14,000
Manila Company
Combined Balance Sheet
December 31, 20x4
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 124,500
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Merchandise inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . 37,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 45,000
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___6,500 ___38,500
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P_255,000
Liabilities and Stockholders’ Equity
Liabilities:
Salaries payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 2,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . __20,000
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 22,000
Stockholders’ Equity:
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 150,000
Retained earnings:
Retained earnings, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 70,000
Add: Net income from own operations . . . . . . . . . . . . . . . . . . . . __14,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 84,000
Less: Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___1,000 ___83,000
Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 233,000
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . P 255,000
Reconciliation of Reciprocal Accounts
Theoretically, the balances of the reciprocal accounts, i.e. the Branch Current account (Investment in Branch) and the Home Office Current account,
should always be equal.
On the other hand, it may not show identical reciprocal balances on one occasion because of certain interoffice data that have been recorded by
one office but not by the other.
The home office, for example, debits the branch immediately upon the shipment of merchandise to the branch. The branch, however, does not credit
the home office account until it receives the merchandise, which may be several days after shipment by the home office. The fact that the reciprocal
account balances are not identical is of no concern during the fiscal period.
The situation is comparable to that of reconciling the ledger account for Cash in Bank with the balance in the monthly bank statement. The lack of
agreement between the reciprocal ledger account balances causes no difficulty during an accounting period, but at the end of each period the
reciprocal account balances must be brought into agreement before combined financial statements are prepared.
The data to be considered in reconciling the two accounts may be classified as follows:
1. Debits in the branch account without corresponding credits in the home office account.
2. Credits in the branch account without corresponding debits in the home office account.
3. Debits in the home office account without corresponding credits in the branch account.
4. Credits in the home office account without corresponding debits in the branch account.
The items (Nos. 1 to 4) listed can be analyzed from the diagram below:
Home Office books:
Branch Current
xxx xxx
Branch Books:
Home Office Current

xxx xxx
Assume that the home office and branch accounting records of Marcellano Company and its Bonafe branch on December 31,
20x4 contain the following data:
Home Office Books

Branch Content
Nov. 30 Balance ……………………………………. P 31,250 Dec. 5 Cash Received from branch ………………. P 10,000
Dec. 31 Depreciation charge to branch ……… 2,000 18 Collection of branch trade receivable …. 500
31 Shipments to branch ……………………. 4,000
Total …………………………………………………… P 37,250 Total ………………………………………………………. P 10,500
Balance ………………………………………………. P 26,750
Branch Books:
Home Office Current
Dec. 4 Cash sent to home office ……………….. P 10,000 Nov. 30 Balance ……………………………………….. P 31,250
28 Acquired equipment …………………… 1,500 Dec. 31 Collection of home office trade
receivable ………………………………….... 1,000
31 Depreciation charged by home office ... 200
Total …………………………………………………… P 11,500 Total ………………………………………………………. P 32,450
Balance …………………………………………………. P 20,950
Comparison of the two reciprocal ledger accounts discloses five reconciling items described as follows:
1. A debit of P2,000 in the Branch Current account was erroneously recorded by the branch in the Home Office Current
account as P200, resulting to a difference of P1,800 (P2,000 – P200). The home office entry is assumed to be correct
since it is the one that initiates the transaction. The following entry is required on the books of the branch:
Depreciation expense . . . . . . . . . . . . . . . . . 1,800
Home Office Current . . . . . . . . . . . . . . . . 1,800
2. A debit of P4,000 in the Branch Current account without a related credit in the Home Office Current account.
On December 31, 20x4, the home office shipped merchandise costing P4,000 to the branch. The home office debits
its reciprocal ledger account with branch on the date merchandise is shipped but the branch credits its reciprocal
account with the home office when the merchandise is received few days later. The required journal entry on
December 31, 20x4 in the branch accounting records, assuming the used of periodic inventory system should appear
below:
Shipments from Home Office—in transit . . . 4,000
Home Office Current . . . . . . . . . . . . . . . . 4,000
In taking physical inventory on December 31, 20x4, the branch must add to the inventories on hand the P4,000 of
merchandise in transit. This inventory will appear in the branch balance sheet and eventually in the combined
financial statements.
3. A credit of P500 in the Branch Current account without a related debit in the Home Office Current account. On December 18,
20x4, trade accounts receivables of the branch were collected by the home office. The collection was recorded by the home
office by a debit to Cash and credit to Branch Current account. No journal entry was made by the branch;
Therefore, the following journal entry is required in the accounting records of the branch on December 31, 20x4
Home Office Current . . . . . . . . . . . . . . . . . . 500
Accounts receivable – trade . . . . . . . . . 500
4. A debit of P1,500 in the Home Office ledger account without a related credit in the Branch Current account. On December 28,
20x4, the branch acquired equipment for P1,500. Because the equipment used by the branch is carried in the accounting
records of the home office, the journal entry made by the branch was a debit to Home Office Current and a credit to Cash. No
journal entry was made by the home office; therefore, the following journal entry is required on December 31, 20x4, in the
accounting records of the home office:
Equipment - Bonafe branch . . . . . . . . . . . . 1,500
Branch Current . . . . . . . . . . . . . . . . . . . . . 1,500
5. A credit of P1,000 in the Home Office ledger account without a related debit in the Branch Current account. On December 31,
20x4, trade accounts receivables of the home office were collected by the branch. The collection was recorded by the branch
by a debit to Cash and a credit to Home Office Current account. No journal entry was made by the home office; therefore, the
following journal entry is required in the accounting records of the home office on December 31, 20x4:
Branch Current . . . . . . . . . . . . . . . . . . . . . . . 1,000
Accounts Receivable - trade . . . . . . . . . 1,000
It should be noted that the cash remittance of P10,000 is not a reconciling item since it was properly recorded in their respective
books.
The effect of the foregoing end-of-period adjusting journal entries to update the reciprocal accounts, as shown by
the following reconciliation:
Marcellano Company – Home Office and Bonafe Branch

December 31, 20x4

Branch Home Office
Current (Dr.) Current (Cr.)
Balances before adjustments . . . . . . . . . . . . . . . . . . . . . P 26,750 P 20,950
Add: (1) Error made by branch in recording
depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800
(2) Merchandise shipped to branch still in
transit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
(5) Home office trade accounts receivable
collected by branch . . . . . . . . . . . . . . . . . . . . 1,000
Less: (3) Branch trade accounts receivable
collected by home office . . . . . . . . . . . . . . . . ( 500)
(4) Equipment acquired by branch . . . . . . . . . . . ( 1,500) _______
Adjusted balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 26,250 P 26,250
Chapter 7
Home Office and Branch Accounting
Companies may increase their volume of sales by establishing sales outlets in various areas.
These sales outlets may be a branch or an agency.
When a company operates a branch, the branch must maintain accounting records to facilitate
its reporting responsibility to the home office.
Problems dealing with Home Office and Branch Accounting appear in almost every CPA
examination. Candidates should be familiar with the problems involving the following:
1. Uses of the reciprocal accounts.

2. Preparation of a Reconciliation Statement.
3. Billing of Merchandise by Home Office to Branch above cost.
4. Preparation of Combined Financial Statements.
Uses of the Reciprocal Accounts
In recording inter-office transactions, two reciprocal accounts are used, namely, the Investment
in Branch (Branch Current) account used by the home office which is classified as an asset; and
the Home Office (HO Current account) used by the branch which is classified as a liability.
The reciprocal nature of the Investment in Branch and the Home Office accounts and the way in
which they are affected by various inter-office transactions are shown below:
(Home Office Books) (Branch Books)

Investment in Branch Home Office
xx Assets transfer to branch xx
xx Assets transfer from branch xx
xx Branch profit xx
xx Branch loss xx
Preparation of Reconciliation Statement
The balances of the two reciprocal accounts should at all times equal. If the balances of the
reciprocal accounts are not equal before the preparation of separate statement of financial
position, a reconciliation statement is to be prepared. This is done to determine the causes of
the inequality between the two accounts. The accounts are then adjusted to determine their
adjusted balances. The following are the usual causes that the candidate should take note:
1. Transactions have been recorded by the branch but not by the home office.
2. Transactions have been recorded by the home office but not by the branch.
3. Errors in recording have occurred in one or both books.
4. Transactions have not yet been recorded on either set of books.
Billing of Merchandise by Home office to Branch above Cost
Merchandise shipped to branch by the home office may be billed at an amount above cost.
Under this method of billing, the profit recognized by the branch will be less that its actual
profit, because its cost of goods sold is overstated insofar as the home office is concerned.
The problems involving billing of merchandise to branch above cost are the following
1. Computation of branch at inventory at cost.

2. Computation of the actual or true branch profit insofar as the home office is
concerned.
Computation of Branch Inventory at Cost
Candidates should use the following formula:
a. If branch are all acquired from the home office, the formula is:
Branch inventory acquired from home office at billed price Pxx

Divide by billing percentage of cost %
Branch inventory at cost Pxx
b. If branch inventory includes merchandise acquired from outsiders, the formula is:
Branch inventory acquired from home office at cost:

Merchandise at billed price Pxx
Divide by billing percentage of cost % Pxx
Add: inventory acquired from outsiders xx
Branch inventory at cost xx
Computation of Actual Branch Profit insofar as Home Office is Concerned
The actual or true branch insofar as the home office is concerned is computed as follows:
Branch profit (loss) as reported Pxx

Add: Overvaluation of branch cost of goods sold (Schedule 1) xx
Actual branch profit insofar as home office is concerned Pxx
Schedule 1
Allowance
Billed Percent for Over-
Price ÷ of Cost = Cost valuation
Branch inventory, beg. (acquired from HO) Pxx Pxx Pxx Pxx
Add: Shipments during the period xx xx xx xx
Total before adjustment
Less: Branch inventory, end (acquired from HO) xx xx xx xx
Overvaluation of branch COGS (Realized Profit) Pxx
Preparation of Combined Financial Statements
The balance sheets and the income statements of the home office and the branch must be
combined for external reporting purposes. Working papers are usually prepared to eliminate
accounts affected in recording inter-office transactions before financial statements are
prepared.
Candidates should remember the following working paper elimination procedures:
1. Eliminate reciprocal accounts.

2. Eliminate inter-company transfer accounts.
a. Shipment to Branch and Shipment from Home Office accounts.
b. Allowance for Overvaluation of Branch Inventory.
3. Eliminate the overvaluation in branch beginning inventory.
4. Eliminate the overvaluation in branch ending inventory.
Combined Statement of Financial Position. The reciprocal accounts “Investment in Branch” and
“Home Office” accounts are not presented as well as the Allowance for Overvaluation account.
Combined Statement of Comprehensive Income. The merchandise inventories, beginning and

ending inventories are presented at cost. The Shipment to Branch and Shipment from Home
Office accounts are not presented.
Transactions between Branches
Occasionally, branch operations require that merchandise or other assets be transferred from
one branch to another. A branch does not maintain a reciprocal account with another branch
but records the transfer in the Home Office account. For example, if Bicol Branch ships
merchandise to Laguna Branch, Bicol Branch debits Home Office account and credits
Inventories (assuming that the perpetual inventory system is used). Upon receipt of the
merchandise, Laguna Branch debits Inventories and credits Home Office account. The home
office records the transfer between branches by a debit to Investment in Laguna Branch and a
credit to Investment in Bicol Branch.
The transfer of merchandise from one branch to another does not increase the cost of
inventories by the freight costs incurred because of the indirect routing. The amount of freight
costs properly included in inventories at a branch is limited to the cost of shipping the
merchandise directly from the home office to its present location. Excess freight costs are
recognized as expenses of the home office.
Accounting System for Sales Agencies
An agency is simply an extension of the sales territories in which orders are received from
customers and then transmitted to the home office for shipping and billing. They do not have
merchandise available for sale, but they keep samples inventory.
A sales agency neither keeps a complete set of books nor uses a double-entry system of
accounts. Usually, a record of sales to customers and a list of cash payments supported by
vouchers are sufficient.
An imprest system is usually adopted by the home office for the working fund of the sales
agency.
PROBLEMS
1. Cebu branch submitted the following data to its home office in Manila for 2013, its first year
of operation:
Sales P2,300,000
Shipments from home office 1,850,000
Operating expenses 235,000
Home office 480,000
2. The home office in Quezon City ships and bills merchandise to its provincial branch at cost.
The branch carries its own accounts receivable and makes its own collections. The branch
also pays its expenses.
The transactions for 2013 are reflected in the branch trial balance that follows:
Cash P20,000
Home office P180,000
Shipments from Home Office 250,000
Sales 225,500
Expenses 55,500
Total P405,500 P405,500
December 31, inventory P65,000
Assuming all the transactions are properly recorded, what is the balance of the Investment in
Branch account in the home office books?
a. P180,000
b. P195,000
c. P165,000
d. P175,000
3. 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
4. Nike Corporation operates a number of branches in the provinces. On December 31, 2013,
its Davao branch showed a Home Office account balance of P54,700 and the home office
books showed an Investment in Davao Branch account balance of P51,100. The following
information may help in reconciling both accounts:
1. A P24,000 shipment, charged by Home Office to Davao Branch, was actually sent to and
retained by Cebu Branch.
2. A P30,000 shipment, intended and charged to Aklan Branch was shipped to Davao
Branch and retained by the latter.
3. A P4,000 emergency cash transfer from Cebu Branch was not taken up in the Home
Office books.
4. Home office collects a Davao Branch accounts receivable of P7,200 and fails to notify
the branch.
5. Home office was charged for P2,400 for merchandise returned by Davao Branch on
December 30. The merchandise is in transit.
Home office erroneously recorded Davao Branch’s net income for 2013 at P32,550. The
branch reported a net income of P25,350.
What is the adjusted balances of the Home Office and Davao Branch reciprocal accounts on
December 31, 2013?
a. P40,300
b. P54,700
c. P47,500
d. 43,500
5. The branch manager of Tower Cosmetics in Cebu submitted a report as of May 31, 2013
containing the following information:
Petty Cash Fund P1,500

Sales 198,720
Sales Returns 3,600
Accounts Written Off 1,920
Accounts Receivable – May 31, 2012 43,800
Inventory – May 31, 2012 37,170
Inventory – May 31, 2013 41,370
Expenses (reimbursed by H.O.) 57,930
Assuming all cash collected by the branch is remitted to Tower Cosmetics home office, the
remittances for the period amounted to:
a. P187,860
b. P189,780
c. P195,120
d. P198,720
6. On December 31, the Investment in Branch account in the home office books shows a
balance of P50,000. The following facts are ascertained:
1. Merchandise billed at P12,500 is in transit on December 31 from the home
office to the branch.
2. The branch collected a home office accounts receivable for P3,500. The
branch did not notify the home office of such collection.
3. On December 30, the home office sent cash of P7,500 to the branch, but
this was charged to General Expense; the branch has not received the cash
as of December 31.
4. Branch profit for December was recorded by the home office at P2,400
instead of P2,040.
5. The branch returned supplies of P1,500 to the home office but the home
office has not yet recorded the receipt of the supplies.
Assume all other transactions have been properly recorded.
What is the unadjusted balance of the Home Office account on the branch books on December
31?
a. P64,140
b. P39,140
c. P14,000
d. P13,000
7. A reconciliation of the Dagupan Branch account of Mandaluyong Company and the Home
Office account carried in the branch’s books shows the following discrepancies at December 31,
2013:
1. A credit for merchandise allowance for P300 was taken by the branch as
P360.
2. A charge by the branch of P550 for an advance taken by the president when
he visited the branch has not yet been recorded by the home office.
3. The branch has not taken up P900 covered by a debit memo from the home
office as share in advertising expenses.
The investment in Dagupan Branch account in the home office books had a debit balance
of P43,000 at December 31, 2013. The reciprocal accounts were in agreement at the
beginning of the year.
The unadjusted balance of the Home Office account in the branch’s books at December
31, 2013 was:
a. P43,500
b. P42,950
c. P41,990
d. P41,490
8. The following were found in your examination of the interplant accounts between the Home
Office and the Butuan Branch:
a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by
the branch.
b. P10,000 covering marketing expense of another branch was charged by Home Office
to Butuan.
c. Butuan recorded a debit note on inventory transfers from Home Office of P75,000
twice.
d. Home Office recorded cash transfer of P65,700 from Butuan Branch as coming from
Davao Branch.
e. Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to
P10,500. Home Office decided that this charge is appropriately Davao Branch’s cost.
f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560.
The net adjustments DR (CR) to the Investment in Butuan Branch account and to the Home
Office account are:
Investment in Butuan Home Office

a. P(75,700) P20,950
b. 75,700 (20,950)
c. (55,700) 75,000
d. (65,700) (74,000)
9. After examining on a comparative basis the inter-office account of the Bulacan Company
with its suburban branch and the similar account carried on the latter’s books, the following
discrepancies at the close of the business on June 30, 2013 were seen:
a. A charge for labor by the Home Office, P500 was recorded twice by the branch.
b. A charge of P895 was made by the Home Office for freight on merchandise, but the
amount was recorded by the Branch as P89.50.
c. A charge of P980 (furniture and fixture) on the Home Office books was taken up by the
Branch as P890.
d. A credit by the Home Office for P350 (merchandise allowances) was taken up by the
Branch as P400.
e. The Home Office charged the Branch P425 for interest on open account which the
Branch failed to take up in full; instead, the Branch sent to the Home Office a wrong
memo, reducing the charge by P100 and set up a liability for the net amount.
f. The Home Office received P5,000, from the sale of a truck which it erroneously
credited to the Branch; the Branch did not charge the Home Office therewith.
g. The Branch by mistake sent the Home Office a debit note for P370 representing its
proportion of a bill for repairs of truck; the Home Office did not record it.
h. The Branch inadvertently received a copy of the Home Office entry dated July 19, 2011
correcting item (f) and entered a credit in favour of the Home Office as of June 30,
2013.
At June 30, 2013, the unadjusted balance of the Investment in Branch account on the Home
Office books showed P175,520. At the beginning of the year, the inter-office accounts were in
balance.
What is the unadjusted balance of the Home Office account on the branch books on June 30,
2013?
a. P184,279.50
b. P160,725.50
c. P184,729.00
d. P165,279.50
10. Rustans, Philippines has two merchandise outlets, its Home Office in Manila and its Cebu
City branch. For control purposes, all purchases are made by the Home Office and shipped to
the Cebu City branch at cost plus 10%. On January 1, 2013 the inventories of the Home Office in
Manila and the Cebu City branch are P13,600 and P3,960 respectively. During 2013 the Home
Office purchased merchandise costing P40,000 and shipped 40% of it to the Cebu City branch.
At December 31, 2013, the following journal entry to prepare the books for the next accounting
period was prepared by the branch:
Sales 32,000
Inventory, December 31 4,840
Inventory, January 1 3,960
Shipments from main store 17,600
Expenses 10,480
Home Office 4,800
What was the actual branch income for 2011 on a cost basis assuming the use of the provisions
of the Statement of Financial Accounting Standards?
a. P4,800
b. P6,320
c. P6,480
d. P6,840
11. On September 1, Star Company opened a branch in Dagupan City, shipping to it

merchandise billed at P60,000. During the month, additional shipments were made at a billed
price of P24,000. Returns by the branch of bad-order goods were credited for P1,680. At the
end of the month, the branch reported its inventory P33,600 and its net loss for the month at
P5,200. Shipments to and from the branch were consistently billed at 120% of cost.
On September 30, the branch inventory at cost and the branch net income (loss) as far as the
Home Office is concerned are:
a. P28,000 and P2,920, respectively

b. P28,000 and (P5,200), respectively
c. P33,600 and P2,920, respectively
d. P33,600 and P5,200, respectively
12. Makati Company bills its Valenzuela Branch for merchandise at 140% of cost. At the end of
January, 2013, the branch reported the following information:
Merchandise from
Home Office
(At Billed Price)
Inventory, January 1 P7,560
Shipments received 28,280
What should be the balance of the allowance account for overvaluation of the branch inventory
at January 31 before adjustment?
a. P2,400
b. P2,160
c. P9,080
d. P10,240
13. The Binondo branch of China Products Inc. buys merchandise from third parties and
receives merchandise from the home office for which it is billed at 20% above cost. Below are
excerpts from the trial balances and data on the home office and Binondo branch for the month
just ended:
Home office
Allowance for overvaluation of branch merchandise P370,000
Shipments to Branch 850,000
Branch
Beginning inventory 1,440,000
Purchases 410,000
Month end additional data
Ending inventory of Branch 1,460,000
From Home Office at Billed Price P1,170,000
From Outsiders (at cost) 290,000
The total cost of goods sold of the Binondo branch at cost (net of overvaluation) for the month just
ended amounted to:
a. P1,410,000
b. P1,385,000
c. P1,235,000
d. P1,850,000
14. Shopper Company started a branch office in Iloilo City on June 1,2013. On this date, the company
shipped to its branch merchandise billed at P90,000. On June 15, another shipment was made at billed
prices of P36,000. During the month, the branch was credited for P2,520 for the damaged goods
returned by the branch. On June 30,2013, the branch reported the following:
Inventory, June 30 P50,400

Net loss for the month (P7,800)
Shipments to and from the branch were uniformly billed at 120% of cost.
In the home office books, the Iloilo branch operations resulted in:
a. No net income or loss
b. Net income of P4,280
c. Net income of P12,180
d. Net loss of P7,800
15. Tarlac Branch of Quezon City Company, at the end of its first quarter of operations,
submitted the following statement of comprehensive income:
Sales P300,000
Cost of Sales:
Shipments from Home office P280,000
Local Purchases 30,000
Total 310,000
Inventory at end 50,000 260,000
Gross margin on sales 40,000
Expenses 35,000
Comprehensive income P 5,000
Shipments to the branch were billed at 140% of cost. The branch inventory as at September 30
amounted to P50,000 of which P6,600 was locally purchased. Markup on local purchases, 20% over cost.
Branch expenses incurred by Head Office amounted to P2,500.
On September 30, the branch inventory at cost and the net income realized by the home office from the
Tarlac branch operation are:
Branch Inventory at Cost Net income realized

a. P37,600 P72,600
b. P50,000 P55,000
c. P31,600 P5,000
d. P37,600 P70,100
16. Ayala branch was billed by Home Office for merchandise at 140% of cost. At the end of its first
month, Ayala branch submitted among other things, the following data:
Merchandise from Home Office (at billed price) P98,000

Merchandise purchase locally by branch 40,000
Inventory, December 31 of which P7,000 are of local purchase 28,000
Net sales for month 180,000
The branch inventory at cost and the gross profit of the branch as far as the home office is concerned
are:
Branch Inventory at Cost Gross Profit
a. P92,000 P22,000
b. P22,000 P92,000
c. P22,000 P70,000
d. P20,000 P90,000
17. The Coffee Blends Corporation decided to open a branch in Manila. Shipments of merchandise to
the branch totalled P54,000 which included a 20% mark-up on cost. All accounting records are to be
kept at the home office.
The branch submitted the following report summarizing its operations for the period ended December
31, 2013.
Sales on account P74,000

Sales on Cash basis 22,000
Collections of account 60,000
Expenses paid 38,000
Expenses unpaid 12,000
Purchase of merchandise for cash 26,000
Inventory on hand, December 31; 80% from home office 30,000
Remittance to home office 55,000
The branch 12/31 inventory at cost and the branch net income (loss) as far as the home office is
concerned are:
Branch Inventory at Cost Branch Net income (loss)

a. P26,000 (P1,000)
b. P25,000 (P4,000)
c. P26,000 P1,000
d. P20,000 P 800c
18. Trial balances before adjustments for the home office and the branch of the King Company show the
following items on December 31. The home office bills the branch at 20% above cost.
Home Office Branch

Shipment to branch 8,000
Purchases P2,500
Shipment from home office 9,600
Merchandise Inventory, December 1 15,000
What part of the branch inventory as of December 1 represented purchases from outsiders?
a. P3,000
b. P5,000
c. P2,000
d. P1,800
19. The Manila Sales Co. established a branch in San Pablo City early last year. It shipped merchandise
and billed the branch for P300,000 prior to its opening. For the year, it made additional shipments at
billed price of P120,000. Within the year, the branch shipped backP7,500 inventory and got the credit
memo for the said returns. On the last working day of the year, an inventory count was made. Ending
inventory of P185,000 was established consisting of purchases from third parties at P20,000 with the
balance coming from home office shipments at billed price.. The home office billed the branch at 20%
above cost. The total purchases of the branch from outside suppliers amounted to P72,500. The total
goods available for sale by the branch at cost (net of overvaluation and returns) amounted to:
a. P416,250
b. P485,000
c. P422,500
d. P435,250
20. The income statement submitted by the Bulacan Branch to the Home Office for the month of
December,2013 is shown below. After affecting the necessary adjustments the true net income of the
Bulacan Branch inventories were:
12/01/2011 12/31/2011
Merchandise from Home Office P70,000 P84,000
Local purchases 10,000 16,000
Total 80,000 100,000
Sales 600,000
Cost of Sales:
Shipments from home office 350,000
Local purchases 30,000
Total available for sale 460,000
Inventory, December 31 100,000 360,000
Gross Margin 240,000
Total comprehensive for December 2011 P60,000
What is the balance of the “Allowance for Overvaluation in Branch Inventory” account at December 31,
2013?
a. P10,000
b. P16,000
c. P24,000
d. P34,000
21. Mahiyain Commercial Corporation operates a branch in Iloilo City. Selected accounts take from the
books of Mahiyain and its branch show balances as of December 31,2013 as follows:
Home office Branch
Merchandise inventory, January P12,000 P8,000
1
Purchase 150,000 30,000
Shipments from home office - 93,750
Shipments to branch 75,000 -
Branch inventory allowance 19,750 -
Sales 115,000 176,500
Merchandise inventory, 14,000 10,350
December 31
The ending inventory of the branch includes items costing P4,350 which were acquired from suppliers
other than the home office.
As far as the home office is concerned, the cost of sales of the Iloilo City branch was:
a. P97,120
b. P102,850
c. P121,400
d. P131,850
22. The Neneng Corporation established its San Pedro branch in March 201. During the first year of
operations, the home office shipped to the branch merchandise which had cost of P120,000. Three-
fourths of these merchandise was sold by the branch for P141,000. Operating expenses of the
branch amounted to P27,000.
How much total comprehensive income will the branch report if merchandise is billed by the home
office to the branch at 25% above cost?
a. P800
b. P1,200
c. P1,500
d. P8,000
23. A branch store in Marikina was established by Marco Co. on March 1. Shipments of merchandise,
billed to this branch at 125% of cost, were as follows:
March 5 P120,000
March 10 50,000
March 20 35,000
On March 24, the branch returned defective merchandise worth P3,050 and on March 31, it
reported a net loss of P6,200 and merchandise inventory of P85,000.
In the home office books, the branch total comprehensive income (loss) is:
a. (P6,200)
b. P17,190
c. P20,240
d. P23,390
24. The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao City. During 2013, the
home office shipped to the branch supplies costing P120,000 at a billed price of 20% above cost. The
inventories of supplies at the branch were as follows: January 1,2013, P90,000; December 31,2013,
P108,000. On December 31,2013, the home office holds inventories of P160,500 which includes
P10,500 held in consignment.
How much is the inventories in a combined statement of financial position as of December 31,2013?
a. P210,000
b. P240,000
c. P270,000
d. P300,000
25. The Iloilo Company operate a branch in Davao, and the profit and loss data for the home office and
the branch for 2013 follows:
Home office Branch
Sales P250,000 P75,000
Purchases from outsiders 200,000 15,000
Shipments to branch:
Cost to home office 30,000
Billing price to branch 37,500
Expenses 40,000 10,000
Inventories, Jan. 1,2013:
Home office, at cost 80,000
Branch:
From outsiders, at cost 7,500
From home office, at 20% above cost 24,000
Inventories, December 31,2013:
Branch:
From home office at 2013 billing 26,000
The combined total comprehensive income (loss) of the home office and the branch on
December 31,2013 is:
a. P30,800
b. P(30,800)
c. P33,800
d. P27,000
26. Manila Inc. established a branch in Cebu to distribute part of the goods purchased by the home
office. The home office process inventory shipped to the branch at 20% above cost. The following
account balances were taken from the ledger maintained by the home office and the branch:
Manila Inc. Cebu branch
Sales P600,000 P210,000
Beginning inventory 120,000 60,000
Purchases 500,000 -
Shipment to branch 130,000 -
Shipment from home office - 156,000
Operating expenses 72,000 36,000
Ending inventory 98,000 48,000
All of the branch inventory is acquired from the home office –
The combined total comprehensive income of the home office and the branch is:
a. P170,000
b. P70,000
c. P278,000
d. P132,000
27. Selected accounts from the December 31,2013 trial balances of Heart Co. and its branch follows:
Heart Branch
Inventory, Jan.1 P46,000 P23,100
Investment in Branch 116,600 -
Purchases 380,000 -
Freight in - 10,450
Expenses 104,000 58,100
Home office - (106,600)
Sales (310,000) (280,000)
Shipments to branch (200,000) -
Branch merchandise markup (22,000) -
As of December 31,2013, a shipment with a billing price of P11,000 was in transit to the branch.
Freight cost, typically 5% of the billing price, is inventoriable. Merchandise on hand at a year-end
were: at home office P64,000 at cost; at branch P33,000 at billing price.
What is the combined total comprehensive income of Heart Company and its branch for 2013?
a. P77,000
b. P84,900
c. P76,000
d. P76,100
28. Apo Supply Company is engaged in merchandising both at its Home office in Makati and as its
Branch in Davao City. Selected accounts taken from the trial balances of the Home office and the
branch as of December 31,2013 follows:
Makati Branch
Debits
Inventory, Jan. 1,2013 P23,000 P11,550

Davao branch 58,300 -
Purchases 190,000 105,000
Freight in from home office - 5,500
Sundry expenses 52,000 28,000
Credits
Home office P- P53,300

Sales 155,000 140,000
Sales to branch 110,000 -
Allowances for overvaluation of
Branch inventory at Jan. 1,2013 1,000 -
- The Davao City branch gets all of its merchandise from the home office. The home office bills the
goods at cost plus a 10% mark-up. At December 31,2013, a shipment with a billed value of P5,000
was still in transit. Freight on this shipment was P250 and is to be treated as part of the inventory.
- Inventories on December 31,2013, excluding the shipment in transit, follow:
Home office, at cost P30,000
Branch, at billed price (excluding freight of P520) 10,400
What is the combined total comprehensive income (loss) of the home office and the branch on
December 31,2013?
a. P30,470
b. P20,870
c. P(10,000)
d. P(30,470)
29. On November 2,2013, the home office of Toby Sports Company recorded a shipment of
merchandise to its Bulacan as follows:
Investment in branch – Bulacan 60,000
Shipments to branch 50,000
Allowance for overvaluation of branch inventory 8,000
Cash (for freight charges) 2,000
The Bulacan branch sells 40% of the merchandise to outside customers during the rest of the period.
The books of the home office are closed on December 31 of each year.
On January 10,2014, the Bulacan branch transfer half of the original shipment to the Baguio branch,
and the Bulacan branch pays P1,000 freight for the shipment. If the shipment had been made by the
home office to Baguio branch, the freight charges would have been P1,500.
What is the entry of the Bulacan brancg to record the receipt of the shipment from the home office on
November 2,2013?
a. Shipments from home office 50,000
Freight in 2,000
Home office 60,000
b. Shipments from home office 60,000
Home office 60,000
c. Shipments from home office 58,000
Freight in 2,000
Home office 60,000
d. Shipments from home office 50,000
Freight out 2,000
Home office 52,000
30. using the same data in No. 29, at what amount should the 60% of the merchandise remaining
unsold at December 31,2013 be included in the inventory of the Bulacan Branch?
a. P31,200
b. P36,000
c. P36,800
d. P34,800
39. Using the same data in No. 29, what is the entry in the books of Bulacan Branch to record the
transfer of January 10,2014?
a. Baguio branch 31,000
shipment from home office 31,000
b. home office 31,000
inventory 31,000
c. home office 31,000
inventory 30,000
cash 1,000
d. home office 32,000
cash 1,000
freight in 2,000
inventory 29,000
32. Using the same data in No. 29, what is the entry in the books of Baguio branch to recorf the
transfer on January 10,2014?
a. shipments from Bulacan Branch 30,200
Bulacan branch 30,200
b. shipments from home office 29,000
freight in 1,500
home office 30,500
cash 1,000
c. shipments from home office 29,000
freight in 1,500
home office 30,500
d. shipment from home office 30,000
freight in 1,000
home office 31,000
33. Using the same data in No. 29 what is the entry in the home office books to record the inter-
branch transfer on January 10,2014?
a. investment in branch – Baguio 30,500
excess freight 1,500
investment in branch – Bulacan 32,000
b. investment in branch – Baguio 30,500
c. investment in branch – Bulacan 32,500
investment in branch – Baguio 32,500
d. investment in branch – Baguio 30,500
excess freight 500
34. Papa, Inc. of Makati opens a sales agency in Pasig City and a working funn of P100,000 is
established on imprest basis. The first payment from the fund is P5,000 for rent of the store space.
What is the entry in the books of the home office to record the payment of rent by the agency?
a. Rent expense – Pasig agency 5,000
cash 5,000
b. Pasig agency 5,000
cash 5,000
c. Rent expense – Pasig agency 5,000
working fund 5,000
d. No entry
35. Mama, Inc. opened a sales agency in San Pedro Laguna in 2013. The following is a summary of the
transactions of the sales agency:
Sales orders sent to home office P120,000

Sales orders filled by home office in 2013 95,000
Freight on shipment of agency 2,000
Collections, net of 10% discount 81,000
Selling expenses paid from the agency working fund 5,500
Administrative expenses charged to agency 5% gross sales
Samples shipped to agency:
Cost 8,200
Inventory, December 31,2013 4,550
The company’s gross profit rate on agency sales is 30% excluding the freight cost on shipments to
agency.
What is the total comprehensive income of the agency for 2013?
a.P3,600
b.P5,600
c. P1,600
d.P6,300
36. A Makati home office transfers inventory to its Pasig branch at 140% of cost. During 2013, the
reciprocal account in the statement of comprehensive income of the home office amounts to P328,125.
On December 31,2013, the home office adjusted the branch income summary by debiting the Allowance
for Overvaluation of Branch Inventory account in the amount of P81,250. The branch’s statement of
financial position at the beginning of the year shows P105,000 of inventory acquired from the home
office.
How much is the ending inventory of the branch per books?

a. P200,000
b. P161,250
c. P280,000
d. P80,000
37. On July 31,2013, the home office in Manila establishes a sales agency in Bulacan. The following
assets are sent to the agency:
Cash(working fund to be operated under the imprest system) P22,000
Samples of merchandise 36,000
During the month of August, the following transactions occurred:
 The sales agency submits sales order of P272,000, sales per invoice was billed at P268,000. Cost
of sales to customers is P124,000.
 Collections during the month amount to P58,200 net of 3% discount.
 Home office disbursements chargeable to the agency are as follows:
Furniture P40,000
Salaries for the month 21,600
Annual rent of office space 36,000
 On August 31, the sales agency working fund is replenished. Paid vouchers submitted by the
sales agency amounting to P17,925. Samples were useful until December 31,2013 which at this
time are believed to have a salvage value of 15% of cost. Furniture is depreciated at 18% per
annum.
What is the total comprehensive income of the sales agency for the month of August?
a. P91,425
b. P93,225
c. P92,955
d. P58,425
38. The home office in Makati shipped merchandise costing P55,500 to Pasig branch, prepaid the
freight amounting to P4,200. The home office transfers inventory to the branch at a 20% markup
above cost. Pasig branch was subsequently instructed by the home office to transfer the
merchandise to Alabang branch wherein the latter paid freight of P2,800. If the shipment was
made directly from Makati to Alabang, the freight cost would have been P6,200.
Which of the following is true as a result of the interbranch transfer of merchandise?

a. The home office debits Alabang Branch Current for P73,600
b. Alabang branch debits the Home Office for P70,000
c. Pasig branch credits freight in for P6,200
d. The home office will credit Pasig Branch Current for P70,800
39. The following are some of the account balances on the books of the home office and its branch on
December 31,2013.
Home office books Branch books
Inventory, January 1,2013 P20,000 P58,000
Purchases 900,000 200,000
Allow. For overvaluation of 52,500
branch inventory
Sales 1,200,000 720,000
Per physical count, the ending inventory of the branch is P42,000 including goods purchased from
outsiders of P27,700 while the ending inventory of the home office is P120,000. Home office bills its
branch for merchandise shipments at 30% above cost.
What is the amount of the unrealized inventory profit in the books of the home office on December
31,2013?
a. P9,000
b. P7,260
c. P12,000
d. P3,300
40. using the data in No. 39, how much is the combined total comprehensive income on December
31,2013?
a. P538,700
b. P547,400
c. P541,700
d. P498,200
e. ANSWERS
1. A 6. B 11. A 16. B 21. B 26. A 31. D 36. C

2. C 7. D 12. D 17. C 22. C 27. C 32. C 37. C
3. B 8. A 13. C 18. A 23. B 28. A 33. A 38. D
4. C 9. A 14. B 19. A 24. B 29. C 34. D 39. C
5. A 10. B 15. A 20. C 25. C 30. B 35. A 40. A
SOLUTIONS AND EXPLANATIONS

1. Since the balances of the reciprocal accounts “Home Office” account and “Investment in
Branch” account are equal, then the balance of the Home Office account after closing
the branch profit is to be computed. The computation is:
Home office account balance before branch profit P480,000
Add: Profit (loss)
Sales P2,300,000
Cost of sales
Shipments from HO P1,850,000
Inventory, dec. 31 255,500 1,594,500
Gross profit P705,500
Home office account balance, December 31,2011 P950,500
2.
Add: Profit (loss)
Sales P225,500
Cost of sales
Shipments from HO P250,000
Inventory, dec. 31 65,000 185,000
Expenses 55,500 (15,000)
Therefore the balance of the Investment in Branch a account is also P165,000.
3. In preparation of combined statements of the home office and the branch, all inter-
office transactions are eliminated as if it had never occurred. Therefore, the only
transaction that should be presented are transactions to outsiders, which is in this
problem, the P520,000 sales by branch to outsiders.
4. To compute the adjusted balances of the reciprocal accounts a reconciliation statement
is to be prepared as follows:
(branch books) home office (HO books) Investment in
account Davao Branch Account
Unadjusted balances, Dec. P54,700 P51,1100
31,2013
Add(deduct) the following adjustments:
1. shipment charged Davao (24,000)
branch but actually sent to
Cebu branch
2. shipment charged to 30,000
Aklan branch but actually
sent to Davao branch
3. no effect
4. Merchandise returned by (7,200)
Davao branch accounts
receivable
5. merchandise returned by
Davao branch still in transit (2,400)
to home office
6. overstatement of Davao _______ (7,200)
branch net income
(P32,550-P25,350)
Adjusted balances, dec. P47,500 P47,500
31,2013
5. The P187,860 is computed as follows:

Accounts receivable, 5/31/12 P43,800
Net sales (P198,720 – P3,600) 195,120
Total 238,920
Less: Accounts receivable, 5/31/13 P49,140
Accounts written off 1,920 51,060
Remittance P187,860
6. P39,140 is computed as follows:
Investment in branch account balance, P50,000
12/31 (HO books)
Add(deduct):
Merchandise in transit (12,500)
Collection of HO accounts receivable 3,500
by branch
Erroneous recording of Branch profit (360)
Supplies returned by Branch (1,500)
HO account balance, 12/31 (Branch P39,140
books)
7. The P41,490 unadjusted balance of Home office is computed as follows:

Unadjusted balance, Investment in Branch account, 12/31 P43,000
Less: Merchandise allowance (error) P60
Branch advances to President 550
Advertising expense charged to branch 900 1,510
Unadjusted balance, home office account, 12/31 P41,490
8. Dr. (Cr.) Adjustment to investment in Butuan Branch account

Marketing expense of another branch charged to Butuan (b) P(10,000)
Butuan’s remittance credited to Davao branch (d) (65,700)
Dr. (Cr.) adjustment to Butuan branch
Account in the home office books P(75,700)
Dr. (Cr.) Adjustment to Home office account:

Fixed assets transfer not booked by Butuan (a) P(53,960)
Inventory transfer recorded twice by Butuan (c) 75,000
Error in recording DM for P4,650 as P4,560 (f) (90)
Account in the home office books P20,950
9. unadjusted balance of investment in branch account, 6/30 P175,520

(a) Charge for labor 500
(b) charge for freight (805.5)
(c) purchase of furniture & fixture (90)
(d) merchandise allowance (50)
(e) charge for interest (425)
(f) proceeds from sale of truck 5,000
(g) charge for truck repairs (370)
(h) proceeds from sale of truck 5,000
Unadjusted balance of Home office account, 6/30 P184,279.5
10.
Sales P32,000
Cost of sales
Inventory, jan.1 3,960
Inventory, dec. 31 (4,840) 16,720
Gross profit 15,280
Expenses 10,480
Net income per branch books 4,800
Add: overvaluation of COS
Billed price (above) 16,720
Cost to HO (16,720/110%) 15,200 1,520
Actual branch income at cost basis P6,320
11. Branch Inventory at Cost:

Branch inventory at billed price P33,600
Divided by the billing percentage cots ÷120%
Branch inventory of cost P28,000
Branch net income as far as the HO is concerned:

Branch net loss, as reported (P5,200)
Add: overvaluation of COS of the
Branch:
Total shipment to Branch
Billed price (P60,000+24,000) P84,000
Cost (P84,000/120%) 70,000 P14,000
Less: branch returns -
Billed price P1,680
Cost (P1,680/120%) 1,400 280
Net shipment P13,720
Less: Inventory, 9/30
Billed price P33,600
Cost 28,000 5,600 8,120
Branch net income P2,920
12. The balance of the Allowance for Overvaluation of Branch Inventory account
represents the overvaluation of branch inventory on January 1 and overvaluation of the
shipment received. Computation is as follows:
Billed price Billing Cost Over valuation
÷ percentage =
Inventory, Jan. 1 P7,560 140% P5,400 P2,160
Add: shipment 28,280 140% 20,200 8,080
Balance of allowance before adjustment P10,240
13.
Beginning inventory P1,440,000
Purchase 410,000
Shipment from HO 1,020,000
Good available for sale 2,870,000
Ending inventory 1,460,000
Cost of sales 1,41,000
Less: Overvaluation
Beginning inventory & shipments 370,000
Less: ending inventory
Billed price P1,170,000
Cost (P1,170,000/120%) 975,000 195,000 175,000
Cost of goods sold (net) P1,235,000
14. According to the HO books, Iloilo branch will have a P4,380 net income as computed
below:
Branch net loss (P7,800)
Add: Overvaluation of Cost of sales of Branch -
Total shipment to Branch:
Billed price (90,000+36,000) P126,000
Cost (P126,000/120%) 105,000 P21,000
Less: Branch returns
Billed price P2,520
Cost(2,520,/120%) 2,100 420
Net shipment to Branch P20,580
Less: inventory, 6/30
Cost(P50,400/120%) 42,000 8,400 12,180

Acquired from HO:
Billed price (P50,000-P6,600) P43,400
Divide by billing percentage of cost 140% P31,000
Branch inventory at cost, 9/30 P37,600
Below is the computation of Home office income from branch operation of P70,100.
Branch net income (5,000-2,500 P2,500
expense)
Add: overvaluation of branch cost
of sales:
Shipment from Home Office:
Cost(P28,000/140%) 200,000 P80,000
Less: inventory, end -
Billed price (50,000-6,600) P43,400
Cost(P43,400/140%) 31,000 12,400 67,600
Branch net income realized by HO P70,100
16. branch inventory, at cost, 12/31:

Acquired from HO (P21,000/140%) P15,000
Total P22,000
Branch gross profit:

Net sales P180,000
Cost of sales insofar as Home office is concerned
Shipment from HO, at cost P70,000
(P98,000/140%)
Purchases 40,000
Cost of goods available for sale 110,000
Inventory, at cost 12/31:
Local purchases 7,000 22,000 88,000
Gross profit insofar as HO is concerned P92,000
17. below is the computation of Branch ending inventory at cost:
Acquired from HO (80% x P30,000 ) / 120% P20,000

Add: Acquired from outsiders (20% x P30,000) 6,000
The P1,000 net income is derived as follows:
Sales (P74,000 + P22,000) P96,000

(P54,000/120%)
Purchases 26,000
Cost of goods available for 71,000
sale
Inventory, at cost 12/31: 26,000 45,000
Expenses (P38,000+P12,000) 50,000
Branch net income insofar as Home office is concerned P1,000
18. Merchandise inventory, December 1 P15,000

Less: Merchandise acquired from HO at billed price
Overvaluation (3,600 – P1,600) P2,000
Cost (P2,000/20%) 10,000 12,000
Merchandise acquired from outsiders P3,000
19.
Total shipment from office P420,000
Returns (7,500)
Purchases 72,500
Goods available for sale, at billed price 485,000
Less: overvaluation of shipment:
Cost (420,000/120%) 350,000 70,000
Returns:
Billed price P7,500
Cost (7,500/120%) 6,250 (1,250) 68,750
Goods available for sale, at cost P416,250
20. before computing the balance of the allowance account, the percent of billing price to
cost should be computed first as follows:
Branch net income, per HO P156,000

Branch net income, per branch 60,000
Realized mark-up on merchandise from the
Home office already sold by the branch P96,000
Shipment from home office P350,000

Less: increase in portion of Branch inventory
Acquired from home office 14,000
Portion already sold by branch P336,000
Less: Mark-up thereon (above) 96,000
Cost of portion already sold by branch P240,000
Per cent of billing price to cost: P336,000/240,000 140%
The balance of the “Allowance for Overvaluation in Branch inventory” account as

December 31,2013 after adjustment represent the overvaluation of the branch ending
inventory acquired from the home office computed as follows:

Cost (P84,000/140%) 60,000
Balance of the allowance account P24,000
21. branch inventory, January 1 P8,000

Purchases 30,000
Merchandise available for sale P131,750
Less: branch inventory, Dec. 31 10,350
Branch cost of sales, per branch books P121,400
Less: Mark- up on merchandise from the HO
Already sold by the branch: P19,750
Branch inventory allowance
Less: mark-up on portion of Dec. 31 inventory
Acquired from home office:
(P10,350-P4,350) x 25/125 1,200 18,550
Branch cost of sales, as far as the home office is concerned P102,850
Note: shipments of merchandise from the home office to the branch are billed at 125%
of cost, determined as follows:
Shipments from Home Office = P93,750 =125%

Shipments to Branch = P75,000
22.
Sales P141,000
Less: cost of sales at Billed price (Sch. 1) 112,500
Gross profit 28,500
Expenses 27,000
Total comprehensive income to be reported by the Branch P1,500
Schedule 1
Cost of shipment to branch P120,000
Add: 25% mark-up 30,000
Billed price of shipment to branch 150,000
Portion sold x¾
cost of sales at billed price P112,500
23. reported branch loss P(6,200)

Add: overvaluation in branch cost of sales
Shipment to branch P205,000
Less: returns 3,050
Cost of sales, at billed price 116,950
Cost of sales, at cost to HO
(116,950/125%) 93,560 23,390
Branch total comprehensive income, per HO books P17,190
24. The combined inventories on dec. 31, 2013 statement of financial position computed as
follows:
Home office (P160,500 – P10,500) P150,000

Branch, at cost (108,000/120%) 90,000
Combined inventories, 12/31 P240,000
25.
Sales P325,000
Less: cost of sakes
Jan. 1 inventories, at cost (sch 1 ) 107,500
Purchases 215,000
Less: dec. 31 inventories, at cost (sch 1 ) 81,300 241,200
Gross profit on sales P83,800
Less: expenses 50,000
Total comprehensive income P33,800
Schedule 1:
Inventories
Jan.1 Dec. 31
Home office P80,000 55,000
Branch, at cost
Acquired from outsiders 7,500 5,500
Acquired from HO:
Jan. 1 (P24,000/120%) 20,000
Dec. 31 (P26,000/125%) _______ 20,800
Combined P107,500 P81,300
2013 billing (7,500/30,000) = 125%
26.
Sales P810,000
Cost of sales
Beg. Inventory
HO P120,000
Branch, at cost 50,000 P170,000
(P60,000/120%)
Purchases 500,000
Total 670,000
Ending inventory:
HO 98,000
Branch, at cost 40,000 138,000 532,000
(P48,000/120%)
Gross profit 278,000
Combined net income P170,000
27.
Sales (P310,000 + P280,000) P590,000
Cost of sales:
Inventory, 1/1 (sch1) P67,100
Purchases 380,000
Freight in (P220,000x5%) 11,000 391,000
Goods available for sale 458,100
Inventory, 12/31 (sch1) 104,000
Freight in (P220,000x5%) 2,200 106,200 351,900
Expenses (P104,000+P58,100) 162,100
Combined total P76,000
Comprehensive income
Schedule 1 : Combined inventories – at cost

Inventories
January 1 December 31
Home office, at cost P46,000 P64,000
Branch at cost
Inventory, Jan. 1:
Mark-up (sch2) 2,000 21,00
Inventory, Dec. 31:
At cost 40,000
[(P33,000+P11,000)/110%*]
*Billing %: (209,000 + 11,000)/200,000 = 110%
Schedule 2: mark-up on Branch beginning inventory

Branch merchandise markup before adjustment P22,000
Less: overvaluation of shipments [(P209,000 + P11,000)-P200,000] 20,000
Mark up of branch beginning inventory P2,000
28.
Sales P295,000
Cost of sales:
Inventory, 1/1
Home office P23,000
Branch, at cost (11,550-1,000) 10,550
Freight in (5,500-1,000) 5,750 39,300
Purchases, Home office 190,000
Total 229,300
Inventory, 12/31
Home office P30,000
Branch, at cost 14,000
[(10,400+5,000/110%]
Freight in(P520+250) 770 44,770 184,530
Sundry expneses 80,000
Combined total comprehensive P30,470
income
29. Choice (c) is correct, because the branch should record the shipment from the office at
billed price (P50,000 + P8,000), and should treat the freight charged by the office as
inventoriable cost.
30.
Shipments from home office at billed price P58,000
Unsold 60%
Ending inventory P34,800
Freight in (P2,000 x 60%) 1,200
Total P36,000
31. In the books of Bulacan branch (sending branch) the inter-branch transfer should be treated
as if it was returned to the home office. Inventory account should be credited in place of
the Shipment from Home office account which was already closes at the end of 2010.
Therefore entry (d) is correct.
32. In the books of Baguio branch (receiving branch) the inter-branch transfer should be treated
as if it was received from the home office. And the freight to be recognized should be the
freight from the office. Therefore choice (c) is correct.
33. In the books of the home office the inter-branch transfer can be cleared by debiting the
receiving branch (Baguio) and crediting the sending branch (Bulacan). Excess freight
account should be charged for the difference which is treated as an expense of the home
office. Therefore choice (a) is correct.
Alternative entry: If the allowance for overvaluation of branch inventory account is classified by
branch:
Investment in Branch – Baguio 30,500

Allowance for overvaluation of Branch Inventory-Bulacan
(P8,000 x 50%) 4,000
Excess freight 1,500
Investment in Branch – Bulacan 32,000
Allowance for overvaluation Branch inventory- Baguio 4,000
34. The expenses paid by the branch are not recorded in the home office books. It is only
recognized upon replenishment of the working fund (petty cash fund).
35. Sales P95,000

Sales discount (P81,000 / 90%)x 10% 9,000
Net sales 86,000
Cost of sales (P95,000 x 70%)+ 200 68,500
Gross profit 17,500
Expenses:
Selling expenses P5,500
Administrative expenses (P95,000 x 5%) 4,750
Samples expenses (P8,200 – P4,550) 3,650 13,900
Net income P3,600
36. Branch beginning inventory – acquired from home office P105,000

Shipment from home office – at billed price (P328,125 x 140%) 459,375
Goods available for sale at billed price 564,375
Branch ending inventory per books P280,000
37. Sales P268,000

Sales discount (P58,200 ÷ 97%)x 3% 1,800
Net sales
Cost and expenses:
Cost sales P124,000
Salaries 21,600
Rent expense (P36,000 x 1/12) 3,000
Expenses 17,925
Samples (P36,000 x 85%)x 1/5 6,120
Depreciation (P40,000 x 18% x 1/12) 600 173,245
Net income P92,955
38. Choice (d) is correct due to the following entries to record the interbranch transfer of
merchandise:
Pasig Branch Books:

Home office 70,800
Freight in 4,200
To record transfer of merchandise to Alabang.
Alabang Branch Books:

Freight in 6,200
Cash 2,800
Home office 70,000
To record receipt of merchandise from Pasig.
Home Office Books:

Alabang branch current 70,000
Excess freight 800
Pasig branch current 70,800
To record interbranch transfer of merchandise.
39. The unrealized inventory profit balance on December 31 is the difference between the
branch ending inventory at billed price and cost. Computed as follows:
Branch ending invty per physical count – from HO (42,000 – 27,000) P14,300
Shipment in transit:
Shipment from HO at BP (145,000 ÷ 130%) P188,500
Shipment from HO per books 150,800 37,700
Correct branch ending inventory at billed price P52,000
Branch ending at cost (52,000 ÷ 130%) 40,000
Unrealized inventory profit, December 31, 2008 P12,000
40. The combine net income is computed by preparing a combined income statement as
follows:
Sales P1,920,000
Cost of sales:
Inventory, January 1 (Sch. 1) P69,000
Purchases 1,100,000
Goods available for sale 1,169,000
Inventory, December 31 (Sch. 1) 187,700 981,300
Expenses 400,000
Schedule 1:
Inventory at cost
Home office P20,000 P120,000
Branch: Acquired from HO (Sch. 2) 30,000 40,000
Acquired from outsiders (58,000 – 39,000) 19,000 27,700
Total 49,000 67,700
Schedule 2:
Allow for overvaluation before adjustment P52,800
Overvaluation in the Shipments:
Shipment from HO at BP (P145,000 x 130%) P188,500
Shipment to branch at cost 145,000 43,500
Overvaluation in the branch beginning inventory P 9,000
Branch beginning inventory at cost (P9,000 / 30%) P30,000
Branch ending inventory at cost (per No. 39) P40,000

Home Office & Branch Accounting Quiz
September 29, 2021
1. The National Home Company ships and bills merchandise to its provincial branch at cost. The branch
carries its own accounts receivable and makes its own collections. The branch also pays its expenses.
Compute the net profit of the branch
Debit Credit
Cash......................................................... P 11,900
National Home co. Current........................ P 90,000
Shipments from National Home Co.............120,000
Accounts Receivable................................. 62,500
Expenses.................................................. 8,100
Sales........................................................ 112,500
Total........................................................ P202,500 P202,500
======== ========
December 31 Inventory............................. P 30,000
========
Compute the net profit of the branch

a. P104,400 c. P21,300
b. P22,500 d. P14,400*
September 29, 2021
2. The National Home Company ships and bills merchandise to its provincial branch at cost. The branch
carries its own accounts receivable and makes its own collections. The branch also pays its expenses.
Debit Credit
Cash......................................................... P 11,900
National Home co. Current........................ P 90,000
Shipments from National Home Co.............120,000
Accounts Receivable................................. 62,500
Expenses.................................................. 8,100
Sales........................................................ 112,500
Total........................................................ P202,500 P202,500
======== ========
December 31 Inventory............................. P 30,000
========
Compute the Branch Current Account in the home office books:
a. P134,400 c. P90,000
b. P104,400* d. P 74,400
3. On December 31, 2024, the following data are in the records of the Cebu City branch of the Claire
Company:
Petty Cash....................................................P 94,500

Accounts Receivable, Dec. 31, 2023............... 85,200
Merchandise Inventory, Dec. 31, 2023............ 75,500
Accounts Receivable, Dec. 31, 2024.............. 88,800
Merchandise Inventory, Dec. 31, 2024............ 81,000
Sales............................................................ 272,700
Sales Returns............................................... 4,800
Accounts Receivable, Written Off................. 2,000
Shipments From Home Office....................... 220,600
Expenses (Paid By Home Office)................ 22,500
If all cash collections in 2024 were remitted to Home Office, the total remittances amounted to:
a. P262,300* c. P264,300
b. P266,800 d. P267,100
September 29, 2021
4. Leila Co.’s Clark branch submitted the following data for 2024, its first year of operation:
Sales....................................... P203,500 Cr.

Shipments from home office.... 186,120 Dr.
Operating expenses................. 18,755 Dr.
Home office - current............. 48,125 Cr.
Shipments to the branch are billed at cost. The December 31 inventory of the branch was P25,245. What
is the correct balance on December 31, 2024 of the Branch Account - current as per home office books?
a. P46,750 c. P65,505
b. P48,125 d. P71,995*
5. Isarog, Inc. opens a sales agency in Legazpi City, and a working fund for P20,000 is established on the
imprest basis. The first payment from the fund is P3,000 for rent. This transaction should be recorded by
the home office as follows:
a. No entry*
b. Dr Rent..................................... 3,000
Cr Cash............................... 3,000
c. Dr Legazpi Agency..................... 3,000

Cr Cash............................... 3,000
d. Dr Legazpi Agency..................... 3,000

Cr Working Fund................. 3,000
6. The interoffice account between the main office of Ben Corporation and its branch in Bulacan was
adjusted to P30,670 as of Dec. 31, 2017. The transactions between the home office and the branch for
2018 include the following:
1. Remittance by branch (P7,200 of which was still in transit as of Dec. 31, 2018) P55,000
2. Shipments to branch (including goods still in transit as of Dec. 31, 2018 of P22,000) P160,000
3. Home office expenses paid by branch, not yet recorded by the home office P5,700
4. Branch receivable collected by the home office, net of P100 discount, not yet recorded by the Branch
P8,900
The unadjusted balance of the home office and the branch accounts as of Dec. 31, 2018 were:
a. P99,070 and P128,270, respectively.
b. P128,270 and P99,070, respectively
d. P107,970 and P133,970, respectively *
September 29, 2021
7. Pangasinan Branch of Malate Company, at the end of its first quarter of operations submitted the following
income statement:
Sales................................................................. P300,000
Cost of sales:
Shipments from Home Office..................... P280,000
Local purchases............................................ 30,000
Total............................................................ P310,000
Inventory at end............................................ 50,000 260,000
Gross profit on sales........................................... P 40,000
Expenses........................................................... 35,000
Net income.......................................... .............. P 5,000
========
The branch inventory at September 30 amounted to P50,000 of which P6,600 was locally purchased.
Markup on local purchases, 20% over cost. Branch expenses incurred by Head Office amounted to P1,500
not yet recorded by the branch.
What is the Branch Inventory that should be presented in the combined balance sheet of the home office
and branch?
a. P50,000*
b. P43,400
c. P6,600
d. P0
8. Pangasinan Branch of Malate Company, at the end of its first quarter of operations submitted the
following income statement:
Sales................................................................. P300,000
Cost of sales:
Shipments from Home Office..................... P280,000
Local purchases............................................ 30,000
Total............................................................ P310,000
Inventory at end............................................ 50,000 260,000
Gross profit on sales........................................... P 40,000
Expenses........................................................... 35,000
Net income.......................................... .............. P 5,000
========
The branch inventory at September 30 amounted to P50,000 of which P6,600 was locally purchased.
Markup on local purchases, 20% over cost. Branch expenses incurred by Head Office amounted to P1,500
not yet recorded by the branch.
What is Branch net income?
a. P11,000
b. P9,500
c. P5,000
d. P3,500*
END
Chapter 12
Problem I
(a)Working Fund – Agency ……………………………… ……………………….. 5,000
Cash …………………………………………………………………………. 5,000
(b)Accounts Receivable …………………………………..................................... 50,000
Sales-Agency ………………………………………………………………. 50,000
(c)Cash ………………………………………………………..................................... 35,000

Accounts Receivable …………………………………………………….. 35,000
(d)Expenses-Agency ……………………………………………………………….. 4,500

Cash …………………………………………………………………………. 4,500
(e)Expenses-Agency ……………………………………………………………….. 2,250

Cash …………………………………………………………………………. 2,250
(f)Cost of Goods Sold-Agency …………………………………………………… 36,000

Merchandise Shipments-Agency ………………………………………. 36,000
Problem II
(a) Branch Books:
(a) Cash ………………………………………………………….. 42,500

Home Office …………………………………………… 42,500
(b) Shipments from Home Office …………………………… 50,200

Home Office …………………………………………... 50,200
(c) Accounts Receivable ……………………………………. 60,000

Sales …………………………………………………….. 60,000
(d) Purchases …………………………………………………… 22,500

Accounts Payable …………………………………… 22,500
(e) Home Office ……………………………………………….. 53,400

Accounts Receivable ………………………….. 53,400
(f) Accounts Payable ………………………………………... 12,250

Cash …………………………………………………….. 12,250
(g) Furniture & Fixtures ………………………………………… 8,000

Cash …………………………………………………….. 8,000
(h) Expenses …………………………………………………….. 18,000

Cash …………………………………………………….. 18,000
(b) Home Office Books:
(a) Branch ………………………………………………………. 42,500

Cash ……………………………………………………. 42,500
(b) Branch ……………………………………………………… 50,200

Shipments to Branch ……………………………….. 50,200
(c) Accounts Receivable …………………………………... 105,000

Sales …………………………………………………… 105,000
(d) Purchases …………………………………………………. 122,500

Accounts Payable …………………………………. 122,500
(e) Cash ……………………………………………………….. 113,600

Accounts Receivable ……………………………… 113,600
(f) Accounts Payable ………………………………………. 124,000

Cash …………………………………………………… 124,000
(g) Expenses …………………………………………………… 26,600

Cash …………………………………………………… 26,600
(h) Cash ……………………………………………………….. 53,400

Branch ………………………………………………... 53,400
(i) Retained Earnings ………………………………………. 10,000

Cash …………………………………………………... 10,000
BARTON CO.
Balance Sheet for Branch
December 31, 20x4
Assets Liabilities
Cash …………………………… P 4,250 Accounts Payable ………… P 10,250

Accounts Receivable ……… 12,600 Accrued Expenses …………… 300
Merchandise Inv……………... 23,500 Home Office ………………….. 37,900
Prepaid Expenses …………… 750
Furnitures & Fixtures …. P 8,000
Less accum. Depr …… 650 7,350
Total Assets …………………… P48,450 Total Liabilities ………………….P48,450
BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6
Sales …………………………………………………………………………… P66,000

Cost of Goods Sold:
Purchases …………………………………………………………… P22,500
Shipments for home office ………………………………………. 50,200
Merchandise available for sale ………………………………… P72,700
Less merchandise inv, December 31 ………………………….. 23,500
Cost of Goods Sold ……………………………………………….. 49,200
Gross Profit ……………………………………………………………………. P16,800
Expenses ……………………………………………………………………… 18,200
Net loss ………………………………………………………………………... P 1,400
BARTON CO.
For Year Ended December 31, 20x4
Assets Liabilities & Stockholders Equity
Cash …………………………….. P 23,200 Liabilities

Accounts Receivable ……….. 19,050 Accounts payable ………… P 21,300
Merchandise Inventory……… 48,500 Accrued Expenses …………. 1,350 P22,650
Prepaid Expenses ……………. 2,050 Stockholders Equity
Furniture & Fixtures …. P 20,000 Capital stock, P20 par……… P50,000
Less accum. Depr….. 5,580 14,420 Retained Earnings …………. 72,740 122,470
Branch ………………………… 37,900 Total liabilities and stockholders’
Total Assets …………………... P145,120 equity ………………… P145,120
BARTON CO.
Income Statement for Home Office
Sales ……………………………………………………………………………....... P105,000

Cost of goods sold:
Merchandise inventory, January 1 …………………………………. P 40,120
Purchases ………………………………………………………………... 122,500
Merchandise available for sale ……………………………………… P162,620
Less shipments to branch ……………………………………………... 50,200
Merchandise available for own sale ……………………………….. P112,420
Less merchandise inventory, December 31 ………………………. 48,500
Cost of Goods Sold ……………………………………………………. 63,920
Gross Profit ………………………………………………………………………… P 41,080
Expenses …………………………………………………………………………… 27,630
Net income from own operations …………………………………………….. P 13,450
Deduct branch net loss …………………………………………………………. 1,400
Total Income ………………………………………………………………………. P 12,050
BARTON CO.
Sales …………………………………………………………………………………. P171,000

Cost of goods sold:
Merchandise inventory, January 1 ………………………………….. P 40,120
Purchases ………………………………………………………………… 145,000
Merchandise available for sale ……………………………………… P185,120
Less merchandise inventory, December 31 ……………………….. 72,000
Cost of goods sold ………………………………………………………. 113,120
Gross profit ………………………………………………………………………….. P 57,880
Expenses …………………………………………………………………………….. 45,830
Net Income …………………………………………………………………………. P 12,050
(a) Branch Books:
Expenses ………………………………………………………………. 650

Accumulated Depreciation – F&F………………………. 650
Sales …………………………………………………………………… 66,000

Merchandise Inventory ……………………………………………. 23,500
Income summary ………………………………………….. 89,500
Income Summary …………………………………………………… 90,900

Shipments from Home Office …………………………… 50,200
Purchases …………………………………………………… 22,500
Expenses …………………………………………………….. 18,200
Home Office ………………………………………………………… 1,400

Income Summary ………………………………………… 1,400
(b) Home Office Books
Expenses ………………………………………………………………. 1,180

Accumulated Depreciation – F&F………………………. 1,180
Sales …………………………………………………………………… 105,000

Shipments to Branch ……………………………………………….. 50,200
Income summary ………………………………………….. 203,700
Income Summary …………………………………………………… 190,250
Merchandise Inventory …………………………………… 40,120
Purchases ……………………………………………………. 122,500
Expenses …………………………………………………….. 27,630
Branch Income ……………………………………………………… 1,400

Branch ………………………………………………………. 1,400
Income Summary ………………………………………………….. 1,400

Branch Income …………………………………………… 1,400
Income Summary ………………………………………………….. 12,050

Retained Earnings ……………………………………….. 12,050
Problem III
(a) Branch Books:
Jan. 1 Cash …………………………………………. 1,500
Home Office ……………………… 1,500
1 Shipments from home office ……………. 10,200

Home Office ……………………… 10,200
1 Home Office ……………………………….. 900

Cash ……………………………….. 900
1 Accts. Rec. – Home office ………………. 2,600

Home Office ……………………… 2,600
1-31 Accts. Rec.-Home Office ………………. 6,200

Sales ……………………………….. 6,200
1-31 Cash ……………………………………….. 2,600

Accounts Receivable ………….. 2,600
1-31 Purchases …………………………………. 3,000

Accounts Payable ……………… 3,000
1-31 Accounts Payable ………………………. 1,450

Cash ……………………………….. 1,450
1-31 Expenses ………………………………….. 1,250

Cash ………………………………. 1,250
Jan. 1-31 Cash ………………………………………… 1,600

Accts. Rec.-Home Office ……... 1,600
1-31 Home Office ……………………………… 150

Accts. Rec.-Home Office ……. 150
1-31 Shipments from Home Office ………… 1,250

Home Office ……………………. 1,250
1-31 Home Office ……………………………… 1,000

Cash ……………………………… 1,000
Jan. 1 Branch …………………………………….. 1,500

Cash ……………………………… 1,500
1 Branch …………………………………….. 10,200
Shipments to Branch ………….. 10,200
1 Store Furniture and Fixtures Branch ….. 3,000

Store Furniture and Fixtures …... 3,000
1 Accumulated Depr. Store F&F ……….. 750

Accumulated Depr. Store Furniture
And Fixtures, Branch ………….. 750
Calculation of depreciation: 2.5years at P300, (10% of
P3,000), or P750
1 Store Furniture and Fixtures Branch ….. 900

Branch …………………………… 900
1 Branch …………………………………… 2,600

Accounts Receivable …......... 2,600
1-31 Accounts Receivable ………………… 34,600

Sales ………................................ 34,600
1-31 Cash ………………………………………. 40,000

Accounts Receivable ………… 40,000
1-31 Purchases ………………………………….31,600

Accounts Receivable …………. 31,600
1-31 Accounts Payable ……………………… 36,200

Cash ……………………………... 36,200
1-31 Accrued Expenses Payable …………. 250

Expenses …………………………………. 8,950
Cash …………………………….. 9,200
1-31 Allowance for Doubtful Accounts ….. 150

Branch ………………………….. 150
1-31 Branch ……………………………………. 1,250

Shipments to Branch ………… 1,250
1-31 Cash ……………………………………… 1,000

Branch …………………………. 1,000
EAGLE CO.
Balance Sheet
January 31, 20x4
Assets Liabilities
Cash …………............................ P 1,100 Accounts Payable ………………. P 2,400

Accounts Receivable ………….. 3,600 Accrued expenses ………………. 400
Accts. Rec.-home office ………. 850 Home Office ……………………… 14,050
Merchandise Inventory ………… 9,800
Merchandise in Transit …………. 600
Total assets ………………… P37,200 Total Liabilities ……………………. P37,200
EAGLE CO.
For Month Ended January 31, 20x4
Sales …………………………………………………………………………………………. P 6,200

Cost of Goods Sold:
Purchases …………………………………………………… P 3,000
Shipments from home office ……………………………. 11,450
Shipments from home office in transit ………….......... 600
Merchandise Available for Sale ……………………….. P15,050
Less merchandise inv. Dec 31, 19X9 ……................P9,800
Merchandise in transit ………………………….. 600 10,400
Cost of Goods Sold ……………………………………………………………. 4,650
Gross Profit ………………………………………………………………………………… P 1,550
Expenses …………………………………………………………………………………… 2,110
Net Loss ………………………………………………………………………………….. .. P 560
EAGLE CO.
Balance Sheet for Home Office
January 31, 20x4
Assets
Cash …………………………………………………………………… P 9,100
Accounts Receivable ……………………………………………… P34,000
Less allowance for doubtful accounts ……………….. 1,050 32,950
Store furniture and fixtures ………………………………………… P12,000
Less accumulated depreciation ………………………. 3,950 8,050
Store furniture and fixtures-branch ……………………………… P 3,900
Less accumulated depreciation ……………………… 785 3,315
Branch office ………………………………………………………... 14,050
Total Assets …………………………………………………………… P111,765
Liabilities
Accounts Payable …………………………………………….. P29,150

Accrued Expenses …………………………………………….. 750
Total Liabilities ………………………………………………….. P29,900
Stockholders Equity
Capital Stock …………………………………………………… P50,000

Retained earnings …………………………………………….. 31,865
Total stockholder’s equity …………………………………… 81,865
Total liabilities and stockholders equity …………………… P111,765
AGLE CO.
Sales ……………………………………………………………………………… P 34,600

Cost of goods sold:
Merchandise inventory, January 1 …………………….. P46,000
Purchases …………………………………………………… 31,600
Merchandise available for sale ………………………… 77,600
Less shipments to branch ………………………………… 12,050
Merchandise available for own sales …………………. P65,550
Less merchandise inventory, January 31 ……………… 44,500
Cost of goods sold …………………………………………………………… 21,050
Gross Profit ………………………………………………………………………… P 13,650
Expenses …………………………………………………………………………… 9,325
Net income from own operations ……………………………………………. P 4,225
Deduct branch net loss ………………………………………………………… 560
Total Income …………………………………………………………………… P 3,665
EAGLE CO.
Assets Liabiities and Stockholders Equity
Liabilities
Cash …………………………….. ………. P 10,200 Accounts Payable …… P30,700
Accounts receivable ……….. P38,450 Accrued Expenses …… 1,100 P 31,800
Less allow for doubt-
Ful accounts ……….. 1,050 37,400
Merchandise Inventory ……………….. 54,900 Stockholders Equity
Store furn. & fixtures ………… P15,900 Capital Stocks …………P50,000
Less accum depr 4,735 11,165 Retained earnings …… 31,865 81,865
Total assets ……………………………… P113,665 Total liab. And stockholders equity . P113,665
EAGLE CO.
Combined Income Statement for Home Office and Branch
Sales ………………………………………………………………………………….. P 40,800

Cost of goods sold:
Merchandise Inventory, January 1 ………………. P46,000
Purchases ……………………………………………... 34,600
Merchandise available for sale …………………... P80,600
Less merchandise inventory, Jan 31 ……………... 54,900
Cost of goods sold …………………………………............................... 25,700
Gross profit …………………………………………………………………………... P 15,100
Expenses ……………………………………………………………………………… 11,435
Net Income ………………………………………………………………………….. P 3,665
(a) Branch Books
Jan. 31 Shipments from Office-in Transit ……………… 600

Home Office ……………………………. 600
31 Expenses …………………………………………. 475

Home Office ……………………………. 475
31 Expenses ………………………………………… 35
Home Office ………………………….. 35
1/120 x P3,000, or P25 (depreciation for one month;
Asset life, 10 years); 1/90 x P900, or P10 (depreciation
For one month; asset life, 7.5 years)
31 Merchandise Inventory ……………………… 9,800

Merchandise in Transit ……………………….. 600
Income Summary …………………… 10,400
31 Expenses ……………………………………….. 350

Accrued Expenses …………………. 350
31 Sales ……………………………………………. 6,200

Income Summary ………………….. 6,200
31 Income Summary ……………………………. 17,160

Shipments from Home Office ……. 11,450
Ship. From Home Office – in Trans . 600
Purchases …………………………… 3,000
Expenses …………………………….. 2,110
31 Home Office ………………………………….. 560

Income Summary …………………... 560
31 Branch …………………………………………. 600

Shipments to Branch ………………. 600
31 Branch …………………………………………. 475

Expenses ……………………………... 475
31 Branch …………………………………………. 35
Accumulated Depreciation, Store
Furniture and Fixtures Branch …….. 35
31 Expenses ………………………………………. 100

Accumulated Depreciation store
Furniture and Fixtures branch ……. 100
1/120 x P12,000, or P100 (depreciation for one
Month; asset life, 10 years)
31 Income Summary …………………………… 46,000

Merchandise Inventory …………… 46,000
31 Merchandise Inventory …………………….. 44,500

Income Summary ………………….. 44,500
31 Expenses ………………………………………. 750

Accrued Expenses …………………. 750
31 Sales …………………………………………… 40,925

Purchases …………………………… 31,600
Expenses …………………………….. 9,325
31 Branch Income ………………………………. 560
Branch ……………………………….. 560
31 Income Summary ……………………………. 560

Branch Income ……………………... 560
31 Income Summary ……………………………. 3,665

Retained Earnings ………………….. 3,665
Problem IV
1.
Socrates Company
Home Office and Plato Branch
Reconciliation of Reciprocal Ledger Accounts
June 30, 20x4
Investment in
Plato Branch Home Office
Ledger Ledger
Account Account
(Debit) (Credit)
Balances prior to adjustment P85,000 P33,500
Add: Merchandise shipped to branch 24,000
Less: Acquisition of office equipment by branch
(carried in accounting records of home office) (14,500)
Collection of branch trade accounts receivable (9,000)
Payment of cash by branch (22,000) _______
Adjusted balances P48,500 P48,500
2. (a) Accounting records of home office:

Office Equipment: Plato Branch 14,500
Investment in Plato Branch 14,500
To record acquisition of office equipment by branch.
Cash in Transit 22,000

Investment in Plato Branch 22,000
To record cash in transit from branch.
(b) Accounting records of branch:

Home Office 9,000
Trade Accounts Receivable 9,000
To record collection by home office of branch accounts
receivable.
Inventories in Transit 24,000

Home Office 24,000
To record shipment of merchandise in transit from
home office.
Problem V
((a) BRANCH HOME OFFICE
ACCOUNT ACCOUNT…
Balances before Adjustments ……………………………………….. P 8,400 P 9,735
Adjustments:
Additions:
Merchandise in transit to branch …………………. 615
Collection of Home office receivable by Branch 2,500
Understatement of branch net income for Nov.. 90
P10,990 P10,350
Deductions:
Merchandise return to home office in transit ……………. 640
Corrected Balances ……………………………………………… P10,350 P10,350
(b) Branch Books:

Shipments from Home Office-in Transit ……………………. 615
Home Office …………………………………………... 615
Home Office Books:

Branch …………………………………………………………… 2,500
Accounts Receivable ……………………………….. 2,500
Branch …………………………………………………………… 90
Retained Earnings ……………………………………. 90
Merchandise Returns from Branch – in Transit ……………. 640

Branch ………………………………………………….. 640
Multiple Choice Problem

1. d
Branch A Branch B
Assets:
Inventory, January 1 P 21,000 P 19,000
Imprest branch fund 2,000 1,500
Accounts receivable, January 1 55,000 43,500
Total Assets P 78,000 P 64,000
Less: Liabilities -0- -0-
Home Office Current Account P 78,000 P 64,000
2. b
Branch A Branch B
Assets:
Inventory, December 31 P 19,000 P 12,000
Imprest branch fund 2,000 1,500
Accounts receivable, December 31 70,000 53,500
Less: Liabilities -0- -0-
3. d – incidentally, the entry in the books of the branch would be as follows:

Profit and loss summary ………………………………………………………… xxx
Home Office Current……………………………………………………. Xxx
4. c
January January 1,
1,20x4 20x5
Assets:
Inventory P 37,000 P 41,000
Petty cash fund 3,000 3,000
Accounts receivable 43,000 49,000
Less: Liabilities _____-0- _____-0-
5. a – refer to No. 4 for computations

6. a
Sales P 74,000
Less: Cost of goods sold:
SFHO…………………………………………………………… P67,680
Less: Inventory, ending……………………………………… 9,180 58,500
Gross profit…………………………………………………………… P 15,500
Less: Expenses – 6,820
Net Loss……………………………………………………………….. P 8,680
7. a
January 1,
20x6
Assets:
Cash P 4,200
Inventory 9,180
Total Assets P 26,180
Less: Liabilities _____-0-
Home Office Current Account P 26,180
8. a – nominal accounts have zero beginning balance.

9. d
Branch H. Office
Current Current
Unadjusted balance, 6/30/20x4 P 225,770 P 226,485*
Add (Deduct): Adjustments
1 Erroneous recording of branch equipment 3150
2. Insurance premium recorded twice ( 675)
3. Erroneous recording of freight ( 90)
4. Discount on merchandise ( 800)
5. Failure by the branch to record share in advertising 700
6. error by the home office to record remittance of Cebu 3,000 ________
Adjusted balance, 6/30/20x4 P 228,770 P 228,770
* The P226,485 is compute simply by working back with P228,770 adjusted balance as the starting point.
P2-07
10. c
(Branch Current- (Home Office Current –
Dr. balance) Cr. balance)
Unadjusted balance P518,575 P452,276
Add (deduct) adjustments:
In transit 10,500
Remittance ( 17,000)
Returns ( 775)
Cash in transit 25,000
Expenses - HO ( 800)
Expenses – branch 12,000
Error ________ _____224
Adjusted balance P 500,000 P 500,000
11. d
Excess freight ( 750)
Cash in transit ( 11,000)
Returns ( 4,000)
Expenses – branch ________ 5,000
12. c – refer to No. 11 for computations

14. No answer available – P495,750
15. d - No entry should be made in the books of the home office, since the freight should be
chargeable to the branch and the payment of the freight was made by the branch.
16. b
Remittance (40,000)
Returns (15,000)
Error by the branch 300
Expenses – branch ________ 28,000
17. c
(Branch Current- Dr. (Home Office Current –
balance) Cr. balance)
In transit 37,500
HO A/R collected by br. 10,500
Supplies returned ( 4,500)
Error in recording Br. NI ( 1,080)
Cash sent to branch
to General Expense by HO 25,000 25,000
18. d – refer to No. 17 for computation.
19. a
In transit 5,800
HO A/R collected by br. 500
Cash in transit 2,000 2,000
Error in recording Br. NI ( 3,600) _______
Adjusted balance P38,900 P38,900
21. a
Collection of branch A/R ( 800)
In transit 3,200
Purchase of furniture ( 1,200)
Return of excess merchandise ( 1,500)
Remittance ( 500) _______
Adjusted balance P46,400 P46,400
22. b – refer to No. 21 for computations
23. (C)
Sales (P350,000 + P100,000)………………………………………………………….P 450,000
Less: Cost of goods sold:
Purchases (P400,000 + P50,000)……………………………. P 450,000
Less: Inventory, ending……………………………………… 90,000 360,000
Gross profit…………………………………………………………… P 90,000
Less: Expenses –
Salaries and commission…………………………………….. P 70,000
Rent……………………………………………………………… 20,000
Advertising supplies (P10,000 – P6,000)…………………… 4,000
Other expenses………………………………………………. 5,000 99,000
Net Loss……………………………………………………………….. P( 9,000)
24. a
In adopting the imprest system for the agency working fund, the home office writes a check to the
agency for the amount of the fund. Establishment of the fund is recorded on the home office
books by a debit to the Agency working fund and credit cash. The agency will request fund
replenishment whenever the fund runs low and at the end of each fiscal period. Such a request is
normally accomplished by an itemized and authenticated statement of disbursements and the
paid vouchers. Upon sending the agency a check in replenishment of the fund, the home office
debits expense or other accounts for which disbursements from the fund were reported and
credits cash.
25. d
Normally, transactions of the agency are recorded in the books of the home office separately
identified with the appropriate agency.
Theories
1. True 6. False 11. False 16. b 21. a 26. c 31. b
2. True 7. False 12. False 17. c 22. b 27. b 32. b
3. False 8. False 13. True 18. d 23. b 28. d 33. c
4. False 9. True 14. True 19. a 24. b 29. d 34. c
5. True 10, True 15. True 20. c 25. a 30. c 35. c
36. d
Home Office Special Procedures CH14
Quiz
October 25, 2021
MULTIPLE CHOICE
1. RP Company started a branch office in Sorsogon on June 1, 2018. On this date, the company shipped to
its branch, merchandise billed at P90,00. On June 15, another shipment was made at billed prices of
P36,000. During the month the branch was credited for P2,520 for damaged goods returned by the
branch.
On June 30, 2018, the branch reported the following:

Net loss for the month (7,800)
Shipments to and from the Branch were uniformly billed at 120% of cost.
What is the Sorsogon Branch Cost of Goods Sold in the books of the Home Office?
a. P73,080
b. P60,900*
c. P123,480
d. P171,360
ANS B
2. Isarog Sales has a branch in Iriga. The Iriga branch buys merchandise from third parties and receives
merchandise from the Home Office for which it is billed at 20% above cost.
Below are excerpts from the trial balances and data on the Home Office and Iriga branch for the month
just ended:
Home Office
Cr Allowance for Overvaluation of Branch merchandise P 370,000
Cr Shipments to Branch 850,000
Branch
Dr Beginning inventory 1,440,000
Dr Shipments from Home Office 1,020,000
Dr Purchases 410,000
Month-end additional data:

From Home Office (at billed price) P1,170,000
From outsiders (at cost) 290,000
The amount of allowance for overvaluation that was realized from the Branch sales for the month just
ended amounted to
a. P200,000
b. P370,000
c. P195,000
d. P175,000*
ANS D
1
3.
Trial balances for the home office and the branch of the Zenith Company show the following items,
before adjustment, on December 31. Differences in the shipments account balances result from the
home office policy of billing the branch for the merchandise at 20% above cost.

Unrealized intercompany inventory profit P360,000
Purchases (outsiders) P250,000
Merchandise Inventory, Dec. 1 1,500,000
How much is the branch inventory at cost?
a. P1,500,000
b. P1,000,000
c. P1,300,000*
d. P1,250,000
ANS C
4.
The Midas Company bills its branch for merchandise at 135% of cost. On December 31, the balance in
the unrealized profit account is to be calculated from the following information reported by the branch.
Merchandise from Merchandise Total

home office at purchased from
billed price outsiders at cost
Merchandise inventory, Dec. 1 P162,000 P40,000 P202,000
Merchandise inventory, Dec. 1-31 202,500 120,000 322,500
Merchandise inventory, Dec. 31 189,000 50,000 239,000
Assuming that the branch had returned to the home office merchandise originally acquired at a billed
price of P5,400, how much is the realized intercompany inventory profit for December?
a. 45,500
b. 44,100*
c. 49,000
d. 59,535
ANS B
2
5.
Profit and loss data for Apex Co. of Manila and its Naga branch for 2023 follow:
Manila Office Naga Office

Sales P1,060,000 P315,000
Inventory, Jan. 1 (at cost) 115,000
(at billed price) 44,500
Purchases 820,000
Shipments to Naga (at cost) 210,000
Shipments from Manila office (at billed price) 252,000
Inventory, December 31 (at cost) 142,500
(at billed price) 58,500
Records show that Naga Branch was billed for merchandise shipments as follows:
2022, cost + 25%; 2023, cost + 20%
The correct branch profit (loss) for 2023 is:
a. (P24,500)
b. P41,150
c. P16,650*
d. P65,650
ANS C
END
3
Midterm Exam
October 06, 2021
1. The balances below are from the books of the Branch of M Company as of December 31, 2021:
Debit Credit
Sales P300,000
Shipments from Home Office P120,000
Expenses 100,000
The branch purchases all of its merchandise from the home office. Its December 31 inventory is
P20,000. The branch profit must be:
a. P32,000 b. P35,500 c. P77,500 d. P85,500 ANS C
2. The Uragon Sporting Goods, Inc. located in Naga, established a branch in Daet on January 1,
2021. The home office transferred P30,000 of cash and P120,000 of merchandise to the branch
of which 15% were still in transit. During the year, the branch sold 65% of the merchandise received
from the home office on account for P90,000. The branch collected cash of P65,000 from accounts
receivable during the year and allowed P3,250 in sales discounts. The branch paid P12,000 of
operating expenses incurred for the year and remitted cash of P20,000 to the home office. Ending
inventory reported by the branch as of December 31, 2021, was P35,700.
The adjusted ending balance of Home Office account on branch books must be:
a. P174,150 b. P138,450* c. P130,000 d. P120,450 ANS B
3.
The BNB Sales Company established a branch in Sorsogon early last year. It shipped merchandise to
the branch for P250,000 prior to its opening. For the year, it made additional shipments of P100,000. Within
the year, the branch shipped back P6,250 inventory and got the credit memo for said returns. On the last
working day of the year, an inventory was made. Ending inventory of P157,500 was established consisting
of purchases from third parties at P20,000, with the balance coming from home office shipments. The total
purchases of the branch from outside suppliers amounted to P72,500. The total goods available for sale
by the branch amounted to
a. P485,000 b. P422,500 c. P416,250 d. P343,750 ANS C

Midterm Exam
October 06, 2021
4.
Selected information from the trial balances for the home office and the branch of Grand Company
at December 31, 2021 is provided. These trial balances cover the period from December1 to
December 31, 2021. The branch acquires some of its merchandise from the home office and some
of it from outsiders.
Home office Branch

Sales P60,000 P30,000
Purchases (outsiders) 35,000 5,500
Merchandise inventory, Dec. 1, 2021 20,000
Merchandise inventory, Dec. 1, 2021 (fr HO) 10,000
Merchandise inventory, Dec. 1, 2021 (fr outsiders) 3,000
Expenses 14,000 6,000
Other information: Merchandise inventory, December 31, 2021:
Home office, P20,000; Branch, P8,600
The ending inventory of the branch consists of merchandise from the home office of P7,000; and
from outsiders of P1,600.
How much is the net income of the branch?
a. P3,900 b. P6,100 c. P5,300 d. P5,500 ANS B
5.
Selected information from the trial balances for the home office and the branch of Grand Company
at December 31, 2021 is provided. These trial balances cover the period from December1 to
December 31, 2021. The branch acquires some of its merchandise from the home office and some
of it from outsiders.
Home office Branch

Sales P60,000 P30,000
Purchases (outsiders) 35,000 5,500
Merchandise inventory, Dec. 1, 2021 20,000
Merchandise inventory, Dec. 1, 2021 (from HO) 10,000
Merchandise inventory, Dec. 1, 2021 (from outsiders) 3,000
Expenses 14,000 6,000
Other information: Merchandise inventory, December 31, 2021:
Home office, P20,000; Branch, P8,600

Midterm Exam
October 06, 2021
The ending inventory of the branch consists of merchandise from the home office of P7,000; and from
outsiders of P1,600.
How much is the combined net income of the home office and branch?
a. P19,000 b. P22,900 c. P25,100 d. P24,300 ANS C
6.
The following were found in your examination of the interplant accounts between the Home Office
and the Albay branch:
a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by the
branch.
b. P10,000 covering marketing expense of another branch was charged by Home Office to Albay.
c. Albay recorded a debit note on inventory transfers from Home Office of P75,000 twice.
d. Home Office recorded cash transfer of P65,700 from Albay branch as coming from
Catanduanes branch.
e. Albay reversed a previous debit memo from Sorsogon branch amounting to P10,500. Home
Office decided that this charge is appropriately Catanduanes’ branch cost.
f. Albay recorded a debit memo from Home Office of P4,650 as P4,560.
The net adjustment in the home Office books related to the Albay Branch Current account is
a. P75,700 b. P65,700 c. P86,200 d. P94,820 Ans A
Office and the Albay branch:
a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by the
branch.
b. P10,000 covering marketing expense of another branch was charged by Home Office to Albay.
c. Albay recorded a debit note on inventory transfers from Home Office of P75,000 twice.
d. Home Office recorded cash transfer of P65,700 from Albay branch as coming from
Catanduanes branch.
e. Albay reversed a previous debit memo from Sorsogon branch amounting to P10,500. Home
Office decided that this charge is appropriately Catanduanes’ branch cost.
f. Albay recorded a debit memo from Home Office of P4,650 as P4,560.
The net adjustment in Albay books related to the Home Office account is
a. P33,335 b. P31,450 c. P20,950 d. P10,450 ANS C

Midterm Exam
October 06, 2021
8.
The Maharlika Inc. opened an agency in Legazpi in 2020. The following is a summary of the
transactions of the agency:

Freight on shipment to agency 1,100
Administrative expenses charged to agency 5% of sales
Cost 3,000
Inventory, Dec. 31, 2020 1,100
The company maintains its gross margin on agency sales at 30% excluding freight cost on
shipments to agency. The agency cost of sales including freight was:
a. P33,650*
b. P39,600
c. P47,430
d. P3,000
ANS A
9. The Maharlika Inc. opened an agency in Legazpi in 2020. The following is a summary of the transactions
of the agency:

Freight on shipment to agency 1,100
Administrative expenses charged to agency 5% of sales
Cost 3,000
Inventory, Dec. 31, 2020 1,100
The company maintains its gross margin on agency sales at 30% excluding freight cost on shipments to
agency. The agency’s net income must be:
Midterm Exam
October 06, 2021
a) P6,100
b) P6,390
c) P4,995*
d) P1,100
ANS C
10. The data below are taken from the records of Great Appliance Co. which sells appliances exclusively on the
installment basis:
2021 2022 2023

Installment sales P365,500 P417,800 P610,750
Gross profit rate 36% 39% 40%
The balance in the Installment Accounts Receivable controlling accounts at the beginning and end of 2023
were:
2021 P 17,400 -
2022 205,400 P 25,800
2023 - 306,520
There was one repossession recorded during 2023. It related to 2022 sales. Thereafter, the repossessed
appliance was sold for P200, which equaled the uncollected balance in the customer’s installment
account receivable.
The gross profit realized in 2023 on collections of 2021 and 2022 installment accounts receivable totaled
a. P69,966 b. P76,230* c. P122,092 d. P198,322 ANS B
11. The following data were taken from the books of Super Quality Company for 2015:
2014 2015
Installment sales P800,000 P900,000
Cost of installment sales 480,000 600,000
Collections on: 2014 installment contracts 250,000 300,000
2015 installment contracts 360,000
Defaults and repossessions:
Unpaid balance of prior year’s
installment contracts defaulted 12,000 15,000
Value assigned to repossessed
Merchandise 7,000 8,000
Assume perpetual inventory records were not maintained.
The gain/loss on repossession on the defaulted 2014 contracts was

a. P1,000 gain b. P1,000 loss* c. P3,000 loss d. no gain or loss
ANS B
Midterm Exam
October 06, 2021
12. AXL Enterprise uses the installment method of accounting and it has the following data at the year-end:
Gross margin on cost .............................................................. 66-2/3%

Deferred gross profit .............................................................. P192,000
Cash collections including down payments ............................ 360,000
What was the total amount of sales on installment basis?
a. P480,000 c. P648,000
b. 552,000 d. 840,000*
ANS D
13. The KJ Construction Company uses the percentage-of-completion method of recognizing income from long-
term construction contracts. In 2021 KJ entered into a fixed-price contract to construct a bridge for
P30,000,000. Estimated cost to complete the construction and contract cost incurred up to 2023 were as
follows:
Cumulative Estimated
Contract Costs Cost to
Incurred Complete
As of December 31, 2021 P 2,000,000 P16,000,000
As of December 31, 2022 11,000,000 11,000,000
As of December 31, 2023 20,000,000 4,000,000
How much income should KJ Construction Corporation recognize on the above contract for the year ended
Dec. 31, 2023
a. P1,000,000 *
b. P1,666,667
c. P2,700,000
d. P5,000,000
ANS A
14. A building project was awarded to MCI Construction Co. in 2023 based on a fixed price of P12,000,000. It
was completed in 2024. Pertinent records show the following:
2023 2024
Progress billings during the year P4,400,000 P7,600,000
Cost incurred during the year 3,600,000 7,200,000
Collections on billings during the year 2,800,000 9,200,000
Estimated cost to complete 7,200,000 -
The gross profit percentage for the project was
a. 12%
b. 10%*
c. 87%
d. 40%
ANS B
Midterm Exam
October 06, 2021
15. Panama Construction Company uses the percentage-of-completion method of accounting. In 2015 Pacific
began work under contract #143, which provided for a contract price of P20,000,000. Other details follow:
2015 2016
Cost incurred during the year P 3,000,000 P15,750,000
Estimated cost to complete, as of Dec. 31 12,000,000 -
Billing during the year 3,600,000 15,400,000
Collections during the year 2,500,000 15,500,000
The portion of the total contract price to be recognized as revenue in 2015 is
a. P3,200,000
b. P3,600,000
c. P2,500,000
d. P4,000,000*
ANS D
16. Which of the following is the only reason why a home office cannot report inventory shipments to a
branch as sales?
a. The inventory transfer is a transaction with a related party.

b. There is no practicable means of determining whether the transfer prices approximate
those that would occur in an arm’s length transaction between independent parties.
c. Only inventory transactions between the company and outside third parties can be
considered sales. *
d. The principle of conservatism. ANS C
17. Which of the following accounts would be shown on the combined financial statements of the home
office and branch?
a. Investment in Branch account

b. Shipments to Branch
c. Home office account
d. Purchases from outsiders* ANS D
18. If the home office of Green Corporation maintains the accounting records for the plant assets of its
branch, and the branch acquired equipment for P50,000, the appropriate journal entry for the branch is
a. Debit the Home Office and credit Plant Asset for P50,000.
b. Debit the Home Office and credit cash for P50,000.*
c. Debit Plant Asset and credit Home Office for P50,000.
d. Debit cash and credit home office for P50,000
ANS B
Midterm Exam
October 06, 2021
19. Which of the following sets of accounts must always be kept in agreement?
a. Investment in Branch and Home Office*
b. Shipments to Branch and Investment in Branch
c. Branch Income and Investment in Branch
d. None of the above ANS A
20. The home office account on the books of the branch is comparable to
a. an asset account
b. an ownership equity account*
c. a liability account
d. all of the above ANS B
21. B & B Company has a branch in Cebu City. In reconciling the reciprocal accounts, it was uncovered
that the branch collected home office accounts receivable of P25,000 but failed to notify the home office.
The home office should make the following entry.
a. Dr Cash P25,000
Cr Branch P25,000
b. Dr Branch P25,000
Cr Accounts Receivable P25,000*
c. Dr Cash P25,000
Cr Accounts Receivable P25,000
d. No entry
ANS B
22. The home office maintains the accounting records for the plant assets of its branch. The appropriate
journal entry to be taken in the books of the branch to record the P15,000 depreciation of equipment used
by the branch is
a. DR Depreciation Expense, P15,000

CR Accumulated Depreciation, P15,000
b. DR Home Office, P15,000

CR Accumulated Depreciation, P15,000
c. DR Depreciation Expense, P15,000*

CR Home Office, P15,000
d. No entry ANS C
Midterm Exam
October 06, 2021
23. Merchandise purchased by the branch from outsiders is added to Shipments from Home Office to get
the cost of goods available for sale by the branch.
a. True*
b. False
ANS A
24. The ending inventory of the branch which is purchased from outsiders is not shown in the combined
balance sheet of the home office and branch.
a. True
b. False*
ANS B
25 Barry Co. produces expensive equipment for sale on installment contracts. When there is doubt about
eventual collectibility, the income recognition method least likely to overstate income is:
a. At the time the equipment is completed.
b. The installment method.
c. The cost recovery method.*
d. At the time of delivery.
.
ANS C
26. The deferred gross profit at the end of each period represents the gross profit on Installment Sales.
a. True
b. False*
ANS B
27. A seller sells equipment on installment basis. When the seller receives merchandise as trade-in,
its market value is included as part of collection in computing realized gross profit.
a. True*
b. False
ANS A
Midterm Exam
October 06, 2021
28. In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross
profit recognized during the first year would be the estimated total gross profit from the contract multiplied by
the percentage of the cost incurred during the year to the
a. total cost incurred to date

b. total estimated cost *
c. unbilled portion of the contract price
d. total contract price
ANS B
29. In accounting for a long-term construction contract for which there is a projected profit, the balance in the
Construction in Progress asset account at the end of the first year of work using the percentage-of-completion
method would be
a. Zero
b. equal to the actual cost incurred during the year
c. the same as the balance of Progress Billings on Construction contracts
d. equal to the sum of the actual cost incurred and the recognized gross profit during the year*
ANS D
30. Dale Construction Company’s projects extend over several years and collection of receivables is reasonably
certain. Each project has a contract that specifies a price and the rights and obligations of all parties. Both
the contractor and the customer are expected to fulfill their contractual obligations on each project. Reliable
estimates can be made of the extent of progress and cost to complete each project. The method that the
company should use and to account for construction revenue is
a. installment sales c. completed-contract
b. percentage-of-completion d. cost recovery ANS B
END
ACCOUNTING FOR HOME OFFICE, BRANCH AND AGENCY BRANCH BILLING AT AN AMOUNT ABOVE COST
TRANSACTIONS When home office bills the branch for merchandise at a figure other than cost, billing
Introduction is usually made at an arbitrary rate above cost or at the retail sales price.
In order to withhold from branch complete information concerning the actual
As a means of achieving marketing objectives, selling units in form of agency or a camnings from branch operation, billing by the home office may be made at an amount
branch may be established. The distinction between an agency and a branch is based above cost. When billings to the branch exceed cost, the earnings determined by the
upon the functions assigned to the organization as well as the degree of independence branch will be less than actual earnings, and the inventories reported by the branch at
that it assumes in the exercise of such functions, an organization that merely takes the billed prices will exceed cost. The difference between the billed price recorded by
orders for goods, carries no stock other than samples, and that operates under the direct the branch and the cost of the goods shipped recorded by the home office IS credited
a
supervision of the home office is called an agency, while an organization that sells to Unrealized Intercompany Inventory Profit (Allowance for Overvaluation of Branch
vi
goods out of a stock that it maintains and that possesses the authority to engage in Inventory). And these factors must be recognized by the home office and given effect
transactions as an independent business unit is called a branch. upon its accounting records in summarizing branch operations.
d
ACCOUNTING FOR BRANCHES PREPARATION OF COMBINED STATEMENTS
Although a branch operates as a separate business unit, it is subject to control by the Although separate statements offer significant information to both home office and
e
home office. A branch's cash, merchandise, and other assets, as may be needed, are branch, such statements must be combined in fully stating a company's financial
ar
supplied by the home office. The branch may purchase merchandise from outsiders to position and results of its operations. The financial position of the business unit as a
satisfy certain local needs for goods not available from the affiliated unit. whole is fully presented only when the individual asset and liability items of the branch
sh
are substituted for the branch investment balances and combined with the home office
Generally, the branch accounting system is maintained at the branch. Periodic financial items. Operating results for the businesses as a whole are fully presented only when
statements are prepared by the branch for submission to the home office. When the individual revenue and expenses of the branch are substituted for the branch net
complete self-balancing books are kept by the branch, an account called Home Office income or loss and combined with the home office items.
as
Current takes the customary capital accounts (credit account). The home office, in
turns, keeps a reciprocal account, called Branch Current or Investment in Branch In combining branch data with home office, the elimination of certain reciprocal
w
account (debit account). interoffice items is necessary. Since reciprocal accounts are without significance when
the related units are recognized as single entity, in preparing a combined balance sheet,
ADJUSTMENT OF RECIPROCAL ACCOUNT the home office account and the branch account, and other interbranch receivables and
m e
The balances in the Branch Current account in the home office books and Home Office payables, are eliminated. In preparing a combined income statement, the reciprocal
co rc
Current account in the branch books may not show identical balances at any one time,
because of certain interoffice data that have been recorded by one office but not by the
accounts Shipments from Home Office and Shipments to Branch are eliminated, since
these balances summarize interoffice transfers that are of no significance when the
o. ou
other. The fact that the reciprocal account balances are not identical is of no concern related units are reported as a single entity. Other interoffice revenue and expense
during the fiscal period; however, at the end of the fiscal period, appropriate journal items are also eliminated so that the combined statement may report only the results
entries should be made to bring interoffice accounts into agreement for purposes of of transactions with outsiders.
er res
individual and combined financial statements.
The data to be considered in reconciling the two reciprocal accounts may be classified When goods are billed to a branch at an amount above cost, the ending inventory on
as follows: the branch balance sheet, reported at an amount above cost, must be restated in terms
1. Debits in the branch account without corresponding credits in the home office of cost in preparing the combined balance sheet. The beginning and ending inventories
se dy
account. (e.g. shipment of merchandise in transit) on the branch income statement will require restatement to cost and the Unrealized
2. Credits in the branch account without corresponding debits in the home office Intercompany Inventory Profit (Allowance for Overvaluation of Branch Inventory)
account. (e.g. branch's accounts receivable collected by the home office) must be eliminated for purposes of preparing the combined income statement.
ur tu
3. Debits in the home office account without corresponding credits in the branch
account. (eg cash remittance of the branch to home office in transit)
4. Credits in the home office account without corresponding debits in the branch
s
H
account. (e.g. correction of account for the understatement of net income for the
is
preceding period)
Th
This study source was downloaded by 100000778082526 from CourseHero.com on 11-15-2021 17:37:55 GMT -06:00
MULTIPLE CHOICE QUESTIONS 4. The following were found in your examination of the interplant accounts between
1. An enterprise uses a branch accounting system in which it establishes separate the Home Office and the Butuan Branch:
formal accounting systems for its home office operations and its branch office a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by
operations. Which of the following statements about this arrangement is false? the branch.
a. The home office account on the books of a branch office represents the equity b. P10,000 covering marketing expenses of another branch was charged by the Home
Office to Butuan.
interest of the home office in the net assets of the branch.
c. Butuan recorded a debit note on inventory transfers from the Home Office of P75,000
b. The branch office account on the books of the home office represents the twice.
equity interest of the branch office in the net assets of the home office. d. Home Office recorded cash transfer of P65,700 from Butuan Branch as coming from
c. The home office and branch office accounts are reciprocal accounts that must Davao Branch.
a
be eliminated in the preparation of the enterprise's financial statements that are e. Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to
vi
presented in accordance with GAAP. P10,500. Home Office decided that this charge appropriately Davao Branch's cost.
d. Unrealized profit from internal transfers between the home office and a branch f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560.
must be eliminated in the preparation of the enterprise's financial statements that The net adjustment in the home office books related to the Butuan Branch Current
account is:
d
are presented in accordance with GAAP. Dr. (Cr.)
a. 75,700 Erroneous charging of expense P (10,000)
e
2. Which of the following is the only reason why a home office cannot report b. 65,700
inventory shipments to a branch as sales? Erroneous cash transfer (remittance) (65,700)
ar
c. 86,200 Net adjustment to Butuan Branch Current account
a. The inventory transfer is a transaction with a related party. d. 94,820
b. There is no practicable means of determining whether the transfer prices in the home office books P (75,700)
sh
approximate those that would occur in an arms-length transaction between The net adjustment in Butuan's books related to the Home Office account is:
a. 33,335 Dr. (Cr.)
independent parties.
c. Only inventory transactions between the company and outside third parties b. 31,450 Transfer of Fixed Asset from Home Office not booked by
Butuan Branch P(53,960)
as
can be considered sales. c. 20,950 Double recording of inventory transfer from home office 75,000
d. The principles of conservatism. d. 10,450 Understatement of debit memo (90)
w
Net adjustment to Home Office account in the Branch books P 20,950
3. On December 31, 2016, the Branch Current in the Home Office books shows a
balance of P50,000. The following facts are ascertained: Before the above discrepancies were given effect, the balance in the home office books
1) Merchandise billed at P12.500 is in transit on December 31 from home office to the branch.
m e
2) The branch collected a home office accounts receivable for P3,500. The branch did not
of its Butuan Branch Current account has a debit balance of P165,920. The unadjusted
balance in the Butuan Branch books of its Home Office Current account must be:
3)
notify the home office of such collection.
co rc
On December 30, the home office sent cash of P7,500 to the branch, but this was charged
to general expense; the branch has not received the cash as of December 31.
a. 92,336
b. 98,230
Branch Current
Dr.(Cr.)
H.O. Current
Dr.(Cr.)
o. ou
Unadjusted balance, Debit P165,920 P 111,170
4) Branch profit for December was recorded by the home office at P2,400 instead of P2,040. c. 104,500 Net adjustment to Butuan Branch Current account "a" (75,700)
5) The branch returned supplies of P1.500 to the home office but the home office has not yet d. 111,170 Net adjustment to Home Office Current account "b" 20,950
recorded the receipt of the supplies. Adjusted balance P 90,220 P 90,220
er res
Assume all other transactions have been properly recorded. What is the unadjusted The adjusted balance of the reciprocal accounts is: Branch Current H.O. Current
balance of the Home Office Current account on the branch books on December 31, a. 84,807 Dr.(Cr.) Dr.(Cr.)
2016? b. 90,220 Unadjusted balance, Debit

Net adjustment to Butuan Branch Current account "a"
P165,920
(75,700)
P 111,170
a. 64,140 Branch Current HO Current c. 99,200 Net adjustment to Home Office Current account "b" 20,950
se dy
b. 39,140 Unadjusted balance, 12/31/2016 (HO Books) (Branch Books) d. 109,120 Adjusted balance P 90,220 P 90,220
P 50,000 P 39,140
c. 14,000 1. Merchandise in transit 12,500
d. 13,000 2. Collection of home office receivable by the branch 3,500 5. The home office of Mang Do Co. ships goods to Iloilo branch billing the branch
ur tu
3. Cash sent to branch which was erroneously charged for the goods at P45,000, excluding freight of P6,000. Upon receipt of the goods,
to Gen. Exp. 7,500
3. Cash sent by home office still in transit 7,500
Iloilo branch was instructed by the home office to transfer these goods to Cagayan
s
H
4. Erroneous recording of branch profit (2,400 - 2,040) (360) de Oro branch. Iloilo branch ships the goods and paid P4,500 for the transfer. If
5. Unrecorded supplies returned by the branch (1,500) the goods had been shipped by the home office directly to Cagayan de Oro branch,
is
Adjusted balance, 12/31/2016 P 59,140 P 59,140

the freight would have been P6,500.
Th
What is the journal entry to record receipt of shipment in the book Cagayan de Oro d. Cagayan de Oro branch current 51,500
branch? Shipment to Iloilo 45,000
a. Shipment from home office 45,000 Excess freight on interbranch
Home office current 45,000 transfer of merchandise 4,000
b. Shipment from home office 45,000 Iloilo branch current 55,500
Freight in 6,000 Shipment to Cagayan de Oro 45,000
Home office current 51,000
6. Vivaldi & Co. has several branches located in key cities in the south namely,
c. Shipment from home office 45,000
Cebu, Mactan, Iloilo, Bacolod, Davao, and Cagayan de Oro. It authorizes transfers
Freight in 6,500
of cash and inventories among branches. The head office ships goods (P10,000
a
cost) to Cebu branch paying freight for P600. The home office authorizes the
vi
d. Shipment from home office 45,000
transfer of goods from Cebu branch to Davao branch where the latter is charged
Freight in 4,500
for the cost of the goods (P10,000) and freight charge (P200) for the transfer. If
the shipment had been made by the home office directly to the Davao branch, the
d
What is the adjusting journal entry to be recorded by Iloilo branch? freight charge would have been P900. The transfer resulted to difference in freight
e
a. Home office current 51,500 charge which should be disposed of as follows:
Shipment from home office 45,000 a. P100 savings.
ar
Freight in 6,000 b. P100 charge to Davao branch by Cebu branch.
b. Home office current 47,000 c. P100 charge to Davao branch by Head Office.
sh
Shipment from home office 45,000 d. P100 to be equally charge among head office, Cebu branch and Davao branch.
Freight in 2,000
7. Gershwin Inc. opens a sales agency in Cebu City and a working fund of P20,000
c. Home office current 55,500
is established on an imprest basis. The first payment from the fund is P3,000 for
as
rent. The transaction should be recorded by the home office as follows:
Freight in 6,000
Debit Credit
Cash 4,500
w
a. No entry
d. Shipment from home office 45,000
b. Rent P3,000
Freight in 6,000
Cash P3,000
m e
c. Cebu agency 3,000
What is the adjusting entry to be recorded by home office?
a. Shipment to Iloilo 45,000
co rc d.
Working fund
Cebu agency 3,000
3,000
o. ou
Excess freight on interbranch Cash 3,000
transfer of merchandise 2,000 An agency that operates solely as a local sales organization under the direction of a home office
Cagayan de Oro branch current 45,000 generally carries no stock other than samples of the lines that are offered for sale. Samples of the
er res
Freight in 4,000 merchandise, as well as advertising materials are provided by the home office. The agency is
Shipment to Cagayan de Oro 45,000 normally provided with a working fund that is to be used for the payment of expenses that can
be more conveniently settled through agency. The imprest system is often adopted for the control
Iloilo branch current 51,000
of agency cash. Operating expenses of the agency, other than those paid by the agency from its
b. Shipment to Iloilo 45,000 working fund, are met by the home office.
se dy
Excess freight on interbranch

transfer of merchandise 6,000
8. The following information pertains to shipments of merchandise from Home
Office to Branch during 2016:
ur tu
c. Shipment to lloilo 45,000

Home office's cost of merchandise P 160,000
Excess freight on interbranch
Intracompany billings 200,000
transfer of merchandise 6,000
s
H
Sales by branch 250,000

Cagayan de Oro branch current 45,000
Unsold merchandise at branch, 12/31/2016 20,000
is

Shipment to Cagayan de Oro 45,000
Th
In the combined income statement of Home Office and Branch for the year ended The entry in Branch B records to update the reciprocal account Home Office Current
December 31, 2016, what amount of the above transactions should be included in on December 31, 2016 is:
sales? a. Dr. - Home Office/Cr. - Profit & Loss
a. 250,000 c. 200,000 b. Dr. - Profit & Loss/Cr. - Branch Current
b. 230,000 d. 180,000 c. Dr. - Branch Current/ Cr. -Profit & Loss
d. Dr. - Profit & Loss/Cr. - Home Office Current
9. Selected balances from the Amorsolo Company's Branches A and B are as
follows: Sales 80,000
Less Cost of Sales:
Branch A Branch B Inventory, 1/1/2016 19,000
Inventory, Jan. 1, 2016 P21,000 P19,000
a
Mdse from home office 47,000
Imprest branch fund 2,000 1,500 TGAS 66,000
vi
Inventory, Dec. 31, 2016 19,000 12,000 Inventory, 12/31/2016 12,000 54,000
Accts. Rec., Jan. 1. 2016 55,000 43,500 Gross Profit 26,000
Accts. Rec., Dec. 31, 2016 70,000 53,500 Less: Expenses 14,300
Net Profit, Branch B 11,700
d
Mdse, from home office 61,000 47,000
Cash collections 85,000 70,000 10. On December 31, 2016, the following data are in the records of the Angeles
e
Sales 100,000 80,000 branch of the Big & Small Company:
ar
Cash expenses 21,000 14,300 Petty cash P 94,500
All sales, collections, and expenses are handled at the branch. All cash received from Accts. Rec. Dec. 31. 2015 85,200
sales and collections are sent directly to the home office. Expenses are paid by the
sh
Mdse. Inventory, Dec. 31, 2015 75,500
branch from the imprest fund and immediately reimbursed by the home office and Accts. Rec. Dec. 31, 2016 88,800
credited to the Home Office account. All expenses paid by the branch are recorded in Mdse. Inventory, Dec. 31, 2016 81,000
the branch books. Sales 272,700
as
The net profit of branch A is: Sales returns 4,800
a. 16,000 Sales 100,000
Accts receivable written off 2,000
Less Cost of Sales:
w
b. 21,000 Shipment from Home Office 220,600
Inventory, 1/1/2016 21,000
c. 15,000 Mdse, from Home Office 61,000 Expenses (paid by home office) 22,500
d. 18,000 TGAS 82,000 If all cash collections in 2016 were remitted to home office, the total remittance
m e
Inventory. 12/31/2016 19,000 63,000 amount to: Accts. Receivable, Dec. 31, 2015 85,200
Gross Profit
Less: Expenses
Net Profit, Branch A co rc 37,000
21,000
16,000
a. 262,300 Net Sales (272,700 - 4,800)
b. 266,800 Accts. Receivable Written Off
267,900
(2,000)
o. ou
c. 264,300 Accts. Receivable, Dec 31, 2016 (88,800)
The balance of the Home Office account of Branch A on January 1, 2016 is: d. 267,100 Total Collections, 2016 262,300
a. 80,000 Inventory, Jan. 1, 2016 21,000
b. 64,000 Imprest Branch Fund 11. The National Home Company ships and bills merchandise to its provincial branch
er res
2,000
c. 78,000 Accounts Receivable. Jan. 1, 2016 55,000 at cost. The branch carries its own accounts receivable and makes its own
d. 75,000 Home Office Account, 1/1/2016 78,000 collections. The branch also pays its expenses. The transactions for 2016 i
reflected in the branch trial balance that follows:
The balance of the Home Office account of Branch B on January 1, 2016 is: Debit Credit
se dy
a. 80,000 Inventory. Jan. 1. 2016 19,000 Cash P 11,900

b. 64,000 Imprest Branch Fund 1,500 National Home Co. Current P 90,000
c. 78,000 Accts. Rec. Jan. 1, 2016 43,500 Shipments from National Home Co. 120,000
ur tu
d. 95,000 Home Office account, 1/1/2016 64,000 Accounts receivable 62,500

The balance of the Branch Current account of Branch B on December 31, 2016 is: Expenses 8,100
s
H
a. 70,000 Inventory, Dec 31, 2016 12,000 Sales 112,500

b. 64,000 Imprest Branch Fund Total P202,500 P202,500
is
1,500
c. 67,000 Accts. Rec. Dec. 31, 2016 53,500
d. 65,000 Home Office Account, 12/31/2016 December 31 inventory P30,000
Th
67,000
The net profit of the branch was: 14. In Home Office and Branch merchandise transfers, the use of a Shipments to
a. 22,500 Sales 112,500 Branch account by the Home Office and the use of a Shipments from Home office
b. 14,400 Cost of Sales: account by the branch indicate that the inventory system employed
c. 21,900 Shipments from H.O. 120,000 a. Is a perpetual inventory system.
Inventory, Dec. 31 30,000 90,000
d. Answer Gross Profit b. Is a periodic inventory system.
22,500
not given Expenses 8,100 c. Is neither perpetual nor periodic inventory system.
Net Profit 14,400 d. Cannot be determined from the information provided.
15. The home office bills its branch for merchandise transfers at a price in excess of
In the home office books, the Branch Current account should be:
cost. In the home office separate financial statements, the allowance for unrealized
a
a. 134,400 Cost of Sale 90,000 profit in branch inventory account would appear in the financial statements of the
vi
b. 90,000 Net Profit 14,400 home office as
c. 104,400 Branch Current Account 104,400
a. An operating expense of the current period.
d. Answer not given
b. Deduction from the cost of goods sold.
d
c. Addition to the cost of goods sold.
12. Which represents the proper journal entry for a periodic inventory system that
e
d. Deduction from the investment in branch account.
should be made on the books of the branch when goods that cost the home office
ar
P100,000 to manufacture are shipped to the branch at a price of P125,000? 16. Teicher Co, bills its branch for merchandise shipments at 125% of cost. As of out
a. Shipments from home office 100,000 off date, 31 December 2016, the following data were available:
Home office 100,000
sh
b. Shipments from home office 125,000 Mdse. From Home Mdse. Purchased Total
Home office 125,000 Office (at billed price) (from outsider)
c. Shipments from home office 125,000 Merchandise, 1. Dec. P300,000 P120,000 P420,000
as
Home office 100,000 Addition to stock, Dec. 450,000 360,000 810,000
Unrealized profit 25,000 Merchandise, 31 Dec. 420,000 150,000 570,000
w
Unrealized profit 25,000 The branch returned P15,000 merchandise to the home office acquired at billed price.
Home office 125,000 The amount of the allowance for overvaluation account that was realized as income in
In a periodic inventory system, when merchandise is received by a branch from home office, the view of branch sales for the month of December was
m e
merchandise should be reflected as a debit to shipment from the home office in the amount of the a. 63,000
office in the net assets of the branch.
co rc
transfer price, with a corresponding credit to home office account to indicate the equity of the home b. 66,000
c. 87,500
Billed Price Cost Allow. For
o. ou
13. Which represents the proper journal entry for a periodic inventory system that d. 84,000
Over valuation
should be made on the books of the home office when goods that cost the home
Inventory, 12/1 300,000 125% 240,000 60,000
office P100,000 to manufacture are shipped to a branch at a transfer price of Shipments 435,000 125% 348,000 87,000
er res
P125,000 and the billed price is not recorded in the shipments to branch account? TGAS 735,000 588,000 147,000
a. Shipments from home office 100,000 Inventory, 12/31 420,000 125% 336,000 84,000
Home office 100,000 Cost of Sales 315,000 252,000 63,000
Home office 125,000
se dy
17. Early last year, a Manila-based company established a branch in Iloilo City. It
Home office 100,000
shipped merchandise and billed the branch for P300,000 prior to opening. For the
Unrealized profit 25,000 year, it made additional shipments at a billed price of P120,000. Within the year,
ur tu
d. Shipments from home office 100,000 the branch shipped back P7,500 inventory and got credit memo for the said return.
Unrealized profit 25,000 On the last working day of the year, an inventory count was made. Ending
inventory of P185,000 was established consisting of purchases from outsiders at
s
Home office 125,000

H
When goods are shipped from a home office to a branch at a transfer price that reflects original P20,000, with the balance coming from the home office shipments at billed price
is
cost plus markup, the branch must record the shipment at the transfer price; while the home of 20% above cost. The total purchases of the branch from outsiders amounted to
office reflects the shipment to branch at original cost. To maintain a reciprocal relationship
between home office and the branch office accounts, an unrealized profit in branch inventory
P72,500. What is the total goods available for sale by the branch at cost?
Th
account (allowance for overvaluation) reflects the markup.
a. 416,250 Net Shipment from Home Office at Cost 19. The following is the income statement of XYZ Branch in Cebu City for the six-
b. 422,500 [(300,000+ 120,000 - 7,500)/120%] 343,750 month period ending June 30, 2016:
c. 435,250 Add: Purchases from Outsiders at Cost 72,500 Sales P620,000
d. 485,000 Total Goods Available for Sale at Cost 416,250 Cost of Sales:
Shipments from H.O. P550,000
Purchases 50,000
18. JCPENNY, Philippines has two merchandise outlets, its main store in Manila and
Total 600,000
its Cebu City branch. For control purposes, all purchases are made by the main Inventory, June 30
store and shipped to the Cebu City branch at cost plus 10%. On January 1, 2016, From H.O. 75,000
the inventories of the main store in Manila and the Cebu City branch are P13,600 Fr. Outsider 10,000 85,000 515,000
a
and P3,960, respectively. During 2016, the main store purchased merchandise Gross Profit 105,000
vi
costing P40,000 and shipped 40% of its merchandise to the Cebu City branch. At Expenses 85,000
December 31, 2016, the following journal entry to prepare the books for the new Net Profit P 20,000
accounting period was prepared: The home office ships merchandise to, and bills, the Branch office at 125% of cost.
The rent of the branch office for six months, at a monthly rate of P1,000 was paid by
d
Sales 32,000
Inventory 4,840 the home office.
e
Inventory 3,960
The home office net profit from its Branch Office in Cebu City, for the six months
ar
Shipments from Main store 17,600
Expenses 10,480 ending June 30, 2016 is:
Main store 4,800 a. 125,000
sh
What was the actual branch income for 2016 on a cost basis, assuming the use of the b. 124,000
provisions of the statement of financial accounting standards c. 139,000
a. 4,800 d. 109,000 Billed Price Cost Allow. for
Overvaluation
as
b. 6,320
TGAS 550,000 125% 440,000 110,000
c. 6,480 Inventory, end 75,000 125% 60,000 15,000
Billed Price Cost Allow. for
d. 6,840
w
Overvaluation Cost of Sales 475,000 380,000 95,000
Inventory, 12/ 1 3,960 110% 3,600 360
Shipments 17,600 110% 16,000 1,600 Branch reported Net Profit 20,000
m e
TGAS 21,560 110% 19,600 1,960 Less: Rent paid by Home Office (1,000 x 6) 6,000
Inventory, 12/31 (4,840) 110% (4,400) 440 Adjusted reported Net Profit 14,000
Cost of Sales
Sales
16,720
32,000 co rc
15,200 1,520 Add: Realized Profit on Branch Inventory
Home Office Profit from Branch Office
95,000
109,000
o. ou
Less: Cost of Sales at Cost 15,200 The inventory of the Branch office in Cebu City, at cost, as of June 30, 2016 is:
Gross Profit 16,800 a. 85,000 Merchandise purchased from outsiders 10,000
Expenses (10,480) b. 70,000 Merchandise acquired from home office 60,000
er res
Actual Branch Income 6,320 c. 60,000 Total branch inventory at cost, 6/30/2016 70,000
d. 75,000
If the main store has P11,200 worth of inventory unsold at the end of 2016, the
inventory of the main store and the branch should appear on the combined balance
se dy
sheet as at December 31, 2016 is:

a. 15,160 Inventory, 12/31/2016 Main Store 11,200
b. 15,600 Inventory, 12/31/2016 Branch 4,400
ur tu
c. 16,040 Combined inventory at cost 15,600

d. 17,200
s
H
is
Th
20. The Manila Corp. has its main office in Cebu City and established a branch in 22. New Era Corp. bills its newly established branch for merchandise at 140% of cost.
Manila. During 2016, its first year of operations, the home office in Cebu City At the end of its first month, the branch reported, among other things, the
shipped goods to the branch in Manila at a total billing price of P303,050 which following:
was 10% above cost. At December 31, 2016, the branch reported a net loss from Merchandise from home office (at billed price) P28,000
its own operations of P5,500, and an ending inventory of P61,050. How much is Merchandise purchased locally by branch 10,000
the branch net income (loss) in so far as the home office is concerned? Inventory, September 30, of which P2,000 are of local purchases 9,000
a. (5,500) Net sales for month 43,500
b. 16,500 The branch inventory at cost should be recorded at
c. 22,000 a. 38,000 From Home Office [(9,000 – 2,000)/140%] 5,000
Billed Price Cost Allow. for
a
d. 27,500 Overvaluation
b. 7,000 From Outsiders 2,000
vi
Shipments/TGAS 303,050 110% 275,550 27,550 c. 9,000 Branch Inventory at Cost 7,000
Inventory, end 61,050 110% 55,550 5,550 d. None of the above
Cost of Sales 242,000 110% 220,000 22,000
d
The gross profit of the branch in so far as the home office is concerned was
Branch reported net loss (5,500) a. 22,500 Branch's Sales 43,500
e
Realized profit in inventory sold 22,000 b. 14,500 Less: Cost of Sales @ cost:
ar
Branch net income in so far as the home office is concerned 16,500 c. 22,790 Shipment from Home Office (28,000/ 140%) 20,000
d. None of the Local Purchases by Branch 10,000
21. At the end of 2016, the branch reported an inventory of P15,625. The home office TGAS 30,000
sh
above
bills this branch at 125% of cost. During 2017, goods costing P300,000 were Less: Inventory, End "a" 7,000 23,000
shipped to the branch. The account "allowance for overvaluation of branch Gross Profit 20,500
inventory" after adjustment, shows a balance of P16,250 at the end of the year.
as
What was the amount of inventory at January 1, 2017 at cost? 23. Makati Co, bills its Valenzuela branch for merchandise at 140% of cost. At the
a. 12,500 end of January 2016, the branch reported the following information:
b. 15,625 Merchandise from
w
c. 19,531 Billed Price Cost Allow. For Home Office (At billed price)
d. 28,125 OverValuation Inventory, January 1 P 7,560
m e
Inventory, Beg. 15,625 125% [1] 12,500 3,125 Shipments received 28,280
Shipments 375,000 125% 300,000 75,000 Inventory, January 31 8,400
TGAS
Inventory, End
390,625
[2] 81,250
125%
125%
co rc
312,500
65,000
78,125
16,250
What should be the balance of the allowance account for overvaluation of the branch
inventory at January 31?
o. ou
Cost of Sales 309,375 125% 247,500 [3] 61,875
a. 2,400 Branch Inventory, January 31 @ Billed Price 8,400
b. 2,160 Less: Branch Inventory, January 31 @ Cost (8,400/ 140%) 6,000
What was the amount of ending inventory at billed price?
c. 8,080 Allowance for Overvaluation, Inventory January 31 2,400
er res
a. 309,375 The amount of P16,250 representing the balance of allowance for overvaluation of
d. None of the above
b. 247,500 branch inventory after adjustment is the realized profit of home office from the sold
c. 81,250 merchandise of the branch (allowance for overvaluation of branch ending
24. Trial balances for the home office and for the branch of Toby Co. show the
d. 65,000 inventory), which is 25% above cost. Therefore, the branch ending inventory at
billed price was P81,250 (16,250/25% x 125%). following accounts before adjustment as of December 31, 2016. The home office
se dy
bills merchandise to the branch at 20% above cost.

What was the amount of allowance for overvaluation before adjustment?
H.O. Branch
a. 61,875 The allowance for overvaluation before adjustment represents the allowance for
Unrealized intercompany inventory profit 10,800
ur tu
b. 78,125 overvaluation of total goods available for sale. And to determine the profit realized
c. 20,312 by the home office through markups in the merchandise shipped to the branch, this
item (allowance for overvaluation before adjustment) will be adjusted by deducting Purchases from outsiders 7,500
d. 20,000 the allowance for overvaluation of unsold merchandise at the end of the period. (See
s
H

computations in "a")
Merchandise inventory, December 1, 2016 45,000
is
Th
What part of the December 1, 2016 branch inventory represents acquisition from On March 20, the branch returned defective merchandise worth P3,050 and on March
outsider purchases, and what part represents acquisition from home office? 31, it reported a net loss of P6,200, and merchandise inventory of P85,000.
Outsiders Home Office
In the home office books, the cost of merchandise sold by the branch was
a. P9,000 P36,000
a. 93,560
b. 10,000 35,000
b. 116,950
c. 12,000 33,000
c. 161,560
d. 15,000 30,000 Billed Price Cost Allow. for
d. 161,950
Billed Price Cost Allow. for Overvaluation
Overvaluation Shipments (205,000 - 3,050) 201,950 125% 161,560 40,390
a
Inventory Beg. 36,000 120% 30,000 6,000 Inventory, end 85,000 125% 68,000 17,000
Cost of Sales 116,950 93,560 23,390
vi
Shipments 28,800 120% 24,000 4,800
TGAS 10,800 In the home office books, the branch operations resulted in a net income
(loss) of
Total Inventory Beginning 45,000
d
a. (6,200) Branch reported Net Loss (6,200)
Less: Inventory Beginning from Home Office @ billed price 36,000
b. 17,190 Realized Profit in Branch Inventory (a) 23,390
e
Inventory Beginning from Outsiders 9,000
c. 20,240 Branch Net Income in the Home Office Books 17,190
ar
25. The Neneng Corp. established its San Pedro branch in March 2016. During the d. 23,390
first year of operations, the home office shipped to the branch merchandise which
28. A home office has a branch in Metro Manila. The branch buys merchandise from
sh
had cost of P120,000. Three-fourths of these merchandise was sold by the branch
outside parties and also receives merchandise from the home office for which it is
for P141,000. Operating expenses of the branch amounted to P27,000. How much
billed at 20% above cost. Below are excerpts from the trial balances and other
net income will the branch report if merchandise is billed by the home office to
data of the home office and its branch for the month just ended:
the branch at 25% above cost?
as
Home Office:
a. 800 Sales 141,000
Cr: Allowance for overvaluation 370,000
b. 1,200 Cost of Goods Sold @ Billed Price (120,000 x 125% x ¾) (112,500)
Cr: Shipments to branch 850,000
w
c. 1,500 Gross Profit 28,500
Metro Manila Branch:
Less: Expenses 27,000
d. 8,000 Dr: Beginning inventory 1,440,000
Branch Reported Net Income 1,500
Dr: Shipments from home office 1,020,000
m e
26. The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao Dr: Purchases 410,000
co rc
City. During 2016, the home office shipped to the branch supplies costing
P120,000 at a billed price of 20% above cost. The inventories of supplies at the
Month-end branch inventory:
From home office, at billed price
From outside parties, at cost
1,170,000
290,000
o. ou
branch were as follows: January 1 - P90,000; December 31 - P108,000. On
What is the amount of allowance for overvaluation that was realized because of branch
December 31, 2016, the home office holds inventories of P160,500, which
sales for the month just ended?
includes P10,500 held on consignment. Both locations use the periodic inventory
a. 175,000 Allowance for Overvaluation 370,000
er res
method. How much inventories should be reported in the combined balance sheet
b. 195,000 Less: Overvaluation in Branch Ending Inventory
as of December 31, 2016?
c. 200,000 (1,170,000/120% x 20%) 195,000
a. 210,000
d. 370,000 Realized Amount of Allowance for Overvaluation
b. 240,000 Branch Inventory, Dec. 31, 2016 @ cost (108,000/120%) 90,000 175,000
Home Office Inventory, Dec. 31, 2016 (160,500 - 10,500) 150,000
se dy
c. 270,000 Combined Inventory, December 31, 2016 @ cost 240,000 29. The combined statements may be used to present the results of operations of
d. 300,000
Entities under Common Management Commonly Controlled Entities
27. A branch store in Marikina was established by Marco Co. on March 1. a. No Yes
ur tu
Merchandise was billed to this branch at 125% of cost. Shipments of merchandise b. Yes No
were as follows: c. No No
s
H
March 5 P120,000 (at billed price) d. Yes Yes

March 10 P 50,000 (at billed price)
is
March 20 P 35,000 (at billed price)

Th
30. Mr. Cord owns four corporations. Combined financial statements are being and it is the intention of management to close it if its operations prove to be
prepared for these corporations, which have inter-entity loans of P200,000 and unprofitable.
inter-entity profits of P500,000. What amount of these loans and profits should be
What is the result of operations of the Baguio City agency?
included in the combined financial statements?
a. No profit, no loss.
Inter-entity Inter-entity
Combined financial statements are appropriately b. P25,000 profit
Loans Profits
issued when two or more entities have a common c. P9,000 loss
a. 200,000 0
relationship, such as common ownership interest d. P 155,000 loss
b. 200,000 500,000 or common management. When combined
c. 0 0 financial statements are issued inter-entity loans Accounts Receivable, End 100,000
a
d. 0 500,000 and profits should be eliminated in their entirety. Add: Receipts from Sales 350,000
vi
Sales on Account 450,000
31. The Baguio branch of a home office in Manila is billed for merchandise it receives
d
at 125% of cost. The branch turns around and sells them at 25% of billed price.
On March 15, all branch's merchandise was destroyed by fire. The branch's
e
records recovered shows the following:
ar
Inventory, January 1 (at billed price) 165,000
Shipments, January 1 to the date of fire (at billed price) 110,000
Purchases (at cost) from outsiders all resold at markup of 20% 7,500
sh
Sales 169,000
Sales returns and allowances 3,750
What is the cost of merchandise destroyed by fire?
as
a. 120,000 c. 130,000
b. 120,240 d. 140,000
w
Total Net Sales (169,000 - 3,750) 165,250
Less: Total Sales of Merchandise Acquired from Outsiders (7,500/80%) 9,375
Total Net Sales of Merchandise Acquired from Home Office 155,875
m e
co rc
Total Goods Available for Sale from Home Office at Billed Price
(165,000 + 110,000)
Less: Cost of Goods Sold (at billed price) (155,875 x 80%)
275,000
124,700
o. ou
Inventory End (at billed price) 150,300
Inventory End (at cost) destroyed by fire (150,300/125%) 120,240

er res
32. Zeta Corp. established an agency in Baguio City. For the first month of operation,
the agency transactions were summarized as follows:
Receipts from sales 350,000
se dy
Disbursements for:
Purchases 400,000
Rent 20,000
ur tu
Advertising supplies 10,000

Salaries and commissions 70,000
Other expenses 5,000
s
H
At the end of that month, the agency had P100,000 of receivables and P50,000 of
is
payables. Also, there were P90,000 of unsold merchandise and P6,000 of unused
advertising supplies on hand. The Baguio City agency was conceived as an experiment
Th
Powered by TCPDF (www.tcpdf.org)
Questions 1 & 2 are based on the following information.
On February 14, 2012, Therese Company established a sales agency in Tagbilaran.
Upon establishment of the sales agency, the home office sent samples costing
P8,000 and a working fund of P3,000 to be maintained on the imprest basis. During
the six-month period, the sales agency reported to the home office sales orders.
These were billed at P70,000 of which of P40,000 was collected) the sales agency
paid expenses of P5,800 but was reimbursed by the home office.
On August 15, 2012, the sales agency samples were valued at P2,000. It was
estimated that the gross profit on goods shipped to fill sales order averaged 40% of
cost.
1. The cost of sales of the sales agency for the six-month period is
a. P42,000 c. P48,000
b. P44,000 d. P50,000
2. The net income of the sales agency for the six-month period is
a. P16,200 c. P10,200
b. P14,200 d. P8,200
3. A branch’s ending inventory of merchandise shipped by the home office and

purchased from outside vendors amounts to P 50,000. The post-closing trial
balance in the Unrealized Gross Profit in Branch Inventory account is P 6,000 due
to the home office practice of shipping merchandise at 20% above cost. The
merchandise purchased from outside vendors contained in the ending inventory
of the branch amounts to:
a. P 38,000 c. P 30,000
b. P 18,000 d. P 14,000
Questions 4 and 5 are based on the following information.

The income statement submitted by Loon Branch to the Home Office for the month
of December 31, 2013 follows:
Sales P600,000
Cost of Sales:
Inventory, December 31, 2013 P80,000
Shipments from Home office 350,000
Purchased locally by branch 30,000
Total P460,000
Inventory, December 31, 2013 (100,000) 360,000
Gross Margin P240,000
Operating Expenses (180,000)
Net Income for the month P 60,000
The Branch inventories consisted of:

12/1/2013 12/31/2013
Merchandise purchased from home P70,000 P84,000
Local purchases P10,000 P16,000
Total P80,000 P100,000
After effecting the necessary adjustments, the Home Office ascertained the true net
income of the Branch to be P156,000.
4. At what percentage of cost did the home office bill the branch for merchandise
shipped to it?
a. 100% c. 120%
b. 140% d. 150%
5. What is the balance of the Allowance for Overvaluation in the branch inventory
at December 31, 2013?
a. P10,000 c. P16,000
b. P24,000 d. P34,000
The following information is extracted from the books and records of Elaine
Company and its branch. The balances are at December 31, 2012 of the company’s
operations.
Home Office Branch
Sales P260,000
Shipments to branch P 78,000
Purchases 39,000
Expenses 78,000
Inventory, January 1, 2012 26,000
Allowance for overvaluation of branch 31,200
inventory
However, no shipments in transit between home office and the branch were
made. Both shipments accounts are properly recorded. The ending inventory
includes merchandise acquired from the home office in the amount of P26,000
and P7,800 acquired from outsiders acquired from the home office in the amount
of P26,000 and P7,800 acquired from outsiders for a total of P33,800.
6. What is the realized profit in branch inventory?

a. P21,000 c. P22,533
b. P31,200 d. P24,700
7. What is the amount of branch merchandise beginning inventory that was

acquired from the home office?
a. P14,000 c. P15,600
b. P19,000 d. P20,800

Auto Supply Company is engaged in merchandising both at its home office in Cebu
City and its branch in Toledo City. Selected accounts taken from the trial balances of
the home office and the branch as of December 31, 2012 follow:
Debits Cebu City Toledo

Branch
Inventory, January 1, 2012 P 23,000 P 11,550
Toledo Branch 58,300
Purchases 190,000 105,000
Freight in from home office 5,500
Sundry Expenses 52,000 28,000
Credits
Home Office P 53,300
Sales P155,000 140,000
Sales to branch 110,000
Allowance for Overvaluation of branch
inventory at January 1, 2012. 1,000
 The Toledo City branch gets all of its merchandise from the home office.
The home office bills the goods at cost plus a 10% mark-up. At December
31, 2012, a shipment with a billed value of P5,000 was still in transit.
Freight on this shipment was P250 and is to be treated as part of the
inventory.
 Inventories on December 31, 2012, excluding the shipment in transit,
follow:
Home office, at cost………………………………….……….. P30,000
Branch, at billed price (excluding freight of P520…… 10,000
8. What is the net income of the home office from own operations?
a. P30,470 c. P21,000
b. P20,000 d. P30,470
9. What is the net income of the branch in so far as the home office is concerned?
a. P870 c. P1,500
b. P10,470 d. P12,000
10. Durable Textile Company has a single branch in Bohol. On March 1, 2012, the
home office accounting records included an Allowance for Overvaluation of
Inventories – Bohol Branch ledger account with a credit balance of P32,000.
During March, merchandise costing P36,000 was shipped to the Bohol Branch
and billed at a price representing a 40% markup on the billed price. On March
31, 2012, the branch prepared an income statement indicating a net loss of
P11,500 for March and ending inventories at billed prices of P25,000. What is the
amount of adjustment for allowance for Overvaluation of Inventories to reflect
the true branch net income?
a. P39,257 debit c. P39,333 debit
b. P46,000 credit d. P46,000 debit
Yul Trading Corp. operates a branch in Talisay City. At the close of business on
December 31, 2012, Talisay Branch account in the home office books showed a
debit balance of P225,770. The interoffice accounts were in agreement at the
beginning of the year. For purposes of reconciling the interoffice accounts, the
following facts were ascertained:
1. An office equipment costing the home office P3,5000 was picked up by the
branch as P350.
2. Insurance premium of P675 charged by the home office was taken up twice
by the branch.
3. Freight charges on merchandise made by the home office for P1,125 were
recorded in the branch book as P1,215.
4. Home office credit memo representing a discount on merchandise for P800
was not recorded by the branch.
5. The branch failed to take up a P700 debt memo from the home office
representing the share of the branch in the advertising.
6. The home office inadvertently recorded a remittance for P3,000 from the
Cebu branch as a remittance from its Talisay branch.
11.What is the balance of the Home Office account before adjustment as of

December 31, 2012?
a. P225,000 c. P228,485
b. 225,770 d. 226,485
12.What is the adjusted balance of the Home Office account as of December 31,
2012?
a. P225,000 c. P225,770
b. 226,485 d. 228,770

PTT Corporation retails merchandise through its home office store and through a
branch store in a distant city. Separate ledgers are maintained by the home office
and the branch. The branch store purchases merchandise from the home office (at
120% of home office cost), as well as from outside supplies. Selected information
from the December 31, 2012 trial balances of the home office and branch is as
follows:
Home Office Branch
Sales P120,000 P50,000
Shipments to branch 16,000 ----
Purchases 70,000 11,000
Inventory, January 1, 2012 40,000 30,000
Shipments from home office ----- 19,200
Expenses 28,000 2,000
Unrealized profit in branch inventory 7,200 -----
 The entire difference between the shipment accounts is due to the practice of
billing the branch at cost plus 20%.
 The December 31, 2012 inventories are P40,000 and P20,000 for the home
office and the branch, respectively. (The branch purchased 16% of its ending
inventory from outside supplies.)
 Branch beginning and ending inventories include merchandise acquired from
home office is inventoried at 120% of home office cost.
13.What is the realized profit in branch inventory?

a. P4,000 c. P2,800
b. 7,200 d. 4,400
14.What is the net income of the branch as far the home office is concern?
a. P50,200 c. P10,600
b. 15,000 d. 12,200

Kulas Corporation has one branch operation located 500 miles away from the home
office. The branch office sales merchandise which is shipped to it from the home
office. The merchandise is transferred at cost but the branch pays reasonable
freight charges. The branch office makes sales and incurs and pays operating
expenses. At the end of the current accounting period the true adjusted balance for
the home office account on the branch’s books and the branch office account on the
home office’s books is P500,000.
The following items may or may not be reconciling items. The current year is 2012.
1) The home office has shipped merchandise to the branch office which cost
P10,000 and which incurs P500 freight charges paid by the home office
but charged to the branch. This merchandise is received by the branch on
January 5, 2012.
2) The branch has transmitted P17,000 in cash back to the home office as a
partial payment on such purchased merchandise. This cash is received by
the home office on January 6, 2012.
3) The branch office returns some defective merchandise to the home office.
The cost of the returned merchandise is P750. The branch office pays P25
of freight costs which will be charged back to the home office.
4) On December 1, 2012, the home office sends a check for P25,000 to
replenish the branch’s charged back to the home office.
5) The branch pays an advertising expense of P800 that should have been
paid by the home office since it applied to advertising fees incurred by the
home office of its own benefit.
6) The home office allocated P12,000 of general and administrative expenses
to the branch. The branch had not entered the allocation as of the end of
the year.
7) The home office pays insurance premiums on the branch store. The
amount paid by the home office is P1,000 but the branch erroneously
records it as P776.00
15.What is the unadjusted balance of the Home Office account?

a. P481,425 c. P500,000
b. 452,276 d. 518,575
16.What is the unadjusted balance of the Branch account?
a. P433,701 c. P518,575
b. 500,000 d. 452,276
Questions 17 through 20 are based on the following information.

Selected information from the trial balances for the home office and the branch of
Lalay Company at December 31, 2012 is provided. The branch acquires
merchandise from the home office and outside suppliers.
Home Office Branch
Sales P60,000 P30,000
Purchase (outsiders) 35,000 5,500
Merchandise inventory 12.01.12 20,000 15,000
Expenses 14,000 6,000
Merchandise inventory, December 31, 2012:
Home office P20,000
Branch (P7,500 from home office and P2,500 from outsiders) 10,000
17.The billing rate of home office to branch for merchandise shipments is

a. 120% of cost c. 130% of cost
b. 125% of cost d. 135% of cost
18.How much of the December 1 inventory of the branch represent purchases from
outsiders and goods shipped from home office?
a. Home office, P5,000 and Outsiders, P10,000
b. Home office, P8,000 and Outsiders, P7,000
c. Home office, P15,000 and Outsiders, P00,000
d. Home office, P12,000 and Outsiders, P3,000
19.The net income reported by the branch is

a. P4,500 c. P3,500
b. P5,600 d. P2,500
20.The combined net income for Home office and branch operations is
a. P22,500 c. P25,100
b. P24,600 d. P21,500
21.Clang-clang Corporation’s home office ships merchandise to its Toledo branch at

a billing price of 125% of cost. During 2012 the home office makes the following
entry:
Toledo Branch 75,000
Shipments to Toledo branch 75,000
At year-end 2012, P12,000 of this merchandise remains at Toledo branch
inventory.
The entry to adjust the branch income in the books of the home office will
include
a. Debit to Allowance for overvaluation of branch inventory, P12,600
b. Credit to Toledo branch account, P2,400
c. Debit to Shipments to Toledo branch, P12,600
d. Credit to Toledo branch inventory, P2,400
22.May Corporation operate two stores: The Head Office store and Rose branch. On
December 31, 2012, the Rose Branch account in the home office books has a
balance of P340,000. Both stores use a standard 120% markup on cost.
However, May’s home office ships merchandise to the branches at cost. Rose’s
ending inventory includes P20,000 of merchandise received from home office
Rose branch remitted P15,000 to home office on December 30, 2012. The Home
office will not receive the remittance until January 4, 2013. The Home office
allocated P5,000 general expenses to each of the branches but Rose branch
have not yet recorded the expenses at year-end)
Rose branch paid P2,000 for advertising “after Christmas” sales that were to be
allocated equally between the two stores. The Home office has not recorded its
share in the expenses.
The unadjusted balance of the Home office account in the books of Rose branch
is
a. P324,000 c. P323,000
b. P319,000 d. P318,000
Questions 23 & 24 are based on the following information.

On December 31, 2012, the home office account on the branch books shows a
balance of P9,735. The following reconciling data are determined in accounting for
the difference.
a. Merchandise billed at P615 shipped by the home office to the branch on
December 28 is still in transit.
b. The branch collected a home office accounts receivable of P2,500, but failed
to notify the home office of this collection.
c. The home office recorded the branch net income for November at P1,125.
This was in error, as the branch reported net income was P1,215.
d. The home office was charged P640 when the branch returned merchandise
to the home office on December 31. The merchandise is in transit.
23.The unadjusted balance of Branch account is

a. P9,735 c. P10,990
b. P10,350 d. P8,400
24.The adjusting entry to correct branch net income for November is

a. Debit, Branch profit and loss P90 and Credit, Branch account P90
b. Debit, Home office account P90 and Credit, Branch profit and loss P90
c. Debit, Branch account P90 and Credit, Branch profit and loss P90
d. Debit, Branch profit and loss P90 and Credit, Home office account P90
25.VERDI, Inc. has several branches. Goods costing P10,000 were transferred by
the head office to Cebu Branch with the latter paying P600 for freight cost.
Subsequently, the head office authorized Cebu Branch to transfer the goods to
Davao Branch for which the latter was billed for the P10,000 cost of the goods
and freight charge of P200 for the transfer. If the head office had shipped the
goods directly to Davao Branch, the freight charge would have been P700. The
P100 difference in freight cost would be disposed of as follows:
a. Considered as savings. c. Charged to Davao Branch.
b. Charged to Cebu Branch. d. Charged to the Head Office.
26. During the year 2012 goods billed at P840,000 were shipped to the branch at
125% of cost. The account Allowance in Branch Inventory has a balance of
P242,000 before adjustment. The beginning inventory of the branch from home
office at cost is P370,000; the beginning inventory of the branch from outsider is
P35,000; purchases from outsider is P220,000. Determine the “cost of goods
available for sale” of the branch per branch record.
a. P1, 297, 000 c. P1, 465, 000
b. P1, 539, 000 d. P1, 757, 000
Use the following information for the next two items:

Trial balance for the home office and the branch of Terry Company show the
following accounts before adjustments on December 31, 2012. The home office
policy of billing the branch for merchandise is 20% above cost.
Home Office Branch
Allowance for overvaluation 60,000
Purchases (outsiders) 75,000
Merchandise Inventory, 12/01/12 100,000
The branch Merchandise Inventory on December 31, 2012 of P 50,000 includes

purchases from outsiders of P 20,000.
27. The working paper entry to eliminate profit in the beginning inventory includes
debit to
a. Allowance for overvaluation, P 48,000
b. Allowance for overvaluation, P 46,500
c. Allowance for overvaluation, P 48,500

d. Allowance for overvaluation, P 12,000
28. The entry on the books of the home office to recognize mark-up includes credit
to
a. Branch income summary, P 52,000
b. Branch income summary, P 52,400
c. Branch income summary, P 52,500
d. Branch income summary, P 5,000
29. The Home office in Mandaluyong shipped merchandise costing P 80,000 to

Makati branch and paid for the freight charges of P 600. The home office bills the
branch at 125% of cost. Makati branch was subsequently instructed to transfer
one-half of the merchandise to Bulacan branch wherein Bulacan paid for P 200
freight. If shipment was made directly from Mandaluyong to Bulacan, the freight
cost would have been P 400. By how much will the Makati branch charge the
Home Office account?
a. P50,300 c. P51,300
b. P0 d. P56,000
30. The Manila branch of the Great Company is billed for merchandise by the home
office at 20% above cost. The branch in turn prices merchandise for sales
purposes at 25% above billed price. On February 16 all of the branch
merchandise is destroyed by fire. No insurance was maintained. Branch accounts
show the following information:
Merchandise Inventory, January 1 (at billed price) P26,400

Shipments from home office ( Jan.1 – Feb.16) 20,000
Sales 15,000
Sales Returns 2,000
Sales Allowances 1,000
What was the cost of the merchandise destroyed by fire?
a. P36,000 b. P30,667 c. P36,800 d. P30,000
31. Fischer Company opened its Tuguegarao Branch on January 1. Merchandise

shipments from home office during the month, billed at 120% of cost, is
P125,000. Branch returned damaged merchandise worth P15,620. On January
31, the branch reported a net loss of P2,270 and an inventory of P84,000. What
is the net income(loss) of the branch to be taken up in the books of the Home
Office?
a. (1690) b. 6,500 c. (2,270) d. 1,960
32. Barros Corporation’s shipments to and from its Brazil City Branch are billed at
120% of cost. On December 31, Brazil branch reported the following data, at
billed prices: inventory, January 1, of P33,600; shipments received from home
office of P840,000; shipments returned of P48,000; and inventory, December 21,
of P36,000. What is the balance of the allowance for over – valuation of branch
inventory on December 31 before adjustments?
a. P5,600 c. P6,000
b. P137,000 d. P145,000
33. The Robert Corporation established its Bulacan branch in January 2016. During
its first year of operations, home office shipped to its Bulacan branch
merchandise worth P130,000 which included of 15% markup on cost. Sales on
account totaled P250,000 while cash sales amounted to P80,000. Bulacan
reported operating expenses of P38,000 and ending inventory of P15,000, at
billed price. In so far as the home office is concerned, the real net income of
Bulacan is
a. P82,000
b. P47,000
c. P177,000
d. P192,000
34. The Quezon City sales company established a branch in Dumaguete City early
last year. It shipped merchandise and billed the branch for P300,000 prior to its
opening. For the year, it made additional shipments at billed price of P120,000.
Within the year the branch shipped back P7500 inventory and got the credit
memo for said returns. On the last working day of the year, an inventory count
was made. Ending inventory of P185,000 was established, consisting of
purchases from third parties at P20,000, with the balance coming from the home
office shipments at billed price. The home office billed the branch 20% above
cost. The total purchases from outside suppliers amounted to P72,500. The total
cost of goods available for sale by the branch at cost (net of over valuation and
returns) amounted to
a. P416,250
b. P422,500
c. P435,200
d. P485,000
35.The home office of Glendale Company, which uses the perpetual inventory
system, bills shipment of merchandise to the Montrose Branch at a markup of
25% on the billed price. On August 21, 2016, the credit balance of the home
office’s Allowance for Overvaluation of Inventories – Montrose Branch ledger
account was P60,000. On September 17, 2016, the home office shipped
merchandise to the branch at a billed price of P400,000. The branch reported an
ending inventory, at billed price, of P160,000 on September 30, 2016. Compute
the realized gross profit.
a. P20,000
b. P28,000
c. P120,000
d. P160,000
36.Tillman Textile Company has a single branch in Bulacan. On March 1, 2016, the
home office accounting records included an Allowance of Overvaluation of
Inventories – Bulacan Branch ledger account with a credit balance of P32,000.
During March, merchandise costing P36,000 was shipped to the Bulacan branch
and billed at a price representing 40% markup on the billed price. On March 31,
2016, the branch prepared an income statement indicating a net loss of P11,500
for March and ending inventories at billed prices of P25,000. What is the amount
of adjustment for Allowance for Overvaluation of inventories to reflect the true
branch net income?
a. P39,257 debit
b. P46,000 credit
c. P39,333 debit
d. P46,000 debit
37. Charity Inc. established its first branch on May 1, 2016. During the first month of
operation, the home office shipped merchandise to the branch worth P138,000
which included a markup of 15% on cost. Sales for cash were P80,000 while
sales on account were P250,000. At month’s end, the branch reported an
operating expense of P38,000 and a closing inventory of P23,000 at billed price.
As far as the home office is concerned, the true branch net income for May 2016
is
a. P82,000
b. 147,000
c. P177,000
d. P192,000
38. The Gift Co. has a branch in Bacolod City. During 2016, the home office shipped
to the branch merchandise billed at P150,000 including a markup of 20% on
cost. The branch reports opening and closing inventories of P90,000 and
P120,000 respectively, while the home office has a closing inventories of
P210,000 which includes merchandise which are held on consignment valued at
P10,000. Both location used the periodic inventory system. What closing
inventory would be reported in the combined statement of income for the year
2016?
a. P296,000
b. P3000,000
c. P320,000
d. P330,000
39. Hope Co. started operating a branch on May 1, 2016 with a shipment of
merchandise billed at P250,000. Additional shipments during the month were
billed at P125,000. The branch returned damaged merchandise worth P10,000.
Inter – office shipments re billed uniformly at 120% of cost on May 31,2016, the
branch reported a net loss of P52,500 and an inventory of P150,000. What is the
branch net income(loss) reflected in the combined income statement for May
2016?
a. P(9,500)
b. P43,000
c. P(52,500)
d. P95,000
40. Lobster Trading bills its Iloilo City Branch for shipments of goods at 25% above
cost. At the close of business on October 21, 2016, a fire gutted the branch
warehouse and destroyed 60% of the merchandise stock stored therein.
Thereafter, the following data were gathered:
January 1 Inventory, at billed price - P50,000
Shipments from Home Office to Oct. 31 - P 130,000
Not sales to Oct.31 - P225,000
If undamaged merchandise recovered are marked to sell for P30,000, the

estimated cost of merchandise destroyed by the fire is
a. P14,400
b. P21,600
c. P24,000
d. P27,500
41. The Bicol Corporation operates a branch in Naga City. The information from the
December 31, 2016 trial balance as follows:
Home Office Naga Branch
Sales P840,000 P420,000
Purchases 490,000
Inventory, Jan. 1, 2016 140,000 56,000
Inventory at December 31, Home Office P42,000; Branch P84,000
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. P120,000
c. P64,400
d. P80,000
42. Jaimee Marketing Co. opened a branch in San Fernando City at the beginning of
2016. The Branch extends credit, makes collections, pays expenses from cash
receipts, and acquires goods exclusively from the home office. During 2016,
goods shipped by the home office to the branch, at a billing price of 125% of
cost, amounted to P104,000, of which P12,500 remained in the branch’s year
end inventory. Other branch transactions in 2016 were as follows: sales, all on
credit, P117,430: expenses, of which P1,500 are unpaid at year – end, P20,000;
collections on account, after deducting discounts of P1,480, P84,000; and, total
remittances to the home office, P62,500. As far as the home office is concerned,
the operations of the branch in 2016.
a. P4,450 net income
b. P9,550 net loss
c. P18,300 net income
d. P22,750 net income
43. Leila Co. ‘s Clark branch submitted the following data for 2016, its first year of
operation:
Sales - P203,500 Cr.

Shipments from Home Office - 186,120 Dr.
Operating Expenses - 18, 755 Dr.
Home Office – current - 48,125 Cr.
Shipments to the branch are billed at cost. The December 31 inventory of the
branch was P25,245. What is the correct balance on December 31, 2016 of the
Branch Account – current as per home office books?
a. P46,750
b. P48,125
c. P65,505
d. P71,995
44. The Aparri Branch of Cagayan Products, Inc. buys merchandise from third
parties and receives merchandise from the home office for which it is billed at 20%
above cot. Below are excerpts from the trial balances and data on the home office
and Aparri branch for the month just ended:
Home Office Books:

Cr. Allowance for overvaluation of branch
Merchandise ………………………………………………………… P 740,000
Dr. Shipment to Branch ……………………………………………. 1,700,000
Branch Books:
Dr. Beginning Inventory …………………………………………… P2,880,000
Shipments from home office ……………………………… 2, 040,000
Purchases ……………………………………………………………. 820,000
Month – end additional data:

Ending inventory of branch …………………………………………… P2,920,000
From home office at BP ………………………………………. 2,340,000
From outsiders, at cost ……………………………………….. 580,000
For the month just ended:
The total cost of goods sold The amount of allowance

of Aparri Branch at cost for overvaluation that was
(net of overvaluation) realized from branch sales
a. P2,820,000 P400,000
b. 2,470,000 350,000
c. 2,770,000 740,000
d. 2,470,000 390,000
45. The Clark branch of Freeport Corporation submitted the following trial balance
as of 30 June 2016:
Debit Credit
Cash ……………………………………………………. P 28,600
Accounts Receivable ………………………….. P173,800
Shipments from Home Office …………….. 462,000
Home office – Current…………………………. 324,000
Sales ……………………………………………………. 369,600
Expenses …………………………………………….. 29,700
Total ……………………………………………………. P694,100
P694,100
Clark reported an ending inventory of P138,000. Shipments are billed at a

mark – up of 40% on cost. What is the real net income of Clark branch?
a.P70,600
b. P92,400
c. P100,000
d. P108,900
46. The account balances shown below were taken from the trial balances
submitted to Bon – Apetit Corporation by its Alabang branch:
2015 2016
Petty cash fund P1,500 P1,500
Accounts Receivable 43,800 49,140
Inventory - 37,170
Sales 173,180 195,120
Shipments from home(140% of cost) 107,450 136,080
Expenses 51,260 57,930
All branch collections are remitted to the home office. All branch expenses are paid
out of the petty cash fund. When the petty cash fund is replenished, the branch
debits appropriate expense accounts and credits Home Office Current. The petty
cash is counted every December 31, and its composition was as follows:
12/31/15 12/31/16
Currency and coins P580 P860
Expense vouchers 920 640
The branch inventory on December 31, 2016 was P41,370. The correct branch net
income for 2016 was:
a.P3,390
b. P3,670
c. P41,070
d. P41,350
47. The Manila branch of the Great Company is billed for merchandise by the home
office at 20% above cost. The branch in turn prices merchandise for sales purposes
at 25% above billed price. On February 16 all of the merchandise is destroyed by
fire. No insurance was maintained. Branch accounts show the following information:
Merchandise inventory, January 1 (at billed price) P26,400

Shipments from home office (Jan.1 – Feb. 16) 20,000
Sales 15,000
Sales returns 2,000
Sales Allowances 1,000
What was the cost of the merchandise destroyed by fire?

a.P36,000
b. P30,667
c. P36,800
d. 30,000
48. The Best Co. bills merchandise shipments in its Cavite City branch at 125% of
cost. The branch, in turn, sells the merchandise it receives from the home office at
25% above the selling price. On August 1, 2016, all the branch’s merchandise stock
was destroyed by fire. The branch records that were recovered showed the
following:
Inventory, January 1, 2016 (at billed price) P165,000

Shipments received from home office,
January to July (at billed price) 110,000
Purchases, at cost, from outside sources,
all re-sold at a 20% mark – up 7,500
Sales 169,000
Sales returns and allowances 3,750
The Best Co. will file an insurance claim. How much is the estimated cost of the
merchandise destroyed by fire?
a.P120,000
b. P130,000
c. P140,000
d. P150,000
49. The following information are extracted from the books and records of Rona
Company and its branch. The balances are at December 31, 2016 of the company’s
operations.
Home Office Branch

Sales P260,000
Shipments to branch P78,000
Purchases 39,000
Expenses 78,000
Inventory, January 1,2016 26,000
Allowance for overvaluation of branch
Inventory 31,200
However, no shipments in transit between the home office and the branch were
made. Both shipments accounts are properly recorded. The ending inventory
includes merchandise acquired from the home office in the amount of P26,000 and
P7,800 acquired from outsiders for a total of P33,800.
Compute the (1) realized inventory profit of home office from sales made by the
branch, and (2) the amount of branch merchandise beginning inventory that was
acquired from the home office.
a. (1) P24,700; (2) P15,600

b. (1) P31,200; (2) P20,800
c. (1) P22,533; (2) P15,600
d. (1) P24,700; (2) P20,800
51. The Dumaguete City branch of Silliman Enterprises, Negros, was billed for
merchandise shipments from home office at cost plus 25% in 2015 and cost plus
20% in 2016. Other pertinent data for 2012 show:
Dumaguete branch Home Office

Sales P63,000 P212,000
Inventory, beginning
at cost 23,000
at billed price 8,900
Purchases 164,000
Inventory transfers
To Dumaguete,at cost 42,000
From Negros, at billed price 50,400
Inventory, end
at cost 28,500
Expenses 20,300 76,400
Compute the (1)net income(loss) of Dumaguete City per branch books and (2) The
combined net income(loss) of Silliman Enterprises.
a.(1) P(4,900); (2) P18,740
b. (1) P(4,900); (2) P22,430
c. (1) P3,330; (2) P22,430
d. (1) P8,230; (2) P25,270
52. The Quezon City branch of Asser Enterprises, Manila, was billed for merchandise
shipments from home office at cost plus 25% in 2015 and cost plus 20% in 2016.
Other pertinent data for 2016 show:
Quezon City branch Home Office

Sales P63,000 P212,000
Inventory, beginning
at cost 23,000
Purchases 164,000
Inventory transfers
To Dumaguete,at cost 42,000
From Negros, at billed price 50,400
Inventory, end
at cost 28,500
Expenses 20,300 76,400
Compute the (1) realized inventory profit from branch sales (or overvaluation of cost
of goods sold, and (2) the ending inventory that should be presented in the
combined income statement.
a. (1) P8,230; (2) P40,200
b. (1) P8,230; (2) P38,250
c. (1) P7,993; (2) P38,250
d. (1) P9,520; (2) P37,860
53. Selected accounts from the December 31, 2016 trial balances of Betty Star Co.
and its branch follow:
5-star Branch
Inventory, Jan. 1 P46,000 P23,100
Branch Current 116,000 -
Purchases 380,000 -
Shipments from Home Office - 209,000
Freight In - 10,450
Expenses 104,000 58,100
Home Office Current - (106,000)
Sales (310,000) (280,000)
As of December 31, 2016, a shipment with a billing price of P11,000 was in transit
to the branch. Freight cost, typically 5% of the billing price, is inventoriable.
Merchandise on hand at year – end were: at home office, P64,000 at cost; at branch,
P33,000 at billing price.
Compute the (1) branch net income in so far as home office is concerned, and (2)
the combined net income for 2016:
a.(1) P40,900; (2) P84,900
b. (1) P32,100; (2) P76,100
c. (1) P32,000; (2) P76,000
d. (1) P33,000; (2) P77,000
54. Swift Corporation, operates a number of branches in Metro Manila. On June 30,
2016, its Sn. Lorenzo branch showed a Home Office Account balance of P27,350 and
the home Office books showed a Sn. Lorenzo branch account balance of P25,550.
The following information may help in reconciling both accounts:
 A P12,000 shipment, charged by Home Office to Sn. Lorenzo branch, was
actually sent to and retained by Sto. Tomas branch.
 A P15,000 shipment, intended and charged to San Jose branch was
shipped to Sn. Lorenzo branch and retained by the latter.
 A P2,000 emergency cash transfer from Sto. Tomas branch was not taken
up in the Home Office books
 Home office collects a Sn. Lorenzo branch accounts receivable of P3,600
and fails to notify the branch.
 Home office was charged for P1,200 for merchandise returned by Sn.
Lorenzo branch on June 28. The merchandise is in transit.
Home office erroneously recorded Sn. Lorenzo’s net income for May, 2016 at
P16,275. The branch reported a net income of P12,675.
55. What is the reconciled amount of the Home Office and Sn. Lorenzo branch
reciprocal amounts?
a.P21,750
b. P23,750
c. P27,350
d. P20,150
56. On December 31, 2016, the investment in Branch account on the home office’s
books has a balance of P102,000. In analyzing the activity in each of these accounts
for De cember you find the following differences:
 A P12,000 branch remittance to the home office initiated on December
27,2016, was recorded on the home office books on January 3,2017.
 A home office inventory shipment to the branch on December 28, 2016, was
recorded by the branch on January 4, 2012; the billing of P24,000 was at
cost.
 The home office incurred P14,400 of advertising expenses and allocated
P6,000 of this amount to the branch on December 15, 2016. The branch has
not recorded this transaction.
 A branch customer erroneously remitted P3,600 to the home office. The home
office recorded this cash collection on December 23,2016. Meanwhile, back
at the branch, no entry has been made yet.
 Inventory costing P51,600 was sent to the branch by the home office on
December 10, 2016. The billing was at cost, but the branch recorded the
transaction at P40,800.
Compute the (1) Unadjusted Balance of the Home Office Account and (2) Adjusted
Balance of the Reciprocal Account as of December 31, 2016:
a.(1) P76,800; (2) P114,000
b. (1) P52,800; (2) P93,600
c. (1) P151,200; (2) P139,200
d. (1) P52,800; (2) P90,000
57. Aca. Inc. has several branches. Goods costing P10,000 were transferred by the
head office to Cebu Branch with the latter paying P600 for freight cost.
Subsequently, the head office authorized Cebu Branch to transfer the goods to
Davao Branch for which the latter was billed for the P10,000 cost of the goods and
freight charge of P200 for the transfer. If the head office had shipped the goods
directly to Davao Branch, the freight charge would have been P700. The P100
difference in freight cost would be disposed of as follows:
a. Considered as savings
b. Charged to Cebu Branch
c. Charged to Davao Branch
d. Charged to the Head Office
58. On December 3, 2016, the home office of Kathy Office Supply Company
recorded a shipment of merchandise to its Davao Branch as follows:
Davao Branch ----------------------------------- 30,000

Shipment to Branch ----------------------- 25,000
Unrealized Profit in Branch inventory ---- 4,000
Cash ( for freight charges) --------------- 1,000
The Davao branch sells 40% of the merchandise to outside entities during the rest
of December 2016. The books of the home office and Kathy Office Supply are closed
on December 31 of each year.
On January 5, 2017, the Davao branch transfer half of the original shipment to the
Baguio Branch, and the Davao Branch pays P500 as the shipment.
The entry on the books of the Davao Branch to record receipt of the shipment from
the home office on December 3, 2016 would be:
a. Shipments from Home Office -------------- 29,000

Freight-out ---------------------------------- 1,000
Home Office --------------------------- 30,000
b. Shipments from Home Office -------------- 25,000

Accounts Receivable ------------------------ 4,000
Freight-in ---------------------------------- 1,000
Home Office --------------------------- 30,000
c. Shipments from Home Office -------------- 30,000

Home Office --------------------------- 30,000
d. Shipments from Home Office -------------- 29,000

Freight-in ---------------------------------- 1,000
Home Office --------------------------- 30,000
59. Using the same information in No. 58, at what amounts should the 60% of the
merchandise remaining unsold at December 31, 2016 be included in (1) the
inventory of the Davao Branch at December 31, 2016, and (2) the published
balance sheet of Kathy Office Supply Company at December 31, 2016 shows
inventory at:
a. (1) P15,600 ; (2) P18,000 c. (1) P18,000 ; (2) P15,600
b. (1) P17,400 ; (2) P15,000 d. (1) P18,400 ; (2) p16,000
60. Using the same information in No. 58, what is the entry on the books of Baguio
Branch for the January 5, 2017 transfer, assuming that the freight cost of the
merchandise from the home office to Baguio Branch would have been P600:
a. Shipments ------------------------------------ 15,100

Home Office ----------------------------- 15,100
b. Shipments ------------------------------------ 14,500

Freight-in ------------------------------------- 600
Home Office ----------------------------- 15,100
c. Shipments ------------------------------------ 15,100

Freight-in ------------------------------------- 600
Home Office ----------------------------- 15,600
d. Shipments ------------------------------------ 14,500

Freight-in ------------------------------------- 1,100
Home Office ----------------------------- 15,600
61. Using the same information on 58, 59, and 60, what is the entry on the books of
Davao Branch in respect to January 5, 2017 transfer:
a. Home Office ----------------------------------- 15,500

Inventory ------------------------------- 15,500
b. Home Office ----------------------------------- 15,100

Shipments inventory ------------------- 15,000
Cash (for freight charges) ------------- 100
c. Home Office ----------------------------------- 15,500

Cash (for freight charges) -------------- 500
Inventory -------------------------------- 15,000
d. Home Office ----------------------------------- 15,600

Cash (for freight charges) ------------- 500
Freight-in -------------------------------- 600
Inventory -------------------------------- 14,500
62. Using the same information in Nos. 58, 59 and 60, what is the entry on the
home office books in respect to January 5, 2017 transfer:
a. Home Office ----------------------------------- 15,500

Cash --------------------------------------- 500
Inventory ----------------------------------15,000
b. Shipments ------------------------------------- 14,500

Freight-in ------------------------------------- 600
Home Office Current --------------------- 15,100
c. Branch Current – Baguio --------------------- 15,100

Excess Freight -------------------------------- 400
Branch Current – Davao ----------------- 15,500
d. Branch Current – Baguio --------------------- 15,100

Excess Freight -------------------------------- 600
Branch Current – Davao ----------------- 15,700
63. Lipton Company had an agency in Antipolo. For the period just ended, the
agency transactions showed the following:
Receipts from sales ---------------------------------------------- P350,000

Disbursements:
Purchases --------------------------------------------------- 400,000
Salaries and commissions ---------------------------------- 70,000
Rent ---------------------------------------------------------- 20,000
Advertising supplies ---------------------------------------- 10,000
Other expenses --------------------------------------------- 5,000
The agency had P100,000 receivables and P50,000 payables as of the end of the
period. Also, they were inventories on hand of P90,000 and unused advertising
supplies of P6,000. The agency was set up as an experiment for one period and
would be closed if losses were incurred. The agency should:
a. Review again because it was a break even operation.

b. Close with the period’s operational loss of P155,000.
c. Close with the period’s operational loss of P9,000.
d. Continue with the period’s profit of P25,000.
64. The JJ Company, Inc. opened an agency in Makati in 2016. The following is a
summary of the transactions of the agency:
Sales orders sent to home office ------------------------------- P66,000

Sales orders filled by home office in 2016 --------------------- 55,800
Freight on shipment to agency --------------------------------- 1,320
Collections, net if 2% discount --------------------------------- 47,628
Selling expenses paid from the agency working fund--------- 3,384
Administrative expenses charged to agency ------------------ 5% of gross sales
Cost -------------------------------------------------------- P3,600
Inventory, December 31, 2016 --------------------------- 1,320
The company maintains its gross margin on agency gross sales at 30%
excluding the freight cost on shipments to agency.
The agency’s cost of sales including freight and agency’s net income would
amount to:
Cost of Sales Net Income

a. P39,000 P5,994
b. 47,520 7,668
c. 40,380 5,994
d. 40,380 7,320
65. Happy Inc. opens a sales agency in Davao City, and a working fund for P20,000
is established on the imprest basis. The first payment from the fund is P3,000 for
rent. This transaction should be recorded by the home office as follows:
a. No Entry
b. Rent ---------------------------- 3,000
Cash -------------------------- 3,000
c. Davao Agency ----------------- 3,000
Cash -------------------------- 3,000
d. Davao Agency ----------------- 3,000
Working Fund --------------- 3,000
66. Sad Co. has a sales agency in Cebu. Agency revenues and expenses are
recorded in separate agency accounts, with the operating results of both the agency
and the home office generated at each month-end. For the month of October 2016,
the home office paid P10,000 for advertising costs on behalf of the agency and
recorded this as follows:
a. Cebu agency 10,000
Cash 10,000
b. Advertising Expense 10,000
Cash 10,000
c. Accounts Receivable – Cebu Agency 10,000
Cash 10,000
d. Advertising expense – Cebu Agency 10,000
Cash 10,000
67. The home office ships merchandise to the branch at 25% percent above cost. If
the balance before closing in the Intracompany Inventory Profit account is P66,000
and Shipments from Home Office amounted to P300,000, what was the cost of the
branch’s beginning inventory?
a. P30,000
b. P24,000
c. P80,000
d. P96,000
68. The home office ships merchandise to the branch at 50% above cost. On its
books the branch shows a beginning inventory of home office merchandise
amounting to P15,000 and shipments from home office of P110,000. Its ending
inventory of home office merchandise is P5,000. What amount should the home
office adjust the allowance for overvaluation of branch inventory account?
a. P40,000
b. P55,000
c. P60,000
d. P62,500
69. Power Corporation shipped inventory to its Bacolod branch, costing P375,000
plus freight. Power bills inventory to its branches at 120% of original cost, plus the
actual amount of shipping charges. At the end of the year, the Bacolod branch had
resold 50% of the inventory from the home office. Shipping cost paid by Power were
P2,000.
What amount should the inventory be reported in the branch’s statement of

financial position?
a. P187,500
b. P188,500
c. P226,000
d. P377,000
70. Using the question in No. 69, at what amount should the branch’s inventory
from the home office be reported in the statement of financial position of Power
Corporation as a whole?
a. P157,520
b. P188,500
c. P189,500
d. P377,000
71. Oro Corporation has a branch in Cebu. The branch reported income of P130,000
for 2013. The branch has a balance in its Home Office account at the end of the
year, after closing, P765,000. Branch income has not been recorded by Oro’s home
office. During the year, Oro shipped inventory to the branch at a price of P160,000;
oro’s original cost was P90,000. All but 45% of the inventory has been resold to
unrelated parties by year –end.
What is the balance in Oro’s Investment in Branch account?
a. P594,500
b. P603,500
c. P635,000
d. P765,000
72. A branch’s ending inventory of merchandise shipped by the home office and
purchased from outside vendors amounts to P50,000. The post – closing balance in
the Unrealized Gross Profit in Branch Inventory account is P6,000 due to the home
office practice of shipping merchandise at 20% above cost. The merchandise
purchased from outside vendors contained in the ending inventory of the branch
amounts to:
a. P38,000
b. P30,000
c. P18,000
d. P14,000
73. Merchandise shipped to a branch for P30,000, which includes a 20% markup on
cost, was returned by the branch. To record the receipt of the returned merchandise,
the home office should make the following entry:
a. Shipments to Branch 30,000
Investment in Branch 25,000
Allowance for overvaluation of Br. Inv. 5,000
b. Investment in Branch 30,000
Shipment in Branch 30,000
c. Shipments to Branch 25,000
Allow. for Overvaluation of Br. Inv. 5,000
d. Shipment to branch 24,000
Unrealized Profit in Br. Inv 6,000
74. During 2016, Jose Corporation transferred inventory from its home office to its
Laguna Branch at a billed price of P110,000. The inventory originally cost the
company P90,000. The home office reported sales and cost of goods sold of
P1,400,000 and P590,000, respectively. The Laguna branch reported sales and cost
of goods sold of P675,000 and P300,000, respectively. All of the inventory had been
sold by year – end. What is the cost of goods sold to be reported in the 2016
combined statement of comprehensive income?
a. P890,000
b. P870,000
c. P800,000
d. P780,000
75. The Simon Company always ships merchandise to a branch outlet at a 30%
mark –up above cost. During 2016, this branch received P182,000 in such
shipments while also acquiring goods from outside vendors at cost of P96,000. Half
of the branch’s December 31, 2016, inventory of P57,200 came from home office
acquisitions. At the beginning of 2013, the branch held merchandise with transfer
price of P49,400. All of this inventory had been purchased directly from the home
office. At the end of 2016, what is the adjusted balance in Simon’s Allowance for
Overvaluation in Branch Inventory account?
a. P4,250
b. P5,340
c. P6,000
d. P6,600
76. Lakas, Inc., starts a branch operation to sell more of its merchandise. Inventory
costing P60,000 is shipped to this branch at a billed price of P90,000. During the
initial year, the home office pays P17,000 in expenses for the branch. The branch
sells 80% of the inventory that it received for P110,000 and remits P70,000 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. P7,000
b. P37,000
c. P75,000
d. P147,000
77. Lamp starts a branch operation on January 1, 2016.

Chapter 7
Home Office and Branch Accounting
Companies may increase their volume of sales by establishing sales outlets in various areas.
These sales outlets may be a branch or an agency.
When a company operates a branch, the branch must maintain accounting records to facilitate
its reporting responsibility to the home office.
Problems dealing with Home Office and Branch Accounting appear in almost every CPA
examination. Candidates should be familiar with the problems involving the following:
1. Uses of the reciprocal accounts.

2. Preparation of a Reconciliation Statement.
3. Billing of Merchandise by Home Office to Branch above cost.
4. Preparation of Combined Financial Statements.
Uses of the Reciprocal Accounts
In recording inter-office transactions, two reciprocal accounts are used, namely, the Investment
in Branch (Branch Current) account used by the home office which is classified as an asset; and
the Home Office (HO Current account) used by the branch which is classified as a liability.
The reciprocal nature of the Investment in Branch and the Home Office accounts and the way in
which they are affected by various inter-office transactions are shown below:
(Home Office Books) (Branch Books)

Investment in Branch Home Office
xx Assets transfer to branch xx
xx Assets transfer from branch xx
xx Branch profit xx
xx Branch loss xx
Preparation of Reconciliation Statement
The balances of the two reciprocal accounts should at all times equal. If the balances of the
reciprocal accounts are not equal before the preparation of separate statement of financial
position, a reconciliation statement is to be prepared. This is done to determine the causes of
the inequality between the two accounts. The accounts are then adjusted to determine their
adjusted balances. The following are the usual causes that the candidate should take note:
1. Transactions have been recorded by the branch but not by the home office.
2. Transactions have been recorded by the home office but not by the branch.
3. Errors in recording have occurred in one or both books.
4. Transactions have not yet been recorded on either set of books.
Billing of Merchandise by Home office to Branch above Cost
Merchandise shipped to branch by the home office may be billed at an amount above cost.
Under this method of billing, the profit recognized by the branch will be less that its actual
profit, because its cost of goods sold is overstated insofar as the home office is concerned.
The problems involving billing of merchandise to branch above cost are the following
1. Computation of branch at inventory at cost.

2. Computation of the actual or true branch profit insofar as the home office is
concerned.
Computation of Branch Inventory at Cost
Candidates should use the following formula:
a. If branch are all acquired from the home office, the formula is:
Branch inventory acquired from home office at billed price Pxx

Divide by billing percentage of cost %
Branch inventory at cost Pxx
b. If branch inventory includes merchandise acquired from outsiders, the formula is:
Branch inventory acquired from home office at cost:

Merchandise at billed price Pxx
Divide by billing percentage of cost % Pxx
Add: inventory acquired from outsiders xx
Branch inventory at cost xx
Computation of Actual Branch Profit insofar as Home Office is Concerned
The actual or true branch insofar as the home office is concerned is computed as follows:
Branch profit (loss) as reported Pxx

Add: Overvaluation of branch cost of goods sold (Schedule 1) xx
Actual branch profit insofar as home office is concerned Pxx
Schedule 1
Allowance
Billed Percent for Over-
Price ÷ of Cost = Cost valuation
Branch inventory, beg. (acquired from HO) Pxx Pxx Pxx Pxx
Add: Shipments during the period xx xx xx xx
Total before adjustment
Less: Branch inventory, end (acquired from HO) xx xx xx xx
Overvaluation of branch COGS (Realized Profit) Pxx
Preparation of Combined Financial Statements
The balance sheets and the income statements of the home office and the branch must be
combined for external reporting purposes. Working papers are usually prepared to eliminate
accounts affected in recording inter-office transactions before financial statements are
prepared.
Candidates should remember the following working paper elimination procedures:
1. Eliminate reciprocal accounts.

2. Eliminate inter-company transfer accounts.
a. Shipment to Branch and Shipment from Home Office accounts.
b. Allowance for Overvaluation of Branch Inventory.
3. Eliminate the overvaluation in branch beginning inventory.
4. Eliminate the overvaluation in branch ending inventory.
Combined Statement of Financial Position. The reciprocal accounts “Investment in Branch” and
“Home Office” accounts are not presented as well as the Allowance for Overvaluation account.
Combined Statement of Comprehensive Income. The merchandise inventories, beginning and

ending inventories are presented at cost. The Shipment to Branch and Shipment from Home
Office accounts are not presented.
Transactions between Branches
Occasionally, branch operations require that merchandise or other assets be transferred from
one branch to another. A branch does not maintain a reciprocal account with another branch
but records the transfer in the Home Office account. For example, if Bicol Branch ships
merchandise to Laguna Branch, Bicol Branch debits Home Office account and credits
Inventories (assuming that the perpetual inventory system is used). Upon receipt of the
merchandise, Laguna Branch debits Inventories and credits Home Office account. The home
office records the transfer between branches by a debit to Investment in Laguna Branch and a
credit to Investment in Bicol Branch.
The transfer of merchandise from one branch to another does not increase the cost of
inventories by the freight costs incurred because of the indirect routing. The amount of freight
costs properly included in inventories at a branch is limited to the cost of shipping the
merchandise directly from the home office to its present location. Excess freight costs are
recognized as expenses of the home office.
Accounting System for Sales Agencies
An agency is simply an extension of the sales territories in which orders are received from
customers and then transmitted to the home office for shipping and billing. They do not have
merchandise available for sale, but they keep samples inventory.
A sales agency neither keeps a complete set of books nor uses a double-entry system of
accounts. Usually, a record of sales to customers and a list of cash payments supported by
vouchers are sufficient.
An imprest system is usually adopted by the home office for the working fund of the sales
agency.
PROBLEMS
1. Cebu branch submitted the following data to its home office in Manila for 2013, its first year
of operation:
Sales P2,300,000
Home office 480,000
2. The home office in Quezon City ships and bills merchandise to its provincial branch at cost.
The branch carries its own accounts receivable and makes its own collections. The branch
also pays its expenses.
Cash P20,000
Home office P180,000
Sales 225,500
Expenses 55,500
Total P405,500 P405,500
December 31, inventory P65,000
Assuming all the transactions are properly recorded, what is the balance of the Investment in
Branch account in the home office books?
a. P180,000
b. P195,000
c. P165,000
d. P175,000
3. 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
4. Nike Corporation operates a number of branches in the provinces. On December 31, 2013,
its Davao branch showed a Home Office account balance of P54,700 and the home office
books showed an Investment in Davao Branch account balance of P51,100. The following
information may help in reconciling both accounts:
1. A P24,000 shipment, charged by Home Office to Davao Branch, was actually sent to and
retained by Cebu Branch.
2. A P30,000 shipment, intended and charged to Aklan Branch was shipped to Davao
Branch and retained by the latter.
3. A P4,000 emergency cash transfer from Cebu Branch was not taken up in the Home
Office books.
4. Home office collects a Davao Branch accounts receivable of P7,200 and fails to notify
the branch.
5. Home office was charged for P2,400 for merchandise returned by Davao Branch on
December 30. The merchandise is in transit.
Home office erroneously recorded Davao Branch’s net income for 2013 at P32,550. The
branch reported a net income of P25,350.
What is the adjusted balances of the Home Office and Davao Branch reciprocal accounts on
December 31, 2013?
a. P40,300
b. P54,700
c. P47,500
d. 43,500
5. The branch manager of Tower Cosmetics in Cebu submitted a report as of May 31, 2013
containing the following information:
Petty Cash Fund P1,500

Sales 198,720
Sales Returns 3,600
Accounts Written Off 1,920
Inventory – May 31, 2012 37,170
Inventory – May 31, 2013 41,370
Expenses (reimbursed by H.O.) 57,930
Assuming all cash collected by the branch is remitted to Tower Cosmetics home office, the
remittances for the period amounted to:
a. P187,860
b. P189,780
c. P195,120
d. P198,720
6. On December 31, the Investment in Branch account in the home office books shows a
balance of P50,000. The following facts are ascertained:
1. Merchandise billed at P12,500 is in transit on December 31 from the home
office to the branch.
2. The branch collected a home office accounts receivable for P3,500. The
branch did not notify the home office of such collection.
3. On December 30, the home office sent cash of P7,500 to the branch, but
this was charged to General Expense; the branch has not received the cash
as of December 31.
4. Branch profit for December was recorded by the home office at P2,400
instead of P2,040.
5. The branch returned supplies of P1,500 to the home office but the home
office has not yet recorded the receipt of the supplies.
Assume all other transactions have been properly recorded.
What is the unadjusted balance of the Home Office account on the branch books on December
31?
a. P64,140
b. P39,140
c. P14,000
d. P13,000
7. A reconciliation of the Dagupan Branch account of Mandaluyong Company and the Home
Office account carried in the branch’s books shows the following discrepancies at December 31,
2013:
1. A credit for merchandise allowance for P300 was taken by the branch as
P360.
2. A charge by the branch of P550 for an advance taken by the president when
he visited the branch has not yet been recorded by the home office.
3. The branch has not taken up P900 covered by a debit memo from the home
office as share in advertising expenses.
The investment in Dagupan Branch account in the home office books had a debit balance
of P43,000 at December 31, 2013. The reciprocal accounts were in agreement at the
beginning of the year.
The unadjusted balance of the Home Office account in the branch’s books at December
31, 2013 was:
a. P43,500
b. P42,950
c. P41,990
d. P41,490
Office and the Butuan Branch:
a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by
the branch.
b. P10,000 covering marketing expense of another branch was charged by Home Office
to Butuan.
c. Butuan recorded a debit note on inventory transfers from Home Office of P75,000
twice.
d. Home Office recorded cash transfer of P65,700 from Butuan Branch as coming from
Davao Branch.
e. Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to
P10,500. Home Office decided that this charge is appropriately Davao Branch’s cost.
f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560.
The net adjustments DR (CR) to the Investment in Butuan Branch account and to the Home
Office account are:
Investment in Butuan Home Office

a. P(75,700) P20,950
b. 75,700 (20,950)
c. (55,700) 75,000
d. (65,700) (74,000)
9. After examining on a comparative basis the inter-office account of the Bulacan Company
with its suburban branch and the similar account carried on the latter’s books, the following
discrepancies at the close of the business on June 30, 2013 were seen:
a. A charge for labor by the Home Office, P500 was recorded twice by the branch.
b. A charge of P895 was made by the Home Office for freight on merchandise, but the
amount was recorded by the Branch as P89.50.
c. A charge of P980 (furniture and fixture) on the Home Office books was taken up by the
Branch as P890.
d. A credit by the Home Office for P350 (merchandise allowances) was taken up by the
Branch as P400.
e. The Home Office charged the Branch P425 for interest on open account which the
Branch failed to take up in full; instead, the Branch sent to the Home Office a wrong
memo, reducing the charge by P100 and set up a liability for the net amount.
f. The Home Office received P5,000, from the sale of a truck which it erroneously
credited to the Branch; the Branch did not charge the Home Office therewith.
g. The Branch by mistake sent the Home Office a debit note for P370 representing its
proportion of a bill for repairs of truck; the Home Office did not record it.
h. The Branch inadvertently received a copy of the Home Office entry dated July 19, 2011
correcting item (f) and entered a credit in favour of the Home Office as of June 30,
2013.
At June 30, 2013, the unadjusted balance of the Investment in Branch account on the Home
Office books showed P175,520. At the beginning of the year, the inter-office accounts were in
balance.
What is the unadjusted balance of the Home Office account on the branch books on June 30,
2013?
a. P184,279.50
b. P160,725.50
c. P184,729.00
d. P165,279.50
10. Rustans, Philippines has two merchandise outlets, its Home Office in Manila and its Cebu
City branch. For control purposes, all purchases are made by the Home Office and shipped to
the Cebu City branch at cost plus 10%. On January 1, 2013 the inventories of the Home Office in
Manila and the Cebu City branch are P13,600 and P3,960 respectively. During 2013 the Home
Office purchased merchandise costing P40,000 and shipped 40% of it to the Cebu City branch.
At December 31, 2013, the following journal entry to prepare the books for the next accounting
period was prepared by the branch:
Sales 32,000
Shipments from main store 17,600
Expenses 10,480
Home Office 4,800
What was the actual branch income for 2011 on a cost basis assuming the use of the provisions
of the Statement of Financial Accounting Standards?
a. P4,800
b. P6,320
c. P6,480
d. P6,840
11. On September 1, Star Company opened a branch in Dagupan City, shipping to it

merchandise billed at P60,000. During the month, additional shipments were made at a billed
price of P24,000. Returns by the branch of bad-order goods were credited for P1,680. At the
end of the month, the branch reported its inventory P33,600 and its net loss for the month at
P5,200. Shipments to and from the branch were consistently billed at 120% of cost.
On September 30, the branch inventory at cost and the branch net income (loss) as far as the
Home Office is concerned are:
a. P28,000 and P2,920, respectively

b. P28,000 and (P5,200), respectively
d. P33,600 and P5,200, respectively
12. Makati Company bills its Valenzuela Branch for merchandise at 140% of cost. At the end of
January, 2013, the branch reported the following information:
Merchandise from
Home Office
(At Billed Price)
Inventory, January 1 P7,560
Shipments received 28,280
What should be the balance of the allowance account for overvaluation of the branch inventory
at January 31 before adjustment?
a. P2,400
b. P2,160
c. P9,080
d. P10,240
13. The Binondo branch of China Products Inc. buys merchandise from third parties and
receives merchandise from the home office for which it is billed at 20% above cost. Below are
excerpts from the trial balances and data on the home office and Binondo branch for the month
just ended:
Home office
Shipments to Branch 850,000
Branch
Beginning inventory 1,440,000
Purchases 410,000
Month end additional data
From Home Office at Billed Price P1,170,000
From Outsiders (at cost) 290,000
The total cost of goods sold of the Binondo branch at cost (net of overvaluation) for the month just
ended amounted to:
a. P1,410,000
b. P1,385,000
c. P1,235,000
d. P1,850,000
14. Shopper Company started a branch office in Iloilo City on June 1,2013. On this date, the company
shipped to its branch merchandise billed at P90,000. On June 15, another shipment was made at billed
prices of P36,000. During the month, the branch was credited for P2,520 for the damaged goods
returned by the branch. On June 30,2013, the branch reported the following:

Net loss for the month (P7,800)
Shipments to and from the branch were uniformly billed at 120% of cost.
In the home office books, the Iloilo branch operations resulted in:
a. No net income or loss
b. Net income of P4,280
c. Net income of P12,180
d. Net loss of P7,800
15. Tarlac Branch of Quezon City Company, at the end of its first quarter of operations,
submitted the following statement of comprehensive income:
Sales P300,000
Cost of Sales:
Shipments from Home office P280,000
Local Purchases 30,000
Total 310,000
Inventory at end 50,000 260,000
Gross margin on sales 40,000
Expenses 35,000
Comprehensive income P 5,000
Shipments to the branch were billed at 140% of cost. The branch inventory as at September 30
amounted to P50,000 of which P6,600 was locally purchased. Markup on local purchases, 20% over cost.
Branch expenses incurred by Head Office amounted to P2,500.
On September 30, the branch inventory at cost and the net income realized by the home office from the
Tarlac branch operation are:
Branch Inventory at Cost Net income realized

a. P37,600 P72,600
b. P50,000 P55,000
c. P31,600 P5,000
d. P37,600 P70,100
16. Ayala branch was billed by Home Office for merchandise at 140% of cost. At the end of its first
month, Ayala branch submitted among other things, the following data:
Merchandise from Home Office (at billed price) P98,000

Merchandise purchase locally by branch 40,000
Inventory, December 31 of which P7,000 are of local purchase 28,000
Net sales for month 180,000
The branch inventory at cost and the gross profit of the branch as far as the home office is concerned
are:
Branch Inventory at Cost Gross Profit
a. P92,000 P22,000
b. P22,000 P92,000
c. P22,000 P70,000
d. P20,000 P90,000
17. The Coffee Blends Corporation decided to open a branch in Manila. Shipments of merchandise to
the branch totalled P54,000 which included a 20% mark-up on cost. All accounting records are to be
kept at the home office.
The branch submitted the following report summarizing its operations for the period ended December
31, 2013.
Sales on account P74,000

Sales on Cash basis 22,000
Collections of account 60,000
Expenses paid 38,000
Expenses unpaid 12,000
Purchase of merchandise for cash 26,000
Inventory on hand, December 31; 80% from home office 30,000
Remittance to home office 55,000
The branch 12/31 inventory at cost and the branch net income (loss) as far as the home office is
concerned are:
Branch Inventory at Cost Branch Net income (loss)

a. P26,000 (P1,000)
b. P25,000 (P4,000)
c. P26,000 P1,000
d. P20,000 P 800c
18. Trial balances before adjustments for the home office and the branch of the King Company show the
following items on December 31. The home office bills the branch at 20% above cost.
Home Office Branch

Shipment to branch 8,000
Purchases P2,500
Merchandise Inventory, December 1 15,000
What part of the branch inventory as of December 1 represented purchases from outsiders?
a. P3,000
b. P5,000
c. P2,000
d. P1,800
19. The Manila Sales Co. established a branch in San Pablo City early last year. It shipped merchandise
and billed the branch for P300,000 prior to its opening. For the year, it made additional shipments at
billed price of P120,000. Within the year, the branch shipped backP7,500 inventory and got the credit
memo for the said returns. On the last working day of the year, an inventory count was made. Ending
inventory of P185,000 was established consisting of purchases from third parties at P20,000 with the
balance coming from home office shipments at billed price.. The home office billed the branch at 20%
above cost. The total purchases of the branch from outside suppliers amounted to P72,500. The total
goods available for sale by the branch at cost (net of overvaluation and returns) amounted to:
a. P416,250
b. P485,000
c. P422,500
d. P435,250
20. The income statement submitted by the Bulacan Branch to the Home Office for the month of
December,2013 is shown below. After affecting the necessary adjustments the true net income of the
Bulacan Branch inventories were:
12/01/2011 12/31/2011
Merchandise from Home Office P70,000 P84,000
Local purchases 10,000 16,000
Total 80,000 100,000
Sales 600,000
Cost of Sales:
Total available for sale 460,000
Inventory, December 31 100,000 360,000
Gross Margin 240,000
Total comprehensive for December 2011 P60,000
What is the balance of the “Allowance for Overvaluation in Branch Inventory” account at December 31,
2013?
a. P10,000
b. P16,000
c. P24,000
d. P34,000
21. Mahiyain Commercial Corporation operates a branch in Iloilo City. Selected accounts take from the
books of Mahiyain and its branch show balances as of December 31,2013 as follows:
Home office Branch
Merchandise inventory, January P12,000 P8,000
1
Purchase 150,000 30,000
Shipments to branch 75,000 -
Branch inventory allowance 19,750 -
Sales 115,000 176,500
Merchandise inventory, 14,000 10,350
December 31
The ending inventory of the branch includes items costing P4,350 which were acquired from suppliers
other than the home office.
As far as the home office is concerned, the cost of sales of the Iloilo City branch was:
a. P97,120
b. P102,850
c. P121,400
d. P131,850
22. The Neneng Corporation established its San Pedro branch in March 201. During the first year of
operations, the home office shipped to the branch merchandise which had cost of P120,000. Three-
fourths of these merchandise was sold by the branch for P141,000. Operating expenses of the
branch amounted to P27,000.
How much total comprehensive income will the branch report if merchandise is billed by the home
office to the branch at 25% above cost?
a. P800
b. P1,200
c. P1,500
d. P8,000
23. A branch store in Marikina was established by Marco Co. on March 1. Shipments of merchandise,
billed to this branch at 125% of cost, were as follows:
March 5 P120,000
March 10 50,000
March 20 35,000
On March 24, the branch returned defective merchandise worth P3,050 and on March 31, it
reported a net loss of P6,200 and merchandise inventory of P85,000.
In the home office books, the branch total comprehensive income (loss) is:
a. (P6,200)
b. P17,190
c. P20,240
d. P23,390
24. The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao City. During 2013, the
home office shipped to the branch supplies costing P120,000 at a billed price of 20% above cost. The
inventories of supplies at the branch were as follows: January 1,2013, P90,000; December 31,2013,
P108,000. On December 31,2013, the home office holds inventories of P160,500 which includes
P10,500 held in consignment.
How much is the inventories in a combined statement of financial position as of December 31,2013?
a. P210,000
b. P240,000
c. P270,000
d. P300,000
25. The Iloilo Company operate a branch in Davao, and the profit and loss data for the home office and
the branch for 2013 follows:
Home office Branch
Sales P250,000 P75,000
Shipments to branch:
Cost to home office 30,000
Expenses 40,000 10,000
Inventories, Jan. 1,2013:
Branch:
From home office, at 20% above cost 24,000
Inventories, December 31,2013:
Branch:
From home office at 2013 billing 26,000
The combined total comprehensive income (loss) of the home office and the branch on
December 31,2013 is:
a. P30,800
b. P(30,800)
c. P33,800
d. P27,000
26. Manila Inc. established a branch in Cebu to distribute part of the goods purchased by the home
office. The home office process inventory shipped to the branch at 20% above cost. The following
account balances were taken from the ledger maintained by the home office and the branch:
Manila Inc. Cebu branch
Sales P600,000 P210,000
Beginning inventory 120,000 60,000
Purchases 500,000 -
Shipment to branch 130,000 -
Shipment from home office - 156,000
All of the branch inventory is acquired from the home office –
The combined total comprehensive income of the home office and the branch is:
a. P170,000
b. P70,000
c. P278,000
d. P132,000
27. Selected accounts from the December 31,2013 trial balances of Heart Co. and its branch follows:
Heart Branch
Inventory, Jan.1 P46,000 P23,100
Investment in Branch 116,600 -
Purchases 380,000 -
Freight in - 10,450
Expenses 104,000 58,100
Home office - (106,600)
Sales (310,000) (280,000)
As of December 31,2013, a shipment with a billing price of P11,000 was in transit to the branch.
Freight cost, typically 5% of the billing price, is inventoriable. Merchandise on hand at a year-end
were: at home office P64,000 at cost; at branch P33,000 at billing price.
What is the combined total comprehensive income of Heart Company and its branch for 2013?
a. P77,000
b. P84,900
c. P76,000
d. P76,100
28. Apo Supply Company is engaged in merchandising both at its Home office in Makati and as its
Branch in Davao City. Selected accounts taken from the trial balances of the Home office and the
branch as of December 31,2013 follows:
Makati Branch
Debits
Inventory, Jan. 1,2013 P23,000 P11,550

Davao branch 58,300 -
Purchases 190,000 105,000
Freight in from home office - 5,500
Sundry expenses 52,000 28,000
Credits
Home office P- P53,300

Sales 155,000 140,000
Sales to branch 110,000 -
Allowances for overvaluation of
Branch inventory at Jan. 1,2013 1,000 -
- The Davao City branch gets all of its merchandise from the home office. The home office bills the
goods at cost plus a 10% mark-up. At December 31,2013, a shipment with a billed value of P5,000
was still in transit. Freight on this shipment was P250 and is to be treated as part of the inventory.
- Inventories on December 31,2013, excluding the shipment in transit, follow:
Home office, at cost P30,000
Branch, at billed price (excluding freight of P520) 10,400
What is the combined total comprehensive income (loss) of the home office and the branch on
December 31,2013?
a. P30,470
b. P20,870
c. P(10,000)
d. P(30,470)
29. On November 2,2013, the home office of Toby Sports Company recorded a shipment of
merchandise to its Bulacan as follows:
Investment in branch – Bulacan 60,000
Cash (for freight charges) 2,000
The Bulacan branch sells 40% of the merchandise to outside customers during the rest of the period.
The books of the home office are closed on December 31 of each year.
On January 10,2014, the Bulacan branch transfer half of the original shipment to the Baguio branch,
and the Bulacan branch pays P1,000 freight for the shipment. If the shipment had been made by the
home office to Baguio branch, the freight charges would have been P1,500.
What is the entry of the Bulacan brancg to record the receipt of the shipment from the home office on
November 2,2013?
a. Shipments from home office 50,000
Freight in 2,000
Home office 60,000
Home office 60,000
Freight in 2,000
Home office 60,000
Freight out 2,000
Home office 52,000
30. using the same data in No. 29, at what amount should the 60% of the merchandise remaining
unsold at December 31,2013 be included in the inventory of the Bulacan Branch?
a. P31,200
b. P36,000
c. P36,800
d. P34,800
39. Using the same data in No. 29, what is the entry in the books of Bulacan Branch to record the
transfer of January 10,2014?
a. Baguio branch 31,000
shipment from home office 31,000
b. home office 31,000
inventory 31,000
c. home office 31,000
inventory 30,000
cash 1,000
d. home office 32,000
cash 1,000
freight in 2,000
inventory 29,000
32. Using the same data in No. 29, what is the entry in the books of Baguio branch to recorf the
transfer on January 10,2014?
a. shipments from Bulacan Branch 30,200
Bulacan branch 30,200
b. shipments from home office 29,000
freight in 1,500
home office 30,500
cash 1,000
c. shipments from home office 29,000
freight in 1,500
home office 30,500
d. shipment from home office 30,000
freight in 1,000
home office 31,000
33. Using the same data in No. 29 what is the entry in the home office books to record the inter-
branch transfer on January 10,2014?
a. investment in branch – Baguio 30,500
excess freight 1,500
b. investment in branch – Baguio 30,500
c. investment in branch – Bulacan 32,500
investment in branch – Baguio 32,500
d. investment in branch – Baguio 30,500
excess freight 500
34. Papa, Inc. of Makati opens a sales agency in Pasig City and a working funn of P100,000 is
established on imprest basis. The first payment from the fund is P5,000 for rent of the store space.
What is the entry in the books of the home office to record the payment of rent by the agency?
a. Rent expense – Pasig agency 5,000
cash 5,000
b. Pasig agency 5,000
cash 5,000
c. Rent expense – Pasig agency 5,000
working fund 5,000
d. No entry
35. Mama, Inc. opened a sales agency in San Pedro Laguna in 2013. The following is a summary of the
transactions of the sales agency:

Freight on shipment of agency 2,000
Administrative expenses charged to agency 5% gross sales
Cost 8,200
Inventory, December 31,2013 4,550
The company’s gross profit rate on agency sales is 30% excluding the freight cost on shipments to
agency.
What is the total comprehensive income of the agency for 2013?
a.P3,600
b.P5,600
c. P1,600
d.P6,300
36. A Makati home office transfers inventory to its Pasig branch at 140% of cost. During 2013, the
reciprocal account in the statement of comprehensive income of the home office amounts to P328,125.
On December 31,2013, the home office adjusted the branch income summary by debiting the Allowance
for Overvaluation of Branch Inventory account in the amount of P81,250. The branch’s statement of
financial position at the beginning of the year shows P105,000 of inventory acquired from the home
office.
How much is the ending inventory of the branch per books?

a. P200,000
b. P161,250
c. P280,000
d. P80,000
37. On July 31,2013, the home office in Manila establishes a sales agency in Bulacan. The following
assets are sent to the agency:
Cash(working fund to be operated under the imprest system) P22,000
Samples of merchandise 36,000
During the month of August, the following transactions occurred:
 The sales agency submits sales order of P272,000, sales per invoice was billed at P268,000. Cost
of sales to customers is P124,000.
 Collections during the month amount to P58,200 net of 3% discount.
 Home office disbursements chargeable to the agency are as follows:
Furniture P40,000
Salaries for the month 21,600
Annual rent of office space 36,000
 On August 31, the sales agency working fund is replenished. Paid vouchers submitted by the
sales agency amounting to P17,925. Samples were useful until December 31,2013 which at this
time are believed to have a salvage value of 15% of cost. Furniture is depreciated at 18% per
annum.
What is the total comprehensive income of the sales agency for the month of August?
a. P91,425
b. P93,225
c. P92,955
d. P58,425
38. The home office in Makati shipped merchandise costing P55,500 to Pasig branch, prepaid the
freight amounting to P4,200. The home office transfers inventory to the branch at a 20% markup
above cost. Pasig branch was subsequently instructed by the home office to transfer the
merchandise to Alabang branch wherein the latter paid freight of P2,800. If the shipment was
made directly from Makati to Alabang, the freight cost would have been P6,200.
Which of the following is true as a result of the interbranch transfer of merchandise?

a. The home office debits Alabang Branch Current for P73,600
b. Alabang branch debits the Home Office for P70,000
c. Pasig branch credits freight in for P6,200
d. The home office will credit Pasig Branch Current for P70,800
39. The following are some of the account balances on the books of the home office and its branch on
December 31,2013.
Home office books Branch books
Inventory, January 1,2013 P20,000 P58,000
Purchases 900,000 200,000
Allow. For overvaluation of 52,500
branch inventory
Sales 1,200,000 720,000
Per physical count, the ending inventory of the branch is P42,000 including goods purchased from
outsiders of P27,700 while the ending inventory of the home office is P120,000. Home office bills its
branch for merchandise shipments at 30% above cost.
What is the amount of the unrealized inventory profit in the books of the home office on December
31,2013?
a. P9,000
b. P7,260
c. P12,000
d. P3,300
40. using the data in No. 39, how much is the combined total comprehensive income on December
31,2013?
a. P538,700
b. P547,400
c. P541,700
d. P498,200
e. ANSWERS
1. A 6. B 11. A 16. B 21. B 26. A 31. D 36. C

2. C 7. D 12. D 17. C 22. C 27. C 32. C 37. C
3. B 8. A 13. C 18. A 23. B 28. A 33. A 38. D
4. C 9. A 14. B 19. A 24. B 29. C 34. D 39. C
5. A 10. B 15. A 20. C 25. C 30. B 35. A 40. A
SOLUTIONS AND EXPLANATIONS

1. Since the balances of the reciprocal accounts “Home Office” account and “Investment in
Branch” account are equal, then the balance of the Home Office account after closing
the branch profit is to be computed. The computation is:
Add: Profit (loss)
Sales P2,300,000
Cost of sales
Shipments from HO P1,850,000
Inventory, dec. 31 255,500 1,594,500
2.
Add: Profit (loss)
Sales P225,500
Cost of sales
Shipments from HO P250,000
Inventory, dec. 31 65,000 185,000
Expenses 55,500 (15,000)
Therefore the balance of the Investment in Branch a account is also P165,000.
3. In preparation of combined statements of the home office and the branch, all inter-
office transactions are eliminated as if it had never occurred. Therefore, the only
transaction that should be presented are transactions to outsiders, which is in this
problem, the P520,000 sales by branch to outsiders.
4. To compute the adjusted balances of the reciprocal accounts a reconciliation statement
is to be prepared as follows:
(branch books) home office (HO books) Investment in
account Davao Branch Account
Unadjusted balances, Dec. P54,700 P51,1100
31,2013
Add(deduct) the following adjustments:
1. shipment charged Davao (24,000)
branch but actually sent to
Cebu branch
2. shipment charged to 30,000
Aklan branch but actually
sent to Davao branch
3. no effect
4. Merchandise returned by (7,200)
Davao branch accounts
receivable
5. merchandise returned by
Davao branch still in transit (2,400)
to home office
6. overstatement of Davao _______ (7,200)
branch net income
(P32,550-P25,350)
Adjusted balances, dec. P47,500 P47,500
31,2013
5. The P187,860 is computed as follows:

Accounts receivable, 5/31/12 P43,800
Net sales (P198,720 – P3,600) 195,120
Total 238,920
Less: Accounts receivable, 5/31/13 P49,140
Remittance P187,860
Investment in branch account balance, P50,000
12/31 (HO books)
Add(deduct):
Merchandise in transit (12,500)
Collection of HO accounts receivable 3,500
by branch
Erroneous recording of Branch profit (360)
Supplies returned by Branch (1,500)
HO account balance, 12/31 (Branch P39,140
books)
7. The P41,490 unadjusted balance of Home office is computed as follows:

Unadjusted balance, Investment in Branch account, 12/31 P43,000
Less: Merchandise allowance (error) P60
Branch advances to President 550
Advertising expense charged to branch 900 1,510
Unadjusted balance, home office account, 12/31 P41,490
8. Dr. (Cr.) Adjustment to investment in Butuan Branch account

Marketing expense of another branch charged to Butuan (b) P(10,000)
Butuan’s remittance credited to Davao branch (d) (65,700)
Account in the home office books P(75,700)
Dr. (Cr.) Adjustment to Home office account:

Fixed assets transfer not booked by Butuan (a) P(53,960)
Inventory transfer recorded twice by Butuan (c) 75,000
Error in recording DM for P4,650 as P4,560 (f) (90)
Account in the home office books P20,950
9. unadjusted balance of investment in branch account, 6/30 P175,520

(a) Charge for labor 500
(b) charge for freight (805.5)
(c) purchase of furniture & fixture (90)
(d) merchandise allowance (50)
(e) charge for interest (425)
(f) proceeds from sale of truck 5,000
(g) charge for truck repairs (370)
(h) proceeds from sale of truck 5,000
Unadjusted balance of Home office account, 6/30 P184,279.5
10.
Sales P32,000
Cost of sales
Inventory, jan.1 3,960
Inventory, dec. 31 (4,840) 16,720
Gross profit 15,280
Expenses 10,480
Net income per branch books 4,800
Add: overvaluation of COS
Billed price (above) 16,720
Cost to HO (16,720/110%) 15,200 1,520
Actual branch income at cost basis P6,320
11. Branch Inventory at Cost:

Branch inventory at billed price P33,600
Divided by the billing percentage cots ÷120%
Branch inventory of cost P28,000
Branch net income as far as the HO is concerned:

Branch net loss, as reported (P5,200)
Add: overvaluation of COS of the
Branch:
Total shipment to Branch
Billed price (P60,000+24,000) P84,000
Cost (P84,000/120%) 70,000 P14,000
Less: branch returns -
Billed price P1,680
Cost (P1,680/120%) 1,400 280
Net shipment P13,720
Less: Inventory, 9/30
Cost 28,000 5,600 8,120
12. The balance of the Allowance for Overvaluation of Branch Inventory account
represents the overvaluation of branch inventory on January 1 and overvaluation of the
shipment received. Computation is as follows:
Billed price Billing Cost Over valuation
÷ percentage =
Inventory, Jan. 1 P7,560 140% P5,400 P2,160
Add: shipment 28,280 140% 20,200 8,080
Balance of allowance before adjustment P10,240
13.
Beginning inventory P1,440,000
Purchase 410,000
Shipment from HO 1,020,000
Good available for sale 2,870,000
Ending inventory 1,460,000
Cost of sales 1,41,000
Less: Overvaluation
Beginning inventory & shipments 370,000
Less: ending inventory
Billed price P1,170,000
Cost (P1,170,000/120%) 975,000 195,000 175,000
Cost of goods sold (net) P1,235,000
14. According to the HO books, Iloilo branch will have a P4,380 net income as computed
below:
Branch net loss (P7,800)
Add: Overvaluation of Cost of sales of Branch -
Total shipment to Branch:
Billed price (90,000+36,000) P126,000
Cost (P126,000/120%) 105,000 P21,000
Less: Branch returns
Billed price P2,520
Cost(2,520,/120%) 2,100 420
Net shipment to Branch P20,580
Less: inventory, 6/30
Cost(P50,400/120%) 42,000 8,400 12,180

Acquired from HO:
Billed price (P50,000-P6,600) P43,400
Divide by billing percentage of cost 140% P31,000
Below is the computation of Home office income from branch operation of P70,100.
Branch net income (5,000-2,500 P2,500
expense)
Add: overvaluation of branch cost
of sales:
Shipment from Home Office:
Cost(P28,000/140%) 200,000 P80,000
Less: inventory, end -
Billed price (50,000-6,600) P43,400
Cost(P43,400/140%) 31,000 12,400 67,600
Branch net income realized by HO P70,100
16. branch inventory, at cost, 12/31:

Total P22,000
Branch gross profit:

Net sales P180,000
(P98,000/140%)
Purchases 40,000
Cost of goods available for sale 110,000
Inventory, at cost 12/31:
Local purchases 7,000 22,000 88,000
Gross profit insofar as HO is concerned P92,000
17. below is the computation of Branch ending inventory at cost:
Acquired from HO (80% x P30,000 ) / 120% P20,000

Add: Acquired from outsiders (20% x P30,000) 6,000
The P1,000 net income is derived as follows:
Sales (P74,000 + P22,000) P96,000

(P54,000/120%)
Purchases 26,000
Cost of goods available for 71,000
sale
Inventory, at cost 12/31: 26,000 45,000
Expenses (P38,000+P12,000) 50,000
Branch net income insofar as Home office is concerned P1,000
18. Merchandise inventory, December 1 P15,000

Less: Merchandise acquired from HO at billed price
Overvaluation (3,600 – P1,600) P2,000
Cost (P2,000/20%) 10,000 12,000
Merchandise acquired from outsiders P3,000
19.
Total shipment from office P420,000
Returns (7,500)
Purchases 72,500
Goods available for sale, at billed price 485,000
Less: overvaluation of shipment:
Cost (420,000/120%) 350,000 70,000
Returns:
Billed price P7,500
Cost (7,500/120%) 6,250 (1,250) 68,750
Goods available for sale, at cost P416,250
20. before computing the balance of the allowance account, the percent of billing price to
cost should be computed first as follows:
Branch net income, per HO P156,000

Branch net income, per branch 60,000
Realized mark-up on merchandise from the
Home office already sold by the branch P96,000
Shipment from home office P350,000

Less: increase in portion of Branch inventory
Acquired from home office 14,000
Portion already sold by branch P336,000
Less: Mark-up thereon (above) 96,000
Cost of portion already sold by branch P240,000
Per cent of billing price to cost: P336,000/240,000 140%
The balance of the “Allowance for Overvaluation in Branch inventory” account as

December 31,2013 after adjustment represent the overvaluation of the branch ending
inventory acquired from the home office computed as follows:

Cost (P84,000/140%) 60,000
Balance of the allowance account P24,000
21. branch inventory, January 1 P8,000

Purchases 30,000
Less: branch inventory, Dec. 31 10,350
Branch cost of sales, per branch books P121,400
Less: Mark- up on merchandise from the HO
Already sold by the branch: P19,750
Branch inventory allowance
Less: mark-up on portion of Dec. 31 inventory
Acquired from home office:
(P10,350-P4,350) x 25/125 1,200 18,550
Branch cost of sales, as far as the home office is concerned P102,850
Note: shipments of merchandise from the home office to the branch are billed at 125%
of cost, determined as follows:
Shipments from Home Office = P93,750 =125%

Shipments to Branch = P75,000
22.
Sales P141,000
Less: cost of sales at Billed price (Sch. 1) 112,500
Gross profit 28,500
Expenses 27,000
Total comprehensive income to be reported by the Branch P1,500
Schedule 1
Cost of shipment to branch P120,000
Add: 25% mark-up 30,000
Billed price of shipment to branch 150,000
Portion sold x¾
cost of sales at billed price P112,500
23. reported branch loss P(6,200)

Add: overvaluation in branch cost of sales
Shipment to branch P205,000
Less: returns 3,050
Cost of sales, at billed price 116,950
Cost of sales, at cost to HO
(116,950/125%) 93,560 23,390
Branch total comprehensive income, per HO books P17,190
24. The combined inventories on dec. 31, 2013 statement of financial position computed as
follows:
Home office (P160,500 – P10,500) P150,000

Branch, at cost (108,000/120%) 90,000
Combined inventories, 12/31 P240,000
25.
Sales P325,000
Less: cost of sakes
Jan. 1 inventories, at cost (sch 1 ) 107,500
Purchases 215,000
Less: dec. 31 inventories, at cost (sch 1 ) 81,300 241,200
Gross profit on sales P83,800
Less: expenses 50,000
Total comprehensive income P33,800
Schedule 1:
Inventories
Jan.1 Dec. 31
Home office P80,000 55,000
Branch, at cost
Acquired from outsiders 7,500 5,500
Acquired from HO:
Jan. 1 (P24,000/120%) 20,000
Dec. 31 (P26,000/125%) _______ 20,800
2013 billing (7,500/30,000) = 125%
26.
Sales P810,000
Cost of sales
Beg. Inventory
HO P120,000
Branch, at cost 50,000 P170,000
(P60,000/120%)
Purchases 500,000
Total 670,000
Ending inventory:
HO 98,000
Branch, at cost 40,000 138,000 532,000
(P48,000/120%)
27.
Sales (P310,000 + P280,000) P590,000
Cost of sales:
Inventory, 1/1 (sch1) P67,100
Purchases 380,000
Freight in (P220,000x5%) 11,000 391,000
Goods available for sale 458,100
Inventory, 12/31 (sch1) 104,000
Freight in (P220,000x5%) 2,200 106,200 351,900
Expenses (P104,000+P58,100) 162,100
Combined total P76,000
Comprehensive income
Schedule 1 : Combined inventories – at cost

Inventories
Home office, at cost P46,000 P64,000
Branch at cost
Inventory, Jan. 1:
Mark-up (sch2) 2,000 21,00
Inventory, Dec. 31:
At cost 40,000
[(P33,000+P11,000)/110%*]
*Billing %: (209,000 + 11,000)/200,000 = 110%
Schedule 2: mark-up on Branch beginning inventory

Branch merchandise markup before adjustment P22,000
Less: overvaluation of shipments [(P209,000 + P11,000)-P200,000] 20,000
Mark up of branch beginning inventory P2,000
28.
Sales P295,000
Cost of sales:
Inventory, 1/1
Home office P23,000
Branch, at cost (11,550-1,000) 10,550
Freight in (5,500-1,000) 5,750 39,300
Purchases, Home office 190,000
Total 229,300
Inventory, 12/31
Home office P30,000
Branch, at cost 14,000
[(10,400+5,000/110%]
Freight in(P520+250) 770 44,770 184,530
Sundry expneses 80,000
Combined total comprehensive P30,470
income
29. Choice (c) is correct, because the branch should record the shipment from the office at
billed price (P50,000 + P8,000), and should treat the freight charged by the office as
inventoriable cost.
30.
Shipments from home office at billed price P58,000
Unsold 60%
Ending inventory P34,800
Freight in (P2,000 x 60%) 1,200
Total P36,000
31. In the books of Bulacan branch (sending branch) the inter-branch transfer should be treated
as if it was returned to the home office. Inventory account should be credited in place of
the Shipment from Home office account which was already closes at the end of 2010.
Therefore entry (d) is correct.
32. In the books of Baguio branch (receiving branch) the inter-branch transfer should be treated
as if it was received from the home office. And the freight to be recognized should be the
freight from the office. Therefore choice (c) is correct.
33. In the books of the home office the inter-branch transfer can be cleared by debiting the
receiving branch (Baguio) and crediting the sending branch (Bulacan). Excess freight
account should be charged for the difference which is treated as an expense of the home
office. Therefore choice (a) is correct.
Alternative entry: If the allowance for overvaluation of branch inventory account is classified by
branch:
Investment in Branch – Baguio 30,500

Allowance for overvaluation of Branch Inventory-Bulacan
(P8,000 x 50%) 4,000
Excess freight 1,500
Investment in Branch – Bulacan 32,000
Allowance for overvaluation Branch inventory- Baguio 4,000
34. The expenses paid by the branch are not recorded in the home office books. It is only
recognized upon replenishment of the working fund (petty cash fund).
35. Sales P95,000

Sales discount (P81,000 / 90%)x 10% 9,000
Net sales 86,000
Cost of sales (P95,000 x 70%)+ 200 68,500
Gross profit 17,500
Expenses:
Selling expenses P5,500
Administrative expenses (P95,000 x 5%) 4,750
Samples expenses (P8,200 – P4,550) 3,650 13,900
Net income P3,600
36. Branch beginning inventory – acquired from home office P105,000

Shipment from home office – at billed price (P328,125 x 140%) 459,375
Goods available for sale at billed price 564,375
Branch ending inventory per books P280,000
37. Sales P268,000

Sales discount (P58,200 ÷ 97%)x 3% 1,800
Net sales
Cost and expenses:
Cost sales P124,000
Salaries 21,600
Rent expense (P36,000 x 1/12) 3,000
Expenses 17,925
Samples (P36,000 x 85%)x 1/5 6,120
Depreciation (P40,000 x 18% x 1/12) 600 173,245
Net income P92,955
38. Choice (d) is correct due to the following entries to record the interbranch transfer of
merchandise:
Pasig Branch Books:

Home office 70,800
Freight in 4,200
To record transfer of merchandise to Alabang.
Alabang Branch Books:

Freight in 6,200
Cash 2,800
Home office 70,000
To record receipt of merchandise from Pasig.
Home Office Books:

Alabang branch current 70,000
Excess freight 800
Pasig branch current 70,800
To record interbranch transfer of merchandise.
39. The unrealized inventory profit balance on December 31 is the difference between the
branch ending inventory at billed price and cost. Computed as follows:
Branch ending invty per physical count – from HO (42,000 – 27,000) P14,300
Shipment in transit:
Shipment from HO at BP (145,000 ÷ 130%) P188,500
Shipment from HO per books 150,800 37,700
Correct branch ending inventory at billed price P52,000
Branch ending at cost (52,000 ÷ 130%) 40,000
Unrealized inventory profit, December 31, 2008 P12,000
40. The combine net income is computed by preparing a combined income statement as
follows:
Sales P1,920,000
Cost of sales:
Inventory, January 1 (Sch. 1) P69,000
Purchases 1,100,000
Goods available for sale 1,169,000
Inventory, December 31 (Sch. 1) 187,700 981,300
Expenses 400,000
Schedule 1:
Inventory at cost
Home office P20,000 P120,000
Branch: Acquired from HO (Sch. 2) 30,000 40,000
Acquired from outsiders (58,000 – 39,000) 19,000 27,700
Total 49,000 67,700
Schedule 2:
Allow for overvaluation before adjustment P52,800
Overvaluation in the Shipments:
Shipment from HO at BP (P145,000 x 130%) P188,500
Shipment to branch at cost 145,000 43,500
Overvaluation in the branch beginning inventory P 9,000
Branch beginning inventory at cost (P9,000 / 30%) P30,000
Branch ending inventory at cost (per No. 39) P40,000

ACCP303 – Accounting for Special Transactions
Joint Arrangements
C. N. Dait
Joint Arrangements
A joint arrangement is an arrangement where two or more parties have joint control. (PFRS 11)
A joint arrangement has the following characteristics:
 The parties are bound by a contractual arrangement, and

 The contractual arrangement gives two or more of those parties joint control of the arrangement.
Joint control exists when:
a. there exists a contractually agreed sharing of control
b. the agreement is that decisions about the relevant activities require the unanimous consent of the
parties sharing control (i.e. no party can make a unilateral decision about relevant activities).
Types of Joint Arrangements
A joint arrangement can be classified as either
 A Joint Operation or
 A Joint Venture
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement
have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are
called joint operators. Normally, there will not be a separate entity established to conduct joint operations.
(Setup is similar to Partnership, Joint Operators have unlimited liability)
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have
rights to the net assets of the arrangement. These parties are called joint venturers. This will normally be
established in the form of a separate entity to conduct the joint venture activities. (Setup is similar to
Corporation, Joint Venturers have limited liability)
A joint venture usually involves the establishment of a corporation, partnership or other economic entity in
which each joint venturer has an ownership interest. The joint venturers have no rights over the individual
assets nor have obligations toward the individual liabilities of the joint venture. Instead, like shareholders of
a corporation, joint venturers have rights only over the Net Assets of the joint venture.
1
Joint Arrangements
C. N. Dait
Separate Vehicle
When assessing the rights and obligations from the joint arrangement, it is very important to look at how
the joint arrangement is structured, mainly whether the arrangement is structured through separate vehicle
or not.
A separate vehicle may be created in a joint arrangement. It is defined as a “separately identifiable financial
structure including separate legal entities (e.g. a company) or entities recognized by a statute (not
necessarily having legal personality), regardless of whether or not those entities have a legal personality”.
When a joint arrangement is NOT STRUCTURED through a separate vehicle, then the classification is
easy, it is a clear joint operation.
In such cases, the contractual arrangement establishes the parties’ rights to the assets, and obligations for
the liabilities, relating to the arrangement, and the parties’ rights to the corresponding revenues and
obligations for the corresponding expenses.
When the joint arrangement is not structured through a separate vehicle, then it can be either joint operation
or joint venture. If there is a separate vehicle and the parties have the rights to the assets and obligations
for the liabilities, the joint arrangement would be classified as a Joint Operation.
Accounting for Joint Operation
New treatment
 Recognizes its own assets, liabilities, income and expenses plus its share in the joint operation’s
assets, liabilities, income and expenses.
 Direct accounting of assets and liabilities applies.
Exercise 1
X Inc., Y Co and Z Inc. sign an agreement to collectively purchase an oil pipeline and to hire a company to
manage and operate the pipeline on their behalf. The costs involved in running the pipeline and the
revenue earned from the pipeline are shared by the three parties based on their ownership percentage.
All major operating and financing decisions related to the pipeline must be agreed to by the three
companies. The cost of purchasing the pipeline was P60,000,000. The pipeline has an estimated 20-year
useful life with no residual value. The management fee for operating the pipeline for 2004 was
P12,000,000. Revenue earned from the pipeline in 2004 was P19,800,000. X invested P18,000,000 for a
30% interest.
Required:
1. Prepare entries in the books of X Inc for 2004 to capture or recognize its share of the activities related
to the oil pipeline.
2. Compute the share of X Inc. in the net income of the joint operation for 2004.
2
Joint Arrangements
C. N. Dait
1)
Oil Pipeline 18,000,000 (60M x 30%)
Cash 18,000,000
Operating expense 3,600,000 (12M x 30%)

Cash 3,600,000
Depreciation Exp 900,000 (18M/20)

Accum. Dep.-Pipeline 900,000
Cash 5,940,000 (19.8M x 30%)

Revenue 5,940,000
2) Proportionate Share Total

(30%)
Revenue 5,940,000 19,800,000
Less:
Operating expense 3,600,000 12,000,000
Depreciation expense
(18M/20= 900,000) 900,000
(60M/20 = 3,000,000) 3,000,000
Net Income of Joint Operation 4,800,000
X 30% interest X 30%
Net Income of X 1,440,000 1,440,000
Exercise 2
Dave and Ed agreed to acquire and jointly operate an oil pipeline that each will use to transport its own
oil. The joint operators will share equally in the pipeline’s acquisition and operating costs. The acquisition
cost was P100,000,000 and the operating costs were P30,000.000. Dave and Ed had total sales of
P120,000,000 and P150,000,000, respectively. The individual financial statements of the entities will show
the following:
Dave Ed
Balance Sheet: Balance Sheet:
PPE (P100M x 50%) = P50 M PPE (P100M x 50%) = P50M
Income Statement: Income Statement:
Sales = P120M Sales = P150M

Expenses = P15M (P30M x 50%) Expenses = P15M (P30M x 50%)
Profit = P105M Profit =P135 M
3
Joint Arrangements
C. N. Dait
Traditional
Accounting for Joint Operations
1. Separate set of books are maintained for the joint operation

a. Accounting for the joint operation transactions is the same as partnership accounting.
b. Joint operators will record transactions affecting their interest through “Investment in Joint
Operations” account.
2. No separate set of books are maintained for the joint operation
a. Each joint operator will record transactions on behalf of the joint operation in his own records,
alongside with other business dealings.
b. Each joint operator records all the joint operation transactions in their own books whether he is
a party to the transactions or not, hence, each joint operator must inform on time the other joint
operator of the joint operation transactions made by him.
c. “Joint Operation” account is maintained to record all nominal accounts.
JOINT OPERATION
a. Merchandise contributions a. Mdse. returned to Joint Operators

b. Purchases b. Mdse. Withdrawals
c. Freight-in c. Purchase discounts
d. Sales discounts d. Purchase ret. & all.
e. Sales ret. & allow. e. Sales
f. Expenses f. Other revenues
d. Managing joint operator is normally designated to undertake the following:

 To handle joint operation cash; although in most joint operation, cash is handled by the
joint operators making sales and purchases.
 To maintain real accounts, the term joint operation is used as a prefix or placed before
the real accounts. (i.e. Joint operation cash, joint operation accounts receivable, joint
operation inventories, etc…)
 To determine joint operation profit or loss upon termination of a completed joint operation
or at the end of an accounting period for uncompleted joint operation.
 To distribute joint operation profit or loss based on joint operation’s profit and loss
agreement.
 To make cash settlement to joint operators upon termination of a completed joint operation.
Joint Operation Profit or Loss
The following should be considered in computing profit or loss:
1. If the joint operation is completed, the balance of the Joint Operation account represents the
profit or loss. A credit balance represents profit and a debit balance represents loss.
2. If Joint Operation is uncompleted, meaning there are still unsold merchandise, the profit or loss
is the squeeze figure between the balance of the Joint Operation account before profit
distribution and the cost of the unsold merchandise ( the required debit balance of the Joint
Operation account after profit or loss distribution).
4
Joint Arrangements
C. N. Dait
Cash Settlement
This is the cash due or from the participant upon completion of the Joint Operation undertaking.
1. Cash settlement is represented by the joint operator’s account balance after recording
investments, withdrawals, and share in joint operation gain. A debit balance represents cash
to be paid in final settlement while a credit balance represents cash to be received. The
recording of cash settlement on the books of each joint operator requires that:
a. All accounts, except personal accounts, be brought to zero balance
b. Any unaccounted debit or credit is cash to be received or paid.
2. Computation of cash settlement (cash received or paid)

Investment XXX
Add: Share in joint operation gain XXX
Les: Withdrawals XXX
Cash settlement XXX
====
(See Illustration on separate file, Ex 3 and Ex 4)

Accounting for Joint Venture
A joint venture shall recognize its interest in a joint venture as an investment and shall account for that
investment using the equity method.
 The use of the equity method will result in recognizing only a single line item investment in a joint
venture in the statement of financial position, and a single line item for the proportionate share in
net income and changes in equity in the statement of comprehensive income.
 In addition, the venturer needs to make adjustments through these same accounts for its share of
the following items:
1. Allocation and amortization of acquisition differentials.
2. Unrealized profits from intercompany transactions.
3.Contributions to the joint venture.
The Equity Method of Accounting
1. Investment is initially recorded at cost and the carrying amount is increased or decreased to
recognize the investor’s share of the profits or losses of the joint venture or associate after the
date of acquisition.
2. The investor takes its share of post-acquisition profit or losses irrespective of whether dividends
are distributed.
3. Dividends received from a joint venture or an associate merely reduce the carrying amount of the
investment.
4. The carrying amount of the investment must also be adjusted for the changes in the investor’s
share of the components of other comprehensive income of the joint venture or associate after
the acquisition date.
5. In the consolidated financial statements of the investor, the carrying amount of the investment in
the joint venture or associate is not eliminated but shown as a separate item as investment in
joint venture or associate.
5
Joint Arrangements
C. N. Dait
Presentation in Statement of Financial Position
Investments accounted for under equity method are presented as noncurrent assets except when they
are held for sale under PFRS 5.
Joint Venture (Equity Method)
Exercise 5
Charlie Company entered into a joint arrangement classified as joint venture on January 1, 2021. Charlie
acquired its 30% interest in Delta Inc for P500,000. During the year, Delta Inc. reported P1,000,000 profit
and P200,000 other comprehensive income. Delta Inc declared dividends of P600,000. Compute for the
carrying amount of Charlie Company’s investment on December 31, 2021.
Exercise 6
Two real estate companies set up a separate vehicle for the purpose of acquiring and operating
condominium units. One of the companies, SS Company paid P2,016,000 for a 30% interest in AA
Corporation’s (separate vehicle) outstanding voting stock on January 1, 2004. Such acquisition gave SS
Corporation to joint control with another company over AA Corporation. The book values and fair values
of AA’s assets and liabilities on January 1 , along with amortization data are as follows:
6
Joint Arrangements
C. N. Dait
AA Co. AA Co.
Book Value Fair Value
Cash P 480,000 P 480,000
Accounts receivable, net 840,000 840,000
Inventories (sold in 2004) 1,200,000 1,440,000
Other current assets 240,000 240,000

Land 1,080,000 2,040,000
Buildings – net (10 years remaining life) 1,800,000 2,400,000
Equipment – net (7 years remaining life) 1,440,000 600,000
Total assets P7,080,000 P8,040,000
Accounts payable P 960,000 P 960,000
Other current liabilities 240,000 240,000

Bonds payable (due, January 1, 2009) 1,200,000 1,320,000
Common stock, P10 par 3,600,000
Retained earnings 1,080,000
Total liabilities and Stockholders’ Equity P7,080000
AA Corporation reported net income of P1,440,000 for 2004 and paid dividends of P720,000.
Required:
1. Prepare the schedule of determination of allocation of excess.
2. Prepare entries in the books of the joint venturer in 2004 in relation to its investment in joint venture,
assuming that the joint venture does not prepare consolidated financial statements using equity
method.
3. In relation to No 2, determine:
a. Investment in Joint Venture-SS Company and
b. Investment income (equity in net earnings) for 2004.
7
Joint Arrangements
C. N. Dait
Answer
8
Joint Arrangements
C. N. Dait
9
Joint Arrangements
C. N. Dait
Comparison of Joint Operation and Joint Venture
Joint Operation Joint Venture

Rights and obligations conferred Rights to Assets Rights to Net Assets (Equity)
to the parties. Obligation to Liabilities
Parties Joint operators Joint venturers
Separate vehicle Either not structured through a Structured through a separate
separate vehicle vehicle
OR (Assets are held in a separate
Structured through a separate vehicle)
vehicle
(Assets are held in a separate
vehicle)
Set-up Similar to Partnership Similar to corporation
Joint operators have unlimited Joint venturers have limited
liability like a partner in liability like a stockholder in
partnership. corporation.
Accounting Recognize own assets, liabilities, Equity method.
revenues and expenses plus
share in the assets, liabilities,
revenues and expenses of the
joint operation.
Transactions between a venturer and a joint venture
Gains and losses from upstream and downstream transactions between an investor and joint venture are
recognized in the investor’s FS only to the extent of unrelated investors’ interest in the joint venture.
END
10
Prefinals
November 15, 2021
1. The home office bills its branch for merchandise transfers at a price in excess of cost. When the
home office prepares separate financial statements, the allowance for unrealized gross margin in
branch inventory account would appear in the financial statements of the home office as
a. an operating expense of the current period
b. deduction from the cost of goods sold
c. addition to the cost of goods sold
d. deduction from the investment in branch account * D
2. Which of the following accounts would be shown on the combined financial statements of the home
office and branch?
a. Investment in Branch account
b. Allowance for unrealized mark up in branch inventory
c. Home office account
d. Purchases from outsiders * D
3. If the home office of Green Corporation maintains the accounting records for the plant assets of its
branch, and the branch acquired equipment for P50,000, the appropriate journal entry for the
branch is
a. Debit the Home Office and credit Plant Asset for P50,000.
b. Debit the Home Office and credit cash for P50,000.*
c. Debit Plant Asset and credit Home Office for P50,000.
d. Debit cash and credit home office for P50,000 B
4. Which of the following sets of accounts must always be kept in agreement?
a. Investment in Branch and Equity in Home Office*
b. Shipments to Branch and Shipments from Home Office
c. Branch Income and Investment in Branch ANS A
5. The home office account on the books of the branch is comparable to

a. an asset account c. a liability account
b. an ownership equity account* ANS B
6. Two sources of revenue for franchise companies is derived from

a. sale of equipment and continuing fees.
b. providing of services such as bookkeeping and advisory services and sale of goods
c. sale of initial franchise and continuing fees.*
d. advertising and promotion. ANS C
7. Franchise fees should be recognized
a. on the date the contract was signed.
b. on the date the franchise is opened for business.
c. on the date the franchise fee is paid to franchisor.
d. when performance obligations are satisfied.* ANS D
8. Revenue for sales-based royalty payments should be recognized
a. when the amount of sales can be determined.*
b. on the date payment is received by the franchisor.
c. on the date the performance obligation is satisfied. ANS A
d. on the date the contract was signed.
9. Continuing royalty fee depends on future sales amounts and is recognized overtime.
a. true*
b. false ANS A
10. Types of franchising arrangements include all of the following except

a. service sponsor-retailer.
b. wholesaler-service sponsor.*
c. manufacturer-wholesaler.
d. wholesaler-retailer. ANS B
ADV1-04
1
Prefinals
November 15, 2021
11.
Trial balances for the home office and the branch of the Irvin Company show the following items, before
adjustment, on December 31. Differences in the shipments account balances result from the home office
policy of billing the branch for the merchandise at 20% above cost.

Unrealized intercompany inventory profit P360,000
Purchases (outsiders) P250,000
Merchandise Inventory, Dec. 1 1,500,000
Assuming that the branch ending inventory is P1,000,000, composed of merchandise from home office at
billed price, P840,000, and merchandise from outsiders at cost, P160,000, the realized intercompany profit
on branch inventory is:
a. P360,000 b. P220,000* c. P140,000 d. P110,000 B
12.
The G&G Company bills its branch for merchandise at 135% of cost. On December 31, the balance in the
unrealized profit account is to be calculated from the following information reported by the branch.
Merchandise from Merchandise Total

home office at billed purchased from
price outsiders at cost
Merchandise inventory, Dec. 1 P162,000 P40,000 P202,000
Merchandise inventory, Dec. 1-31 202,500 120,000 322,500
Merchandise inventory, Dec. 31 189,000 50,000 239,000
What is the balance of unrealized profit account on the home office books before any adjustments is made
for branch sales for December?
a. P94,500* b. P42,000 c. P52,500 d. P49,000 A
ADV1-04
2
Prefinals
November 15, 2021
13. The Branch of B Company is billed for merchandise by the home office at 20% above cost. The branch in
turn prices merchandise for sales purposes at 25% above billed price. On January 17 all of the branch
merchandise is destroyed by fire. No insurance was maintained. Branch accounts show the following
information:
Merchandise inventory, Jan. 1 (at billed price) P264,000

Shipments from home office (Jan 1-17) 200,000
Sales 150,000
Sales returns 20,000
Sales allowances 10,000
The cost of merchandise destroyed by fire is:
a. P360,000 b. P306,667 c. P300,000* d. P288,000 C
14. On December 1, W Company opened a branch, to which merchandise billed at P300,000 was shipped.
During the month, additional shipments were made at billed prices of P120,000. During December, the
branch returned merchandise that was defective and received credits of P7,500 on the returns. At the end
of the month, the branch records its inventory at P185,000, which is from the following sources:
Merchandise acquired from home office at billed price P165,000

Merchandise acquired from outsiders 20,000
Total P185,000
A branch loss for December is calculated at P26,000. The home office has followed the practice of billing
the branch at 20% above merchandise cost. Further, the home office has recorded branch merchandise
shipments and returns in its regular sales returns accounts at this billed price.
The correct net income(loss) of the branch as far as the home office is concerned is:
a. P26,000 loss c. P41,250 income

b. P15,250 income* d. P35,875 income B
ADV1-04
3
Prefinals
November 15, 2021
15. Comparison between the interoffice account of the DR Wholesale Company with its suburban branch
and the corresponding account carried on the latter’s books shows the following discrepancies at the
close of business on September 30, 2023:
a. A charge of P8,700 (Office Furniture) on the home office books is taken up by the branch as P7,800.
b. A credit by the home office for P3,000 (Merchandise Allowances) is taken up by the branch as
P3,500.
c. The home office charges the branch P3,250 for interest on open account, which the branch fails to
take up in full; instead, the branch sends to the home office an incorrect adjusting memo, reducing
the charge by P750, and sets up a liability for the net amount.
d. A charge of labor by the home office, P4,330, is taken up twice by the branch.
e. A charge of P7,850 is made by the home office for freight on merchandise, but the amount is entered
by the branch as P785.
f. The branch incorrectly sends the home office a debit note for P2,930, representing its proportion of
a bill for truck repairs, the home office does not record it.
g. The home office receives P4,750 from the sale of a truck, which it erroneously credits to the branch;
the branch does not charge the home office therewith.
h. The branch accidentally receives a copy of the home office entry dated October 10, 2023, correcting
item (g),and enters a credit in favor of the home office as of September 30, 2023.
The balance of the account with the branch on the home office books shows P1,316,900 receivable
from the branch at September 30, 2023. The interoffice accounts were in balance at the beginning of
the year.
The balance of home office account per branch books before adjustment is:
a. P1,316,085* b. P1,316,900 c. P1,300,520 d. P1,321,650 A
16. During the year 2021 goods billed at P840,000 were shipped to the branch at 125% of cost. The
account Allowance for Mark up on Branch Inventory has a balance of P242,000 before adjustment.
The beginning inventory of the branch from the home office at cost is P370,000; the beginning
inventory of the branch from outsiders is P35,000; purchases from outsiders is P220,000.
How much is the cost of goods available for sale of the branch?
a. P1,297,000 b. P1,465,000 c. P1,539,000* d. P1,767,500 C
ADV1-04
4
Prefinals
November 15, 2021
17.
The Rochelle Company operates a branch in Legaspi. Profit and loss data for the home office and the
branch for 2013 follow:
Home Office Branch

Sales P256,000 P78,500
Shipments to branch: Cost to home office 30,000
Expenses 60,000 12,500
Inventories, Jan 1, 2013
Home office, acquired from outsiders, at cost 80,000
Branch: Acquired from outsiders, at cost 7,500
Acquired from home office, at billed price
which averaged 22-1/2% above cost 24,500
Inventories, Dec. 31, 2013
Home office, acquired from outsiders, at cost 55,000
Branch: Acquired from outsiders, at cost 5,500
Acquired from home office, at 2013 billed price 26,000
The correct net income of the branch is:
a. P5,500 b. P13,500* c. P11,000 d. P8,000 B
ADV1-04
5
Prefinals
November 15, 2021
18.
Rainbow Company operates a branch in Makati. The following trial balances shown below were taken from
the branch records on December 31, 2012:
December 31, 2011 December 31, 2012
After closing Before closing
Home Office Current P90,000 P115,000
Inventory P49,500 P49,500
Sales 475,000
Sales allowances 7,500
Accounts receivable 30,000 47,500
Cash 10,500 20,500
Expenses 25,000
P90,000 P90,000 P590,000 P590,000
All of the sales were made on account. The branch makes its own disbursements for expenses.
The branch inventory on December 31, 2012 was P55,000.
The home office trial balance on December 31, 2012 shows the following account balances:
Inventory P125,000 Sales allowances 11,000

Accounts receivable 13,000 Shipments to branch-cost 410,000
Cash 89,000 Shipments to branch-loading 41,000
Branch 126,000 Expenses 62,500
Loading in branch inventory 4,500 Accounts payable 27,500
Purchases 900,000 Share capital 200,000
Sales 600,000 Retained earnings 43,500
Inventory December 31, 2012, P137,500.
How much is the net income of home office shown in its separate income statement?
a. P96,500* b. P137,500 c. P60,000 d. P107,500 A
18. Precious Co, Inc. started a branch in Iloilo City on June 1, 2025. On this date, the company shipped to its
branch, merchandise billed at P90,000. On June 15, another shipment was made at billed prices of
P36,000. During the month the branch was credited for P2,520 for damaged goods returned by the branch.
On June 30, 2025, the branch reported the following:
Net loss for the month ( 7,800)
Shipments to and from the branch were uniformly billed at 120% above cost.
The branch inventory on June 30, at cost is
a. P42,000* b. P44,000 c. P50,400 d. P63,000
ADV1-04
6
Prefinals
November 15, 2021
19.
The following information came from the books and records of Everest Corporation and its branch. The
balances are as of December 31, 2012
Home Office Branch

DR (CR) DR (CR)
Sales P(500,000)
Expenses 150,000
Shipments to branch P(240,000)
Unrealized profit in branch inventory (74,000)
The branch purchases all of its merchandise from the home office. The home office ships this
merchandise at 125 percent of its cost. The ending inventory of the branch is P60,000 at the billed
price.
There are no shipments in transit between the home office and the branch.
The beginning inventory of the branch at the billed price is:
a. P64,000 b. P70,000* c. P60,000 d. P56,000 B
20.
The following information came from the books and records of Alps Corporation and its branch. The
balances are as of December 31, 2012
Home Office Branch

DR (CR) DR (CR)
Sales P(500,000)
Expenses 150,000
Shipments to branch P(240,000)
Unrealized profit in branch inventory (74,000)
The branch purchases all of its merchandise from the home office. The home office ships this
merchandise at 125 percent of its cost. The ending inventory of the branch is P60,000 at the billed
price.
There are no shipments in transit between the home office and the branch.
The net income as reflected on the books of the branch is:
a. P40,000* b. P102,000 c. P50,000 d. P62,000 A
ADV1-04
7
Prefinals
November 15, 2021
21.
Caceres Inc. charges an initial franchise fee of P460,000 with P100,000 paid when the agreement is
signed and the balance in five annual payments. The present value of the future payments, discounted
at 10% is P272,937. The frachisee has the option to purchase P50,000 of equipment for P45,000. The
franchise operations already started. The amount of revenue from franchise fees is:
a. P100,000
b. P367,937*
c. P372,937
d. P460,000
22.
Bicolandia Inc. charges an initial franchise fee of P400,000. Of the amount, P100,000 is payable when
the agreement was signed on June 30, 2017 and the balance payable in five annual payments of
P60,000 each starting on June 30, 2018. The credit rating of the franchisee is such that it would have
to pay interest of 8% to borrow money. The present value of an ordinary annuity of five annual receipts
of P60,000 each discounted at 8% is P239,400.
Below is the allocation of the transaction price
Rights to the trade name, market area, technical knowhow P100,000

Trainings 119,400
Equipment (cost P90,000) 120,000
Total transaction price P339,400
The franchise commences operations on October 1, 2017. Assuming that no future services are
required by the franchisor once the franchise begins operations.
What amount of unearned revenue should be recognized on June 30, 2017 by the franchisor?
a. P100,000
b. P229,400
c. P339,400*
d. P300,000
e. P400,000
ADV1-04
8
Prefinals
November 15, 2021
23.
Bicolandia Inc. charges an initial franchise fee of P400,000. Of the amount, P100,000 is payable when
the agreement was signed on June 30, 2017 and the balance payable in five annual payments of
P60,000 each starting on June 30, 2018. The credit rating of the franchisee is such that it would have
to pay interest of 8% to borrow money. The present value of an ordinary annuity of five annual receipts
of P60,000 each discounted at 8% is P239,400.
Below is the allocation of the transaction price
Rights to the trade name, market area, technical knowhow P100,000

Trainings 119,400
Equipment (cost P90,000) 120,000
Total transaction price P339,400
The franchise commences operations on October 1, 2017. Assuming that no future services are
required by the franchisor once the franchise begins operations.
What amount of net income from franchise operations (including interest income) will be reported for
the year 2017 by the franchisor?
a. P100,000
b. P258,976*
c. P319,576
d. P348,976
24.
On January 2, 2021, RR Enterprises, Inc. authorized XX Company to operate as a franchise over

a twenty-year period for an initial franchise fee of P60,000 received on signing the agreement. XX
started operations on June 30, 2021, by which date RR had performed all of the required initial services.
In its income statement for the six months ended June 30, 2021, what amount should RR report as
revenue from franchise fees in connection with XX franchise?
a. P0 b. P1,500 c. P30,000 d. P60,000* D
25.
On December 31, 2011, LGR, Inc. authorized FP to operate as a franchisee for an initial franchise
fee of P75,000. Of this amount, P30,000 was received upon signing the agreement, and the balance,
represented by a note, is due in three annual payments of P15,000 each beginning December 31,
2012. The present value on December 31, 2011 of the three annual payments appropriately
discounted is P36,000. According to the agreement, the nonrefundable down payment represents a
fair measure of the services already performed by LGR, however, substantial future services are
required of LGR. Collectibility of the note is reasonably certain. On December 31, 2011, LGR should
record unearned franchise fees in respect of the FP franchise of
a. P0 b. P36,000* c. P45,000 d. P75,000 B
END of exam
ADV1-04
9

Digital Exam Questions on Installment Sales Accounting

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Digital Exam Questions on Installment Sales Accounting

Uploaded by

Copyright:

Available Formats

11/9/21, 9:35 AM Exam.

net - Easy-to-use and secure digital exams

Angelica Rubios 2021-10-25

Correct answer. 0/2p

Correct answer. 2/2p

How much is the branch inventory at cost?

Correct answer. 0/2p

Correct answer. 2/2p

The correct branch profit (loss) for 2023 is:

Correct answer. 0/2p

Gross Profit Recognition under Installment Sales Method

Installment Sales of Merchandise – Pro-Forma Entries

Cost of installment sales xx

2. Year-end adjusting/closing entries

Recognition of gross profit

To close the balance of Realized Gross Profit

Gross Profit Rate (GPR) Calculations

GPR = (Gross profit/ Installment sales)

GPR = (DGP, beg. / Installment contract receivable, beg.)

GPR = ( DGP, end. / Installment contract receivable, end.)

Realized Gross Profit (RGP) Calculations

RGP = (DGP, beg – DGP, end)

Defaults and Repossessions

3. Trade-in value allowed to customer is compared with actual value.

Cost Recovery Method

Cos of IS(60% *200k) 120k

DGP 2018(60k*40%) 24k

NRV of Repossessed Merchandise

Installment Contract Receivable, 2016 Installment Contract Receivable, 2017

Complete the following table

Deferred gross profit

2. Determine the cash collections in 2018 on accounts receivable of each year.

LONG TERM CONSTRUCTION CONTRACT

Total estimate gross profit 3,000

20x4: Costs incurred. Percent completed.

2015 Corts incurred

Year Ended December 31

Estimated costs to complete.

Installment sales ........................................................................ P1,000,000

2024 2023 2022

Installment Accounts Receivable:

The installment accounts receivable balance at December 31, 2021 is:

The repossession resulted in the following loss/gain:

The gain (loss) on repossession amounted to:

Debiting Cash and Crediting Realized Gross Profit

Installment Accounts Receivable

Installment Sales P400,000

Gross margin on cost .............................................................. 66-2/3%

What was the total amount of sales on installment basis?

On January 1, 2012, a customer defaulted and Charlie Company repossessed merchandise

How much was the gain or loss on repossession?

2021 2022 2023

(P25,600); P320,000 current liability

2021 2022 2023

2021 2022 2023

How much is the estimated remaining cost in 2021?

13. Grand Construction, Inc. has consistently used the percentage-of-completion

Cost incurred P 930,000

How much loss should Grand have recognized in 2023?

14. Robin Construction Company has consistently used the percentage-of-completion

Cumulative contract costs Estimated costs at

15. Denzel Construction Company uses the percentage-of-completion method of accounting.

16. When using the installment sales method