BM2012

NAME: SECTION: SCORE:

QUIZ
Answer the following items on the space provided. Show your computations. (10 items x 5 points)

CASE 1

At the end of the year, the Investment in Branch account of the home office is P601,000. However, the
transactions were discovered to have errors.
a. The branch bought equipment on June 1, 20x1 costing P127,600 for the home office’s use, and the policy is to
record the asset in the branch’s books. During that time, the home office recorded the equipment and credited its
reciprocal account.
b. The company's policy regarding the equipment’s depreciation is that it has a life of eight (8) years with no
salvage value, and the straight-line method should be used. The home office and the branch have made no entry.
c. The home office ships merchandise to the branch, amounting to P193,400. Bacolod recorded the transaction as
P195,200.
d. The branch pays the home office’s creditors on account amounting to P64,800 and sends a debit memo to the
home office. Upon receipt of the debit memo, the home office debited its reciprocal account in the amount of
P46,800 twice.

REQUIRED: (Note: For number 2, indicate whether the net adjustment is debit or credit)
1. Unadjusted balance of the Home Office account in the branch’s books
2. Net adjustment in the Home Office account at the end of the year
3. Adjusted balances of the reciprocal accounts

CASE 2

Sparta Company set up a branch in a province. The entity and its branch provided the following data for the second year
of branch operation:

Home Office Branch

Sales revenue to outside customers P2,000,000 P100,000
Beginning inventory 100,000 60,000
Purchases from outside supplier 800,000 200,000
Shipment to branch 400,000
Shipment from home office 500,000
Ending inventory 160,000 100,000
Operating expenses 300,000 80,000
 The home office to branch markup based on cost is 25% this year and last year.
 Twenty percent (20%) of the beginning inventory came from an outside supplier.
 Twenty-four percent (24%) of the ending inventory of the branch came from last year’s shipment from the
home office, while 50% came from the current year’s shipment from the home office.

REQUIRED: Determine the following:

4. Individual net income of the branch
5. Total ending inventory to be reported in the combined balance sheet
6. Combined net income

10 Quiz *Property of
STI
 BM2012

7. True net income of the branch

8. Realized gross profit
9. Cost of goods sold of the branch insofar as the home office is concerned
10. Adjusted balance of Allowance for Overvaluation

Performance Indicators Points

Correct accounts and amounts used 3
Computed final amounts are correct/balanced 2
Total 5

10 Quiz *Property of
STI