1.

Which of the following transactions will decrease the investment in branch's

account in home office's' separate statement of financial position?
A. Net income of the branch
B. Payment of branch's liability by the home office
C. Credit memo received from the branch
D. Return by branch to home office of
merchandise shipped.

2. Which of the following statements regarding accounting for home office and branch
is CORRECT?
a. The required balance of the Allowance for Overvaluation account is the mark-
up in the total ending inventory of the branch.
b. The combined net income of the home office and its branches is presented in
the separate Statement of Comprehensive Income of the Home office.
c. The income of the branch as far as the home office is concern is debited to
Investment in Branch account in the separate books of the home office.
d. The home office ships merchandise to the branch at a mark-up based on cost,
as a consequence the retained earnings of the branch in its separate books is
understated.

3. Which of the following statements is CORRECT regarding accounting for home

office and branch
a. Assuming the home office ships merchandise to the branch at a mark-up based
on cost, the account Shipments from Home Office in the published income
statement is reported at billed price.
b. If the home office purchased an equipment to be used by the branch but the
record of the asset is being maintained by the home office for uniform
depreciation policy, no entry is required on the part of the branch.
c. The Allowance for overvaluation account must be debited in the separate
books of the home office to adjust the results of operations of the branch whether
it is a net income or net loss per branch books.
d. A credit memo received by the branch may be a notification from the home
office about allocation of expense incurred by the latter.

4. Which of the following statements is CORRECT regarding accounting for home

office and branch?
a. The stockholders’ equity of each branch is eliminated through the working
paper.
b. The accounts Shipments to Branch and Shipments from Home Office are
eliminated in the working paper and closed in the separate books.
 c. The account Allowance for Overvaluation in Branch Inventory account is
debited in the working paper to make the ending inventory of the branch at cost.
d. A branch may debit an Investment in “another” Branch account for purposes of
interbranch transactions.

At the end of the year the Investment in Bacolod account of the home office is
P300,500. However there are transactions discovered to have errors.

 Bacolod branch bought equipment on June 1, 2020 costing P63,800 for the
home office's use and the policy is to record the asset in Bacolod's books.
During that time the home office recorded the equipment and credited its
reciprocal account of its Bacolod branch.

 The policy of the company regarding the equipment's depreciation is that it

has a life of 8 yrs with no salvage value and the straight-line method should
be used. No entry has been made by the home office and branch.

 The home office ships merchandise to Bacolod amounting to P96,700.

Bacolod recorded the transaction as P97,600.

 Bacolod pays the home office's creditors in the amount of P32,400 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 P23,400 twice.

5. What is the unadjusted balance of the home office current account in the books of
Bacolod at the end of the year?
a. 379,600

b. 252,000

c. 286,000

d. 315,800

Solution: 300,500 + 63,800 – 4,652 – 79,200 = 280,448

Squeeze: 280,448 + 900 + 4,652 = 286,000

6. What is the net adjustment of the investment in Bacolod account at the end of the
year?

a. 20,052 debit

b. 20,052 credit
 c. 19,387.5 debit

d. 19,387.5 credit

Solution: 63,800 – 4,652 – 79,200 = (20,052)

7. What is the net adjustment of the home office current account in the books of
Bacolod branch at the end of the year?

a. 4,887.5 debit
b. 4,887.5 credit
c. 5,552 debit
d. 5,552 credit
Solution: 4,652 + 900 = 5,552

8. Handyman Company has a branch in San Carlos City. Shipments of merchandise

to the branch totaled P.297,000 for the year, which included a 25% mark-up on
cost.
The following data summarizing branch operations for the period ended
December 31, 2019:

Sales on account P407,000

Sales on cash basis 121,000
Collections of accounts 330,000
Expenses paid 149,000
Expenses unpaid 41,000
Purchase of merchandise for cash 143,000
Inventory on hand, January 1 (60% from outside purchases) 114,000
Inventory on hand, December 31 (70% from home office) 165,000
Remittances to home office 302,500

Allowance for overvaluation of branch inventory amounted to P 67,000 in the

home office books. In the home office books, the branch net income (loss) is:
A. P16,000 B. (P51,000) C. (7,100) D. (P5,580)
Solution: 407,000 + 121,000 = 528,000 – (114K+143K+297k-165k) = 139,000

149,000 + 41,000 = (190,000)

139,000 – 190,000 = (51,000) + 67,000 = 16,000

9. Summary adjusted trial balance for the home office and branch of Emerald
Corporation at December 31, 2019 are as follows:
 Home Office Branch
Debits:
Other assets P530,000 P165,000
Inventories, January 1, 2019 50,000 45,000
Branch 200,000 -
Purchases 500,000 -
Shipments from home office - 240,000
Expenses 120,000 50,000
Dividends 100,000
Total Debits P1,500,000 P500,000

Credits:
Other liabilities P90,000 P25,000
Capital stock 500,000 -
Retained earnings 100,000 -
Home office - 175,000
Unrealized profit in branch 10,000 -
inventory/loading
Sales 537,500 300,000
Shipments to branch 200,000 -
Branch profit 62,500
Total credits P1,500,000 P500,000

Additional Information:

1) The home office ships merchandise to its branch at 120% of home office
cost.
2) Inventories at December 31, 2019 are P 70,000 for the home office and P
60,000 for the branch. The branch inventory is at transfer prices.

The combined net income of the home office and the branch amounted to:

A. P370,000 B. P200,000 C. P132,500 D. P170,000

HOME OFFICE
Sales 537,500
Less: Cost of Sales (280,000)
Expenses (120,000)
Net Income 137,500

Cost of sales:
Inventory, January 1 50,000
Purchases 500,000
Available for Sale 550,000
Shipments (200,000)
Inventory, December 31 (70,000)
Cost of Sales 280,000

BRANCH
Sales 300,000
Less: Cost of Sales (225,000)
Expenses (50,000)
Net Income per branch books 25,000
Realized Profit (225k *.20/1.20) 37,500
Net Income per home office books 62,500
137,500 + 62,500 = 200,000

10. The Manila Branch of the Milestone 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 29, all of the branch
merchandise branch merchandise is destroyed by fire. No insurance was
maintained. Branch accounts show the following information:

Merchandise inventory, January 1 (at billed P26,400

price)
Shipments from home office (January 1 to 20,000
February 29)
Sales 15,000
Sales returns 2,000
Sales allowances 1,000

What was the cost merchandise destroyed by fire?

A. P36,000 B. P30,667 C. P36,800 D. P30,000

Merchandise Inventory, January 1 26,400

Shipments from home office 20,000
Cost of goods available for sale 46,400
Less: Cost of Goods Sold, at BP
Sales 15,000
Less: Sales Returns 2,000
Net Sales 13,000
Divided by: SP based on cost 125% 10,400
Merchandise inventory, ending at BP 36,000
Divided by Billed price 120%
Merchandise Inventory, ending 30,000
 The Davao City branch of Octagon Enterprise, Davao was billed for merchandise
shipments from home office at cost plus 25% 2017 and cost plus 20 % in 2018.
Other pertinent data for 2018:

Davao branch Home office

Sales P630,000 P2,120,000
Inventory 89,000 (at billed price) 230,000 (at cost)
Purchases 1,640,000
Inventory transfers 504,400 (at billed price) 420,000 (at cost)
Inventory, end 117,000 (at billed price) 285,000 (at cost)
Expenses 203,000 764,000

11. What will bet the combined cost of sales of Davao branch and Octagon’s home
office that must be shown in the combined income statement?
A. P224,300 B. P1,558,150 C. P1,558,700 D.
P220,400

12. What will be the combined net income of Davao branch and Octagon’s home
office?
A. P224,300 B. P226,000 C. P221,330 D. P220,400
13. The following data were taken from the records of BMW Corporation of Baguio and
its Davao Branch for 2018:
Baguio Branch Davao Branch
Sales P530,000 P157,500
Inventory, January 1, 57,500 22,250
Purchases 410,000
Shipments to branch 410,000
Shipment from home 126,000
office
Inventory, December 31 71,250 29,250
Expenses 191,000 50,750

In 2018, Baguio Office billed the Davao Branch at 120% of cost which was lower
by 5% than last year’s. The combined net income of the home office and the
branch is:
A. P48,325 B. P48,575 C. P49,650 D. P56,075
Solution: 35,500 + 20,575 = 56,075
 The Baguio branch of CRC-ACE Inc., submitted trial balance as of December 31,
2020, after the first year of operations:
Debit Credit
Cash P10,400
Accounts receivable 63,200
Shipments from home 168,000
office
Expenses 10,800
Sales P134,400
Home office current 118,000
P252,400 P252,400
Merchandise inventory, P50,400.
Shipments to the branch are billed at 140% of cost.

14. The adjustment to the cost of goods sold of the branch account amounts to:
A. P0 B. P14,000 C. P33,600 D. other amount

15. The true net income of the branch during 2020 was:
A. P6,000 B. P33,600 C. P39,600 D. other amount

16. The overstatement in the branch inventory at December 31, 2020 was:
A. P0 B.P6,000 C. P14,400 D. other amount
Solution: 50,400 * (40/40) = 14,400

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

Home Office Branch

Sales revenue to outside customer 1,000,000 500,000
Beginning inventory 50,000 30,000
Purchases from outside supplier 400,000 100,000
Shipment to branch 200,000
Shipment from home office 250,000
Ending inventory 80,000 50,000
Operating expenses 150,000 40,000

- The home office to branch markup based on cost is 25% this year and last year.
- 20% of the beginning inventory of the branch came from outside supplier.

- 24% of the ending inventory of the branch came from the last year's shipment from the
home office while 50% of the ending inventory of the branch came from current years
shipment from the home office.

17. What is the net income reported by the branch in its separate income statement for
the current year?
A. 130,000

B. 124,000

C. 114,000

D. 95,000

Solution: 500k – (30k+100K+250K-50k) = 170k – 40k = 130,000

18. What is the ending inventory to be reported by the entity in its combined statement
of financial position?
A. 128,000

B. 115,000

C. 130,000

D. 122,600

Solution: 80,000 + 50,000 = 130,000

130,000 – (50k * 24%/20%) – (50k * 50% * 20%) = 122,600

19. What is the overstatement in the cost of goods sold reported by the branch in its
separate income statement for the current year?
A. 54,000

B. 50,000

C. 52,000

D. 47,400
Solution: 4,800 + 50,000 = 54,800 – 7,400 = 47,400

The following information came from the books and records of Filipina Corporation and
its branch. The balances are as of December 31, 2019, the third year of the
corporation's existence.

Home office Dr. (Cr.) Branch Dr. (Cr.)

Sales P(500,000)
Expenses 200,000
Shipments from home office 220,000
Unrealized profit in branch P(50,000)

The branch purchases all of its merchandise from the home office. The inventories of
the branch at billed prices are as follows:

January 1, 2019 P30,000 December 31, 2019 P25,000

20. Compute the percentage of profit on billed price that the home office uses to ship
merchandise to the branch.
A. 25%

B. 20%

C. 22.73%

D. 29.41%

21. Compute the balance in the Shipments to Branch account before closing entries
are posted.
A. P220,000

B. P270,000

C. P176,000

D. P245,000

22. Compute the true net profit of the branch.

A. P80,000
B. P75,000

C. P120,000

D. P45,000