Page |1

Chapter 11
Home office, Branch and Agency
Accounting

PROBLEM 1: TRUE OR FALSE

1. TRUE
2. FALSE
3. FALSE – home office
4. FALSE – investment in branch
5. TRUE
6. TRUE
7. FALSE – credit
8. FALSE - ₱12
9. FALSE – 25 + 10 + 5 = 40
10. TRUE (15 x 25/125 = 3 unrealized mark-up equal to balance of
allowance)

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. B
2. D
3. D
4. C
5. A
 Page |2

PROBLEM 3: MULTIPLE CHOICE – COMPUTATIONAL

1. A – Entry is made in the home office books only when the

fund is replenished.

2. B
Solution:
Sales 112,500
Shipments from home office 120,000
Inventory, Dec. 31 (30,000) (90,000)
Gross profit 22,500
Expenses (8,100)
Profit 14,400

3. D
Solution:
Home office Current, unadjusted 90,000
Profit of branch 14,400
Adjusted balance of reciprocal accounts 104,400

4. C

5. B
Solution:
(Home office (Branch
books) books)
Investment
Home office
in Branch
Unadjusted balances 175,520 184,279.50 squeeze
(a) Charge recorded twice (500)
(b) Mathematical mistake in
805.50
recording (895 – 89.5)
(c) Mathematical mistake in
recording (980-890) 90
(d) Mathematical mistake in
recording (400-350) 50
(e) Unrecorded charge 425
(f) Erroneous credit to
investment 5,000
(g) Erroneous debit to HO
370
account
(h) Erroneous correcting entry (5,000)
 Page |3

Adjusted balances 180,520 180,520

Notes:
(d) A credit by the home office means a deduction to the
“Investment” account which should also have a corresponding
deduction to the “Home office” account. The deduction of ₱350
was recorded by the branch as ₱400 resulting to over-deduction.
Thus the adjustment is an addition of ₱50.
(e) The branch failed to record the charge as a credit to the “Home
Office” Account. Instead, branch recorded the charge as a liability.
Thus, the proper adjustment is an increase to the “Home Office”
Account.
(f) No adjustment is needed for the “Home Office” account
because the branch did not take up initially (see ‘h’ below) the
erroneous credit by the home office.
(g) Initially, the branch did not take up the erroneous credit by
the home office in ‘f;’ however, on June 30, 20x1 (cut-off date), the
branch finally recorded the erroneous credit. The proper adjusting
entry is to reverse this. A credit to the “Home Office” account
means an increase; therefore, the correction is a decrease.

6. C
Solution:
(Home office (Branch
books) books)
Investment in Home
branch office
(a) Error on posting credit portion of
allocated expense 6,800 6,800
8,600
(b) Error on posting debit portion of
allocated expense - -
(c) Debit posting on cash remittance
omitted by home office - -
(d) Credit posting of a credit memo
from branch recorded by home
office twice - -
(e) Credit posting for a debit memo
omitted by branch 3,000 3,000
(f) Credit posting for a debit memo
recorded by branch as debit (3,000)
Totals 9,800 5,600
 Page |4

Difference between the reciprocal accounts = (9,800 minus 5,600) =

4,200.

The “entries made” are as follows:

Home office books Branch books
Item (a)
Correct Wrong
Investment in branch………6.8K Expense………………….6.8K
Expense………………..…….….6.8K Home office…………………8.6K

Item (b)
Correct Wrong
Investment in branch………...4K Expense……………………5K
Expense………………..…….……4K Home office…………………..4K

NOTE: ERROR HAS NO EFFECT

ON RECIPROCAL ACCOUNTS
Item (c)
Wrong Correct
Cash…………………………….0 Home office……………….7K
Investment in branch………….….7K Cash…………………...………7K

NOTE: ERROR HAS NO EFFECT ON

RECIPROCAL ACCOUNTS
Item (d)
Wrong
Investment in branch………..5K
Some other account…………….10K
Correct
Some other account…….5K
Home office…………………....5K

NOTE: ERROR HAS NO EFFECT ON

RECIPROCAL ACCOUNTS
 Page |5

Item (e)
Correct Wrong
Investment in branch………..3K Some other account…….3K
Some other account……………... Home office…..……..……….0

Item (f)
Correct Correct but wrong posting
Investment in branch………..3K Some other account…….3K
Some other account……………...3K Home office…..……..……….3K

NOTE: SEE POSTING BELOW

CORRECT POSTING WRONG POSTING

Home Office Home Office
Debit Credit Debit Credit
3,000 3,000

7. D
Investment in Home
Br. office

(squeeze
Unadjusted balances 225,770 226,485 )
Office equipment (3.5K -
350) 3,150
Insurance premium (675)
Freight charge (1,125 - 1,215) (90)
HO credit memo (800)
HO debit memo 700
Remittance 3,000
Adj. bal. (extend to HO
column) 228,770 228,770

8. A
Investment in Home
branch office
Fixed assets 53,960
Marketing expense (10,000)
Debit memo (75,000)
Cash transfer (65,700)
Reversal (proper) -
Debit memo (4,650 - 4,560) 90
 Page |6

Net adjustments (75,700) (20,950)

9. C
Solution:
Inventory, Dec. 31 28,000

Less: Inventory, Dec. 31 from local purchase (7,000)

Inventory, Dec. 31 from home office at billed
price 21,000
Divide by: 140%
Inventory from home office at cost 15,000
Add: Inventory, Dec. 31, from local purchase 7,000
Total ending inventory at cost 22,000

10. D
Solution:
Net sales 180,000
Merchandise from home office at cost (98K /
140%) 70,000
Merchandise purchased locally by branch 40,000
Total goods available for sale 110,000
(88,000
Total ending inventory at cost (22,000) )
True gross profit 92,000

11. A
Solution:
From home office (@ billed price):
Merchandise, Dec. 1 300,000
Additions from Dec. 1 to Dec. 31 450,000
Returns (15,000)
Merchandise, Dec. 31 (420,000)
COGS @ billed price 315,000
Multiply by: 25/125
Realized markup 63,000

12. A
Merchandise, Jan. 31 8,400
Multiply by: 40/140
Unrealized markup (Adj. bal. of allowance account) 2,400
 Page |7

13. B
Solution:
 Billing rate in 20x1: Shipments from HO, 112,500 ÷ Shipments to
branch, 90,000 = 125% of cost

Sales (365K + 174.5K) 539,500

Inventory, beg. [85K + 9.5K + (42K ÷ 120%)] 129,500
Purchases from outsiders (220K + 35K) 255,000

Inventory, end. [65K + 6.5K + (30K ÷ 125%)] (95,500)

Cost of sales (289,000)

Gross profit 250,500

Advertising expenses (13.7K + 2.5K) (16,200)

Salaries and commission expense (35K + 9.5K) (44,500)

Rent expense (10K + 2K) (12,000)

Miscellaneous expense (3.3K + .5K) (3,800)

Combined profit 174,000

14. C
Solution:
 Billing rate on shipments during the pd.: (93,750 ÷ 75,000 = 125%)

Allowance, beg. 19,750

Allowance, end. (10,350 - 4,350) x 25/125 1,200
Realized mark-up (Understatement in branch’s
18,550
profit)

Inventory - at billed price

beg. 8,000
Purchases 30,000
Shipments from HO 93,750 121,400 COGS at billed price
10,350 end.
 Page |8

 COGS at cost: 121,400 COGS at billed price – 18,550 realized

mark-up = 102,850

15. D
Solution:
Branch A Branch B

Imprest Branch Fund 2,000 1,500

Inventory, Jan. 1, 20x1 21,000 19,000

Accounts receivable, Jan. 1, 20x1 55,000 43,500

Home Office, Jan. 1, 20x1 78,000 64,000

 The solution is based on the basic accounting equation “Assets

– Liabilities = Equity.”
 A fund that is maintained under an “imprest” system means
the fund has a fixed balance. Accordingly, the fund balances
given in the problem are assumed to be both the beginning
and ending balances because the home office “immediately
reimburses” the fund disbursements.

16. A
Solution:
Total ending inventory @ billed price 50,000

Less: From local purchases (6,600)

Ending inventory from home office @ billed price 43,400
Divide by: Billing rate 140%
Ending inventory from home office @ cost 31,000
Add back: From local purchases 6,600
Total ending inventory @ cost 37,600

Total markup (280K shipments from HO x 40/140) 80,000

(12,400
Unrealized markup (43.4K ending invty. from HO x 40/140) )
 Page |9

Realized markup 67,600

Adjusted individual profit (5K - 2.5K unrecorded expense) 2,500
True profit 70,100
 P a g e | 10

OR

Sales
300,000
Cost of sales:
Shipments from HO at cost (280K ÷ 140%) 200,000
Local purchases 30,000
Total 230,000
Inventory, end. at cost (see above)
(37,600) (192,400)
Gross profit on sales
107,600
Expenses (35K + 2.5 unrecorded expense)
(37,500)
Profit 70,100

17. A
Shipments to branch @ billed price (30K x 125%) 37,500
Shipments from home office (32,500)
Shipment in-transit @ billed price 5,000

Home Branc Combine

office h d
Inventory, beg. [7.5K + (24K ÷ 120%)] 80,000 27,500
Purchases from outsiders 200,000 15,000
Shipments to branch (30,000)
Shipments from HO
[(32.5K + 5K in-transit) ÷ 125%] 30,000
Inventory, end. (26,300
{5.5K + [(21K + 5K in-transit) ÷ 125%]} (55,000) )
Cost of goods sold @ cost 195,000 46,200 241,200

18. B

Sales 155,000
Cost of goods sold:

Inventory, Jan. 1 23,000

Purchases 190,000
 P a g e | 11

Sales to branch (110K ÷ 110%) (100,000)

Total goods available for sale 113,000

Inventory, Dec. 31 (30,000) (83,000)

Gross profit 72,000

(52,000
Sundry expenses )

Individual profit of home office 20,000

Sales 140,000
Cost of goods sold:
Inventory, Jan. 1 (11,550 - 1,000 allow. for markup) 10,550
Purchases [(105K + 5K in-transit) ÷ 110%] 100,000
Freight-in from home office (5.5K + 250 in-
transit) 5,750
Total goods available for sale 116,300
Inventory, Dec. 31 (101,530
[10.4K + 5K in-transit) ÷ 110% + (520 + 250 freight)] (14,770) )
Gross profit 38,470
Sundry expenses (28,000)
True profit of branch 10,470

19. A
Freight from home office to Cebu Branch 600
Freight from Cebu Branch to Davao Branch 200
Total freight on indirect routing 800
Normal freight from home office to Cebu Branch (900)
Savings on freight (which is NOT accounted for) (100)

20. B (The home office recognizes the loss, not Samoki Branch.
Home office books Tadian Branch
Investment in Tadian Br.……110K Shipments from HO…….110K
Shipments to Tadian Br…........100K Freight-in……………...... ...10K
Cash………………………….….10K Home office…......................100K

 The excess freight is identified as follows:

 P a g e | 12

Freight from home office to Tadian Branch 10,000

Freight from Tadian Branch to Samoki Branch 11,000
Total freight on indirect routing 21,000
Normal freight from home office to Samoki Branch (2,000)
Excess freight 19,000

Tadian Branch Samoki Branch

Home office………………… 121K Shipments from HO…... 100K
Shipments from HO………… 100K Freight-in……………...........2K
Freight-in……………………… 10K Home office…................... 102K
Cash…………………………….. 11K

Home office books

Shipments to Tadian Br.….. 100K
Shipments to Samoki Br. …. 100K

Investment in Samoki Br.… 102K

Loss on excessive freight….. 19K
Investment in Tadian Br.…. 121K
 P a g e | 13

PROBLEM 4: CLASSROOM ACTIVITY

Solutions:

ACTIVITY 1:
Requirement (a):
Home office books Branch books
Jan . 1, 20x1 Jan . 1, 20x1
Investment in branch……...10M Cash……………………...10M
Cash………………………….… 10M Home office..…………… 10M

(a) (a)
Investment in branch……...30M Land………………………10M
Cash………………..………… 30M Building…………………..20M
Home office……………… 30M

(b) (b)
Investment in branch……20.5M Shipments from HO……20M
Shipments to the branch……..20M Freight-in………………..500K
Cash………………………… 500K Home office…………… 20.5M

(c)
Investment in branch……... 5M
Shipments to the branch……. 5M
(c)
Shipments from HO…… 5M
Freight-in………………..100K
Home office……………… 5M
Cash………………………100K

(d) (d)
Equipment…………… 900K Home office……………900K
Investment in branch……900K Cash………………………900K

(e) (e)
No entry Furniture………… ……600K
Cash………………………600K

(f) (f)
No entry Purchases…………….. 10M
Accounts payable………..10M

(g) (g)
No entry Cash……………………50M
Accounts receivable….50M
Sales…………………….100M

(h) (h)
Cash…………………………10M Cash……………………30M
Investment in branch………10M Home office…………...10M
Accounts receivable……..40M
 P a g e | 14

(i) (i)
Cash…………………….35M Home office……….35M
Home office………………….35M Cash…………………….35M

(j) (j)
No entry Accounts payable……8M
Cash…………………..8M

(k) (k)
Expenses…………………1M Expenses……………14M
Investment in branch………..1M Home office………….1M
Cash…………………..15M

(l) (i)
Investment in branch……3M Expenses………………3M
Expenses……………………….3M Home office……………3M

(m) (m) Adjusting entry:

No entry Inventory – end. ………7.675M
(20.5M x ¼) + (5.1M x ½)
Income summary………7.675M

(n) Adjusting entry: (n) Adjusting entry:

Investment in branch…..135K
Accum. Depn. – Equipt…….135K
Depreciation – Bldg. 1M
Depreciation – Equpt. 135K
Depreciation – Furn. 75K
Acc. Dep. – Bldg………. 1M
Home office………….. 135K
Acc. Dep. – Furn……… 75K

(o)Closing entries: (o) Closing entries:

Sales……………. 100M
Income summary (m) 7.675M
Shipments from HO…….25M
Freight-in………………. 600K
Purchases………………..10M
Expenses……………… 17M
Depreciation expense….1.21M
Income summary……53.865M

Investment in branch…..53.865M Income summary……53.865M

Income summary…………53.865M Home office…………53.865M

Requirement (b):
Investment in Home office
 P a g e | 15

branch
Jan. 10,000,00 10,000,00
1 0 0 Jan. 1
30,000,00 30,000,00
(a) 0 900,000 (d) 900,000 0 (a)
20,500,00 10,000,00 10,000,00 20,500,00
(b) 0 0 (h) 0 0 (b)
35,000,00 35,000,00
(c) 5,000,000 0 (i) 0 5,000,000 (c)
(l) 3,000,000 1,000,000 (k) 1,000,000 3,000,000 (l)
(n) 135,000 135,000 (n)
53,865,00 53,865,00
(o) 0 0 (o)
75,600,00 75,600,00
0 0

Requirement (c):
STATEMENT OF FINANCIAL POSITION
Cash 30,400,000
Accounts receivable 10,000,000
Inventory 7,675,000
Land 10,000,000
Building 20,000,000
Accum. Depn. - Bldg. (1,000,000)
Furniture 600,000
Accum. Depn. - Furniture (75,000)
Total assets 77,600,000

Accounts payable 2,000,000

Home office 75,600,000
Total liabilities & equity 77,600,000

STATEMENT OF PROFIT OR LOSS

Sales 100,000,000
Cost of goods sold:

Shipments from HO 25,000,000

Freight-in 600,000

Purchases 10,000,000

Ending inventory (7,675,000) (27,925,000)

 P a g e | 16

Gross profit 72,075,000

Expenses (17,000,000)

Depreciation expense (1,210,000)

Profit 53,865,000

ACTIVITY 2:
Requirement (a):
Home office books Branch books
(a) (a)
Investment in branch……200 Shipments from HO……200
Shipments to the branch……..200 Home office…………… 200

No entry Home office…………… 50

Shipments from HO…… 50

(b) (b)
Investment in branch……... 100 Cash……………… 150
Cash………………………... 100 Home office……………… 150

(c) (c)
No entry Home office……… 20
Cash (or Expense) …… 20

(d) (e)
Investment in branch …………10 No entry
Expense……………………….10

Requirement (b):
Investment in
branch Home office
Jan.
1 1,000 1,000 Jan. 1
(a) 200 (a) 50 200 (a)
(b) 100 (c) 20 150 (b)
(d) 10
1,310 1,280
Difference (1,310 – 1,280) = 30
 P a g e | 17

Requirement (c):
Home office books Branch books
(a) (a)
Shipments to the branch….. 50
Investment in branch……….. 50

(b) (b)
Home office……….. 50
Cash………………………. 50

(c) (c)
Expenses…………….. 20
Investment in branch………..20
(d) (d)
Expense 10
Home office………………10

Requirement (d):
Investment in
branch Home office
Unadj
. 1,310 1,280 Unadj.
50 (a) (b) 50
20 (c) 10 (d)

1,24
1,240 0

ACTIVITY 3:
The answers will vary depending on the assumptions made by the
students.
 P a g e | 18

PROBLEM 5: FOR CLASSROOM DISCUSSION

1. Solutions:
Requirement (a):
Home office books
Jan . 1, 20x1
Investment in branch……...500K
Cash………………………….…500K
Branch books
Jan . 1, 20x1
Cash……………………...500K
Home office..…………… 500K

(a) (a)
Investment in branch……...100K Purchases……………200K
Accounts payable……………100K Accounts payable 100K
Home office………………100K

(b) (b)
No entry Equipment………………120K
Cash……………………….120K

(c) (c)
Investment in branch……... 60K Equipment……………360K
Accum. depreciation…..… 300K Accum,. depreciation……..300K
Equipment………………….. 360K Home office……………….. 60K

(d) (d)
No entry Cash ……………………..600K
Sales………………………600K

(e) (e)
Cash…………………………..80K Home office……………80K
Investment in branch………..80K Cash……………………….80K

(f) (f)
Expenses……………… 150K
Cash………………………150K

(g) (g)
Depreciation expense…. 10K
Accum. depn………………10K

(h) (h)
Investment in branch………25K Expenses…………………25K
Expenses…………………….25K Home office……………….25K

(i) (i)
Inventory………………..20K
Income summary …………20K

(j) Closing entries: (j) Closing entries:

Sales……………………..600K
 P a g e | 19

Income summary (i) ……20K

Purchases…………………200K
Expenses………………… 175K
Depreciation expense……. 10K
Income summary……….. 235K

Investment in branch…..235K Income summary…… 235K

Income summary…………….235K Home office…………… 235K

Requirement (b):
Investment in
branch Home office
500,00
Jan. 1 500,000 0 Jan. 1
100,00
(a) 100,000 0 (a)
(c) 60,000 80,000 (e) 80,000 60,000 (c)
(f) 25,000 25,000 (f)
235,00
(g) 235,000 0 (g)
840,00
840,000 0

Requirement (c):
Cash (500K – 120K + 600K – 80K –
150K) 750,000
Inventory 20,000
Equipment (120K + 360K) 480,000
Accum. Depreciation (300K + 10K) (310,000)
Total assets 940,000

Accounts payable 100,000

Home office 840,000
Total liabilities & equity 940,000

Sales 600,000
Cost of goods sold:
Inventory, beg. -
Purchases 200,000
Total goods available for sale 200,000
 P a g e | 20

Inventory, end. (20,000) (180,000)

Gross profit 420,000
Expenses (175,000)
Depreciation expense (10,000)
Profit 235,000

2. Solution:

 Combined statement of profit or loss

Sales (2.9M + 1.08M) 3,980,000
Cost of goods sold:
Inventory, beg. (650K + 10K) 660,000
Purchases (880K + 15K) 895,000
Freight-in (33K + 5K) 38,000
Total goods available for sale 1,593,000
Inventory, end. (160K + 56K) (216,000) (1,377,000)
Gross profit 2,603,000
Depreciation expense (400K +
75K) (475,000)
Salaries expense (180K + 100K) (280,000)
Utilities expense (18K + 10K) (28,000)
Profit for the period 1,820,000

 Combined statement of financial position

Cash (600K + 250K) 850,000
Accounts receivable (720K + 280K) 1,000,000
Inventory (160K + 56K) 216,000
Land 1,000,000
Building - net (4M – 2.4M) 1,600,000
Equipment – net [(800K - 200K) + (500K – 100K)] 1,000,000
Total assets 5,666,000
Accounts payable (360K + 40K) 400,000
Ordinary share capital 2,000,000
Share premium 500,000
Retained earnings (946K beg. + 1.82M combined
profit) 2,766,000
Total liabilities & equity 5,666,000
 P a g e | 21

3. Solutions:

Requirement (a):
Home office books Branch books
(a) (a)
Investment in branch……...470K Shipments from HO…..450K
(300K x 150%) + 20K Freight-in……………… 20K
Shipments to branch…….. 300K Home office…………… 470K
Allowance for mark-up…… 150K
Cash………………………… 20K

(b) (b)
No entry Purchases……………..100K
Freight-in…………………2K
Cash……………………….102K

(c) (c)
No entry Cash…………………..500K
Sales………………………500K
(d) (d)
Inventory – end. …. 235K
(470K x ½)
Income summary……..235K

Requirement (b):
Sales 500,000
Cost of goods sold:
Shipments from HO 450,000

Freight-in 22,000
Purchases 100,000

Ending inventory (235,000) (337,000)

Individual gross profit 163,000

Requirement (c):
Sales 500,000
Cost of goods sold:
Shipments from HO 300,000

Freight-in 22,000
Purchases 100,000
 P a g e | 22

Ending inventory (160,000) (262,000)

Individual gross profit 238,000

Requirement (d):
150,000 allow. for markup x 50% sold = 75,000

4. Solutions:
Requirement (a):
Home office books Branch A books
Investment in Branch A……22K Shipments from HO…….20K
Shipments to Branch A….........20K Freight-in……………...... ...2K
Cash………………………….…...2K Home office…........................22K

 The excess freight is identified as follows:

Freight from home office to Branch A 2,000
Freight from Branch A to Branch B 1,000
Total freight on indirect routing 3,000
Normal freight from home office to Branch B (2,500)
Excess freight 500

Branch A books Branch B books

Home office………………… 23K Shipments from HO…... 20K
Shipments from HO………… 20K Freight-in…………….......2.5K
Freight-in……………………… 2K Home office…................... 22.5K
Cash…………………………….. 1K

Home office books

Shipments to Branch A….. 20K
Shipments to Branch B……. 20K

Investment in Branch B….. 22.5K

Loss on excessive freight….. .5K
Investment in Branch A……. 23K

Requirement (b):

Freight from home office to Branch A 2,000

Freight from Branch A to Branch B 1,000
 P a g e | 23

Total freight on indirect routing 3,000

Normal freight from home office to Branch B (3,200)
Savings on freight (200)

Branch A books Branch B books

Home office………………… 23K Shipments from HO…... 20K
Shipments from HO………… 20K Freight-in……………....... 3K
Freight-in……………………… 2K Home office…...................... 23K
Cash…………………………….. 1K

Home office books

Shipments to Branch A….. 20K
Shipments to Branch B……. 20K

Investment in Branch B….. 23K

Investment in Branch A……. 23K