AFAR 2 – Home and Branch Office Accounting

Sample Problems with Solutions

B Company has two branches to which merchandise is transferred at cost plus 20%, plus
freight charges. On February 18, 2018, B Company shipped merchandise that cost 5,500 to
its A Branch, and the 200 shipping charges were paid by B. on March 1, 2018, C Branch
encountered an inventory shortage and A shipped the merchandise to C at a freight cost of
160 paid by A Branch. Shipping charges from home office to C would have been 175.

A. Compute the value of the merchandise at C Branch if unsold at year-end. (5,500 x 1.2) + 175 =
6,775
B. The amount at which B will show it as an asset in the report to stockholders if unsold at year-
end. 5,500 + 175 = 5,675

D opened it’s a branch a year ago. At the year’s end, the branch summarized operating data
as follows:
Sales 264,000
Shipments from home office 148,500
Purchases 137,500
Expenses 71,500
Ending inventory (16,500 from purchases) 82,500
The branch remitted 151,250 to the home office. If shipments from the home office are billed at cost plus
20%, how much is the branch ending inventory at cost?
82,500 - 16,500 = 66,000/120%= 55,000