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PRACTICAL ACCOUNTING 2
TOPIC: HOME OFFICE AND BRANCH ACCOUNTING C. Gonzaga

Objective of Creating Branches and Sales Agencies: to widen geographical area business firms cover and improve the company’s share of
existing markets through more effective and efficient contact with customers.

Distinction between Sales Agency and Branch

Sales Agency
- Carries samples or displays of merchandise but
does not carry stocks of it.
- Orders are taken from customers and sent to home
office (HO) for credit approval. The HO directly
sends the merchandise to the customers.
- Sales Agency does not maintain complete set of
books. Receivable accounts are maintained in the
HO.
- Does not perform collection function.
- A working fund( handled using imprest system) for
sales agency expenses is provided by HO and
replenished when exhausted. No other cash is
handled by the sales agency.
Branch
- Carries stocks of merchandise ( Sources of merchandise:
1) shipment from HO 2) purchases from outside
suppliers
- Recognizes warranties with respect to quality of
merchandise.
- Collects accounts receivable
- Functions as an independent business unit.
- Maintains books of accounts

Accounting System for Sales Agencies

 The HO may account for Sales Agency net income (1) separately or (2) not separately
 If the Sales Agency net income is determined separately, the HO maintains in the general ledger distinct revenue and expense
accounts in the name of the Sales Agency, example, Sales-Tagaytay Sales Agency; Cost of Goods Sold- Tagaytay Sales
Agency; Rent Expense-Tagaytay Sales
 Shipment of Merchandise to the Sales Agency customers : using perpetual inventory system or periodic inventory system:
Perpetual system Periodic system
Cost of Goods Sold- Sales Agency xxx Cost of Goods Sold-Sales Agency xxx
Merchandise Inventory xxx Shipment of Merchandise-Sales Agency xxx
 At the end of the period, the account Shipment of Merchandise- Sales Agency is deducted from the HO total beginning inventory
and purchases to determine Total Goods Available for Sale- HO own operations
 If the HO does not account for separate Sales Agency net income, the sales agency transactions are recorded using the HO’s
own revenue and expense accounts without distinction.

BRANCH ACCOUNTING

Features of HO- Branch Accounting System

 The HO and Branch normally maintain separate set of books, with complete self-balancing set of accounts.
 Since independent accounting systems are maintained, both the HO and the branch record transactions with one another (inter-office
transactions) in their respective accounting systems
 Transactions with outside parties are recorded in the usual manner.
 Though independent accounting systems are maintained, for external reporting purposes, all accounts are to be combined at the end of
the period to show a single economic entity. Therefore, COMBINED FINANCIAL STATEMENTS are prepared. ELIMINATION ENTRIES
are then necessary to combine the HO and Branch operations for external reporting purposes.
 RECIPROCAL ACCOUNTS (Intracompany accounts) : These are accounts to record transactions between HO and Branch. :

HOME OFFICE BOOKS BRANCH BOOKS

*Investment in Branch (Branch Current) **Home Office or Home Office Current
* Asset in the HO separate financial statements
** HO Equity account in the Branch separate financial statements

Investment in Branch Home Office

______________________________________ __________________________________________
Debit : Credit Debit : Credit
_____________________ :________________ _____________________ : ___________________

Asset transfers to Asset transfer

Branch ………...XXX from HO ……..XXX

Asset transfer Asset transfer to

From Branch ….XXX HO……………...XXX

Branch Profit …...XXX Branch Profit….XXX

Branch loss………XXX Branch loss………..XXX
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Pro-forma Entries
HOME OFFICE BOOKS Debit Credit BRANCH BOOKS Debit Credit
Establishment of Branch: Establishment of Branch:

Investment in Tagaytay Branch xxx Cash xxx

Cash xxx Non-cash assets xxx
Non-cash assets (specify) xxx Home Office xxx

Branch Purchases of Merchandise from

Outside Suppliers:

Purchases (or Merchandise Inventory) xxx

Cash or Accounts Payable xxx
Merchandise Shipments to Branch Merchandise Shipments to Branch
(merchandise is billed at cost) : (merchandise is billed at cost) :

Investment in Tagaytay Branch xxx Shipment from Home Office xxx

Shipment to Tagaytay Branch xxx Home Office xxx

Merchandise Shipments to Branch Merchandise Shipments to Branch

(merchandise is billed at above cost, (merchandise is billed at above cost,
meaning, COST + MARK-UP= BILLED meaning, COST + MARK-UP=
PRICE): BILLED PRICE):

Investment in Tagaytay Branch (billed Xxx Shipment from Home Office (at billed
price) price) xxx
Shipment to Tagaytay Branch (at Home Office xxx
cost) xxx
Allowance for Overvaluation of
Branch Inventory xxx

Closing Entry (end of acctg period):

Allowance for Overvaluation of Branch

Inventory( AOBI) xxx No Entry
Branch Income xxx
To take up *REALIZED PROFIT
on merchandise sold by branch.

*Realized Profit =
CGS by branch X Bal of AOBI
TGAS (acquired (or Unrealized
From HO) Profit)

Or Realized Profit =
AOBI balance……………………xxx
Less: AOBI of ending inventory
Billed Price……..Pxxx
Less: Cost………..xxx xxx
Realized Profit………………….Pxxx

Freight Charges on Merchandise Freight Charges on Merchandise

Shipments to Branch: Shipments to Branch:

Investment in Tagaytay Branch xxx Shipment from Home Office xxx

Shipment to Tagaytay Branch xxx Freight-In xxx
Cash xxx Home Office xxx

Accounting for Branch Plant Assets: Accounting for Branch Plant Assets:

If Branch plant assets are recorded in If Branch plant assets are recorded in
Branch Books: Branch Books:

Investment in Tagaytay Branch xxx Office Equipment xxx

Cash xxx Home Office xxx
To take up purchase of branch To take up purchase of branch
plant asset for Tagaytay Branch. plant asset by the HO.
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If Branch plant assets are recorded in the If Branch plant assets are recorded in
Home Office Books: the Home Office Books:
xxx xxx

Office Equipment-Tagaytay Branch No Entry

Cash
To take up purchase of branch
plant asset for Tagaytay Branch xxx xxx xxx xxx

Office Equipment- Tagaytay Branch Home Office

Investment in Tagaytay Branch Cash
To take up purchase of branch To take up purchase of
equipment by the branch. equipment.
Branch Expenses: Branch Expenses:

a. Branch Expenses incurred and paid by a. Branch Expenses incurred and paid
the branch: by the branch:

No entry Expenses xxx

Cash xxx

b. Expenses incurred by the HO on the b. Expenses incurred by the HO on the

behalf of the branch: behalf of the branch:

Investment in Tagaytay Branch xxx Utilities Expense xxx

Utilities Expense xxx Depreciation Expense xxx
Depreciation Expense xxx Advertising Expense xxx
Advertising Expense xxx Home Office xxx

Recognition of Branch Net Income or Recognition of Branch Net Income or

Loss: Loss:
a. If Branch net income: a. If Branch net income:

Investment in Tagaytay Branch xxx Income Summary xxx

Tagaytay Branch Income xxx Home Office xxx

b. If Branch net loss: b. If Branch net loss:

Tagaytay Branch Loss xxx Home Office xxx

Investment in Tagaytay Branch xxx Income Summary xxx

Preparation of COMBINED FINANCIAL STATEMENTS

- Prepare working paper to combine the accounts of the HO and its branches.
- Eliminate reciprocal or intracompany account balances. Elimination entries are only made on the working paper and
NOT on the separate books of HO and branches.
- Present combined financial statements

Reconciliation of Reciprocal Accounts

- The Investment in Branch per HO books should have the same balance as the Home Office account per Branch
Books at the end of the accounting period.
- Reconciliation of differences must be made before preparing the combined financial statements.

Transactions Between Branches

- The Home Office may authorize interbranch transfers if necessary.
- Interbranch transfers should only be cleared through the Home Office account. Branches should not carry any
account with one another.

HOME OFFICE Debit Credit BRANCH Debit Credit BRANCH Debit Credit
BOOKS Tianong Silang
BOOKS BOOKS
Interbranch
Transfers of Cash

Investment in
Silang Branch xxx Home Office xxx Cash xxx
Investment in Cash xxx Home Office xxx
Tiaong Branch xxx
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Interbranch
Transfers of
Merchandise:

Investment in xxx Shipment xxx

Tiaong Branch from HO
Shipment to xxx ----Home
Tiaong Branch Office xxx
Shipment to Home Office xxx Shipment from xxx
Tiaong Branch xxx Shipment Home Office
Shipment to From HO xxx Home Office xxx
Silang Branch xxx

Investment in xxx
Silang Branch
Investment in
Tiaong Branch xxx

REVIEW PROBLEMS
PROBLEM 1
Universal Sales Corporation with Head Office in Makati City, decided to put up a branch in Carmona, Cavite at the start of
2016. The branch operation had the following transactions during 2016:
a. Merchandise costing P700,000 and cash of P400,000 were transferred from the HO.
b. The branch purchased on account additional merchandise inventory of P800,000 from other suppliers.
c. Sales of P1,300,000 were made by the branch during the period. The cost of these sales was P850,000. Cash of
P1,200,000 was collected from sales during the year.
d. Advertising costs of P80,000, sales commissions of P130,000, and other operating costs of P90,000 were
incurred and paid by the branch.
e. The branch paid P740,000 on account to other suppliers and remitted P240,000 to the HO.

REQUIRED:
1. Journal entries on the HO books and the branch book.
2. Branch Income Statement for 2016.
3. Branch Statement of Financial Position as of December 31, 2016.

PROBLEM 2
The Teena Corporation has a branch in San Pablo City. The respective trial balances on December 31, 2016 are given as
follows:
TEENA CORPORATION
Trial Balances
December 31, 2016
Home Office Branch
Debits
Cash P72,000 P14,000
Accounts receivable 108,000 58,000
Inventory, January 1, 2016 90,000 36,000
Investment in branch 140,000
Equipment (net) 190,000
Purchases 1,080,000
Shipment from home office 290,000
Expenses 180,000 40,000
P1,860,000 P438,000
Totals ======== ========

Credits
Accounts payable P54,000 P8,000
Home office 140,000
Ordinary share capital 108,000
Retained earnings, January 1, 2016 288,000
Sales 1,120,000 290,000
Shipments to branch 290,000 ________
Totals P1,860,000 P438,000
========= ========

Inventory, December 31, 2016 P180,000 P120,000

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REQUIRED:
1. Closing entries for the branch.
2. Closing entries for the home office including the entry to record the branch net income.
3. Combine working paper
4. Combined financial statements

Teena Corporation
Combined Statement Working Paper
Year Ended December 31, 2016

Eliminations
Income
Home Statement Balance
Office Branch Debit Credit Dr (Cr) Sheet
Debits
Cash
Accounts receivable
Inventory, 1/1
Investment in branch
Equipment (net)
Purchases
Shipments from HO
Expenses
Total debits

Inventory 12/31 (BS)

Total assets

Credits
Accounts payable
Home Office
Ordinary share capital
Retained earnings, 1/1
Sales
Shipments to branch
Total credits

Inventory, 12/31 (IS)

Net income

Total liabilities & equity

PROBLEM 3
Aizel Company has been operating a branch in Pampanga for a year. Shipments are billed to the branch at cost. The branch
carries its own accounts receivable, makes its own cash collections, and pays its own expenses. The transactions of the
branch for the year 2016 are given effect in the trial balance below:

Debits Credits
Cash P200,000
Home Office account P400,000
Shipments from Home Office 1,600,000
Accounts receivable 300,000
Sales 1,940,000
Expenses 240,000 ________
Totals P2,340,000 P2,340,000

The Branch Inventory on December 31, 2016 is P260,000.

REQUIRED:
1. On January 1, 2017, the Shipment to Branch Account on the Home Office books should have an opening balance of
________.
2. On December 31, 2016, compute the net income of the branch.
3. Total cash remittances of the branch to the head office for 2016
4. On January 1, 2017, the Branch Current Account on the books of the home office should have a balance of ______.

PROBLEM 4
On January 1, 2017, the branch manager of Rochie Company in Pasay City submitted the following data to the home office:
Petty cash fund P10,000
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Sales 564,000
Sales returns 4,000
Accounts written off 10,000
Shipments from home office 300,000
Accounts receivable, January 1, 2016 90,000
Accounts receivable, December 31, 2016 100,000
Inventory, January 1, 2016 60,000
Inventory, December 31, 2016 70,000
Expenses (charged by Home Office) 120,000

All cash collected on accounts receivable are remitted to the home office.

REQUIRED:
1. Compute the balance of the Home Office Current account on January 1, 2016. _______.
2. Compute the net income of the Pasay City branch for the year ended December 31, 2016. _______.
3. Compute the total remittance for the 2016. ______.
4. Determine the balance of the Branch Current account on the Home office books on December 31, 2016. _____.

PROBLEM 5
The reciprocal accounts between the home office of Beuno Corporation and its Pasig City branch were adjusted to P268,000
as of December 31, 2015. The transactions between the home office and the branch for 2016 were:
a. Remittance by the branch (P84,000) was still in transit as of December 31, 2016), P378,000.
b. Shipments to branch (includes goods worth P78,000 that are not yet received by the branch as of December 31, 2016)
amount to P880,000.
c. The home office has not informed the branch of its share in the advertising expense amounting P34,000.
d. Accounts receivable of the branch amounting to P50,000 was collected by home office, net of 2% discount. The
branch has not yet been notified.
e. The home office incorrectly credited Pasig City branch by P24,000 for the remittance of its Mandaluyong branch.
Pasig City branch made no entry.
f. The home office corrected the above entry on January 6, 2017. However, the Pasig City branch inadvertently received
a copy of this memo and entered a credit in favor of the home office as of December 31, 2016.
g. The branch returned merchandise worth P20,800 to the home office and was duly acknowledged by the latter during
the year.

REQUIRED:
1. Compute the balance of Home Office account in the books of Pasig City branch on December 31, 2016.
2. Adjusted balances of the reciprocal accounts.

PROBLEM 6
The Aliya Company recently made the decision to open a branch of its business operation in Isabela. Since that time, the
following transactions have occurred in connection with this new operation:
a. The Home Office (HO) acquired P36,000 in equipment to be used (and recorded) by the branch.
b. The HO paid P6,000 to lease a building for the last six months of this year. This cost was charged to the
branch.
c. Inventory costing P160,000 was shipped to the branch by the HO at a transfer price of P200,000. The HO
separately records all of its unrealized gains .
d. The branch paid P22,000 for various operating expenses.
e. The branch sold 75% of the inventory received, collecting P210,000 in cash.
f. The branch transferred P120,000 in cash to the HO.

REQUIRED:
1. Prepare journal entries for both the HO and the branch.
2. Prepare the worksheet entries to combine the HO and branch operations at the end of the accounting period.
3. Prepare closing entries of the branch at the end of the period.

PROBLEM 7
Sasha Company’s home office has the following transactions with one of its branch operations located in Batanes.

2016
January 1 The beginning Investment in Branch account holds a debit balance of P172,000.
January 2 The home office receives notice of a P64,000 cash transfer deposited on December 31, 2015 by the
Batanes branch. The home office had made no previous recording.
January 6 The home office ships P60,000 in inventory to this branch at a P69,000 transfer price.
January 10 The home office pays P2,000 monthly rent to the owner of the Batanes branch’s building. This cost is
assigned to the operations of the branch (communication is made immediately).
January 12 The home office allocates P6,000 of general corporate expenses to the branch (communication is made
immediately).
January 14 The home office ships P80,000 in inventory to the Batanes branch at a transfer price of P92,000. The
branch erroneously records the shipment as P128,000.
January 31 The home office allocates P6,000 in transportation costs (that were incurred during January) to the branch.
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The assignment is not communicated to the branch until February 2, 2017.

February 1 Notification of a P148,000 cash transfer is received by the home office. The deposit was made in Batanes
on January 31, 2016.

REQUIRED:
1. What is the unadjusted balance of the Investment in Branch account on the home office books as of January 31,
2016?
2. What is the unadjusted balance of the Home Office account on the branch’s books as of January 31, 2016?
3. What is the reconciled value for the Home Office/ Branch accounts as of January 31, 2016?

PROBLEM 8
The Morgan Corporation has two branches, Branch-Xyza and Branch Yasmin. The Home Office shipped P10,000 of
merchandise to Branch Xyza and prepaid the freight charges of P600. Afterwards, the Home Office instructed Branch Xyza
to reship this merchandise to Branch Yasmin at a prepaid freight cost of P1,000. Freight charges for this merchandise
normally cost P1,200 when shipped from the home office directly to Branch Yasmin.

REQUIRED:
1. Entries on Branch Xyza books.
2. Entries on Branch Yasmin books.
3. Entries on the Home Office books.

MULTIPLE CHOICE PROBLEMS

Questions 1 and 2 are based on the following data:

Presented below are items taken from the unadjusted trial balances of Progressive Company and its branch on
December 31, 2016.
Home Office Books Branch Books
Shipments to branch P250,000
Allowance for overvaluation of branch inventory
Shipments from home office 120,000
Purchases (from outsiders) P350,000
Merchandise inventory, Jan. 1 144,600
Merchandise inventory, Dec, 31 90,000
Sales 70,000
Expenses 680,000
85,000

It is the company’s policy to bill all branches for merchandise shipments at 40% above cost.

1. How much of the branch inventory on January represents purchases from outsiders?
a. P30,000 b. P20,000 c. P14,000 d. P40,000

2. Assuming that the branch inventory acquired from home office is P49,000 at billed price, what is the net
income (loss) of the branch insofar as the home office is concerned?
a. P186,400 b. P80,400 c. P86,400 d. P180,400

Question 3and 4 are based on the following information:

On December 31, 2016, the Branch current in the Home Office books shows a balance of P50,000. The following
facts are ascertained:
a. Merchandise billed at p12,500 is in transit on December 31 from the home office to the
branch.
b. The branch collected a home office accounts receivable for P3,500. The branch office did not
notify the home office of such collection.
c. 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 yet received the cash as of December 31.
d. Branch profit for December was recorded by the home office at P2,400 instead of P2,040.
e. 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.

3. What is the unadjusted balance of the Home Office Current account on the branch books on December
31,2016?
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a. P59,140 b. P39,140 c. P14,000 d. P13,000

4. The reconciled balance of the reciprocal accounts on December 31, 2016 should be:
a. P59,140 b. P39,140 c. P14,000 d. P13,000

5. Gershwin Inc. opens a sales agency in Cebu City and a working fund of P20,000 is established on imprest
basis. The first payment from the fund is P3,000 for rent. The transaction should be recorded by the home
office as follows:

a. No entry
b. Rent P3,000
Cash P3,000
c. Cebu agency P3,000
Working fund P3,000
d. Cebu agency P3,000
Cash P3,000

6. On December 31, 2016, the following data are in the records of the Angeles City branch of the Big and
Small company:
Petty cash P94,500
Accts. Rec. Dec. 31, 2015 85,200
Mdse. Inventory, Dec. 31,2015 75,700
Accts. Rec. Dec. 31, 2016 88,800
Mdse. Inventory, Dec. 31 2016 81,000
Sales 272,000
Sales returns 4,800
Accts. receivable written off 2,000
Shipment from Home office 220,600
Expenses (paid by home office) 22,500

If all cash collections in 2014 were remitted to home office, the total remittances amount to:
a. P262,300 b. P266,800 c. P264,300 d. P267,100

Question 7 and 8 are based on the following information.

The National Home Company ship 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 2016 are reflected in the branch trial balance shown below :

Cash P11,900
National Home Co. Current P90,000
Shipments from National home Co. 120,000
Accounts receivable 62,500
Expenses 8,100
Sales 112,500
Total P202,500 P202,500

7. The net profit of the branch was:

a. P22,500 b. P14,400 c. P21,900 d. P25,000

8. In the home office books, the Branch Current account should be:
a. P134,400 b. P 90,000 c. P104,400 d. P100,000

9. Teacher Co. bill its branch for merchandise shipment at 125% of cost. As of cut off date, 31 December
2016, the following data were available:
Mdse. from Home Mdse. Purchased
Office (from outsider)
(at billed price) Total
Merchandise 1, Dec P300,000 P120,000 P420,000
Addition to stock
1-31 December 450,000 360,000 810,000
Merchandise, 31 Dec. 420,000 150,000 570,000
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The branch returned P15,000 merchandise to the home office acquired at billed price.
The amount of the allowance for overvaluation account that was realized as income in view of branch
sales for the month of December was:
a. P63,000 b. P66,000 c. P87,500 d. P84,000

Questions 10 and 11 are based on the following information:

New Era Corp bills its newly established branch for merchandise at 140% of cost. At the end of its first month,
the branch reported, among other things, the following:

Merchandise from Home office (at billed price) P28,000

Merchandise purchased locally by branch 10,000
Inventory, September 30, of which P2,000 are
Local purchases 9,000
Net sales for the month 43,500

10. The branch inventory at cost should be recorded at

a. P38,000 b. P7,000 c. P9,000 d. P10,000

11. The gross profit of the branch in so far as the home office is concerned was
a. P22,500 b. P14,500 c. P 9,000 d. P10,000

1. Makati Co. bills its Valenzuela branch for merchandise at 140% of cost at the end of January 2016, the
branch reported the following information:

Merchandise from Home Office

( At billed price)
Inventory, January 1 P7,560
Shipments received 28,280
Inventory, January 31 8,400

What should be the balance of the allowance account for overvaluation of the branch inventory at January
31?
a. P2,400 b. P2,160 c. P8,080 d. P10,000

Questions 13 through 15 are based on the following data:

The following information is taken from the books and record of Atlantic Company and its branch. The
balances are at December 31, 2016, the second year of the company’s operations:

Home office books Branch Books

Sales P500,000
Expenses 150,000
Shipments to branch P180,000
Allowance for overvaluation
Of branch inventory 37,500
The branch obtains all of its merchandise from the home office. The home office ships the merchandise
at 120% of its cost. The ending inventory of the branch is P60,000 billed price.

12. The beginning inventory of the branch at billed price is:

a. P9,000 b. P36,000 c. P7,500 d. P1,500

13. The net income as reflected on the books of the branch is:
a. P212,500 b. P185,000 c. P175,000 d. P182,500

14. The true net income of the branch is:

a. P212,500 b. P185,000 c. P175,000 d. P182,500

Questions 16 through 18 are based on the following information found in your examination of the inter-
plant accounts between the Home office and the Butuan branch:
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 Transfer of fixed assets from Home Office in the amount of P53,960 was not booked by the
Butuan Branch.
 P10,000 covering marketing expenses of the Davao Branch was charged by Home Office to the
Butuan branch.
 Butuan branch recorded a debit note on inventory transfers from Home office of P75,000 twice.
 Home office recorded a cash transfer of P65,700 from the Butuan Branch as coming from the
Davao Branch.
 Butuan Branch reversed a previous debit memo from Cagayan de Oro branch amounting to
P10,500, which Home Office decided is appropriately Davao Branch’s cost.
 Butuan Branch recorded a debit memo from Home Office of P4,650 as P4,560.

15. The net adjustment in the Home Office books that is related to the Butuan Branch Current account is:
a. P75,700 b. P65,700 c. P86,200 d. P92,820

16. The net adjustment in Butuan Branch’s Books related to the Home Office account is:
a. P33,335 b. P31,450 c. P20,950 d. P10,450

17. The adjusted balance of the reciprocal accounts is:

a. P84,807 b. P90,220 c. P99,200 d. P109,120

MULTIPLE CHOICE THEORY

1. Which of the following is not a reciprocal account?

a. Home office account
b. Investment in branch
c. Inter-company accounts
d. Investment in subsidiary stock

2. When an asset is transferred to a branch from the home office, which of the following occurs?
a. Only a memo entry is made.
b. A credit to Home Office account
c. A debit to Home Office account
d. A credit to Investment in Branch account

3. Which of the following statements is correct?

a. A sales agency normally accounts for its operations on its own set of books.
b. Branches normally maintain only minimum accounting records.
c. A sales agency generally operates with a greater degree of autonomy than does a branch.
d. A branch generally operates with a greater degree of autonomy than does a sales agency.

4. Which of the following statements is incorrect regarding branch accounting?

a. A branch’s Home Office account appears in the asset section of a balance sheet prepared for the company as a
whole.
b. A branch’s Home Office account appears in the equity section of the branch’s separate Statement of Financial
Position.
c. Most branches maintain a complete set of books which includes a self-balancing set of accounts.
d. Sales agencies usually do not keep a complete self-balancing set of accounts.

5. Of the following two statements, which one(s) is (are) correct, if any?

S-1 A transfer of merchandise from the home office to one of its branches should be recorded with a decrease
in the branch’s Home Office account.
S-2 A transfer of merchandise from the home office to one of its branches should be recorded with an increase
In the home office’s Investment in Branch account.

a. S-1 and S-2.

b. S-1 only.
c. S-2 only.
d. Neither S-1 nor S-2.

6. A branch’s Home Office account is a(an):

a. Asset
b. Asset and Liability
c. Asset and Capital account
d. Capital account

7. A home office’s Investment in Branch account is a (an):

a. Asset
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b. Contra liability
c. Unrealized income
d. Liability

8. Remittances from a branch to its home office are recognized by the home office as:
Income An increase in the Investment in Branch account
a. Yes Yes
b. No No
c. Yes No
d. No Yes

9. When a home office pays expenses of a branch and apportions the expense against branch income without modifying the
branch, the following accounts increase:
Home Office Investment in Branch account
a. Yes Yes
b. Yes No
c. No Yes
d. No No

10. When a home office pays the expenses of a branch and notifies the branch of the expenditures, the following accounts
increase:
Home Office Investment in Branch account
a. Yes Yes
b. Yes No
c. No Yes
d. No No

11. Clarence Company has a branch operation located in Virac, Catanduanes. On the home office financial records, Clarence
reports Investment in Virac Branch account with a P87,000 debit balance. At the same time, the branch operation is
reporting a Home Office account with a P78,000 credit balance. Which of the following statements is TRUE?
a. Since two different sets of records are being kept, these two accounts are designed not to agree.
b. The difference indicates that inventory may be in transit from the home office to the branch.
c. The difference indicates that cash may be in transit from the branch to the home office.
d. Cash may been collected by the home office for the branch but not yet reported to the branch.

END