ACCO 30103

HOME OFFICE, AGENCY, AND BRANCH ACCOUNTING

Problem 1
Karen Co. established an agency in Makati and had the following information/transactions for the
month of November 2022:
a. The home office transferred merchandise costing P30,000 to Makati agency to be used as
samples. Working fund in the amount of P50,000 was established under the imprest system.
b. Received sales orders from the agency amounting to P400,000.
c. Collected agency accounts receivable, P150,000.
d. Karen Co. paid agency expenses of P60,000.
e. The working fund was replenished upon receipt of expense vouchers, P45,000.
f. Cost of goods sold identified with the agency sales, P250,000.
g. Samples on hand at the end of November were estimated to be P10,000.

Required: a. Determine the net income of the agency for the month ended November 30, 2022.
b. Journalize all entries relating with the agency on the books of the home office.

Problem 2
On April 1, 2023, the Toshiba Company established an agency in Laguna, sending its merchandise
samples costing P90,0000 and a working fund of P100,000 to be maintained on an imprest basis. During
the month of April, the agency transmitted to the home office sales orders costing P600,000. However,
the home office was able to fill-up only 75% of the orders. Total cash of P250,000 was collected from the
customers. A home office disbursement chargeable to the sales agency includes the acquisition of
equipment for Laguna, P100,000 to be depreciated at 20% per annum. The agency paid expenses of
P50,000 and received replenishment thereof from the home office. The agency samples are good until
December 31, 2023. It was estimated that the gross profit on goods shipped to bill agency sales orders
averages 20% based on cost.

Required: Determine the net income of the agency for the month ended April 30, 2023.

Problem 3
The Emerald Company maintains branches that market the products that it produces. Merchandise is
billed to the branches at 105% of cost, with the branches paying freight charges from the home office to
the branch. On November 15, Branch No. 1 ships part of its stock to Branch No. 2 upon authorization by
the home office. Originally, Branch No. 1 had been billed for this merchandise at P126,000 and had paid
freight charges of P6,300 on the shipment from the home office. Branch no. 2 upon receiving the
merchandise, pays freight charges of P5,500 on the shipment from Branch No. 1. If the shipment had
been made from the home office directly to Branch No. 2, freight cost to Branch No. 2 would have been
P10,000.

Required: Journalize all entries on the books of the Home Office, Branch No. 1 and No. 2.

Problem 4
Malou Co. operates a branch in Legaspi. Operating data for the home office and the branch for the year
2022 follow:
Home Office Branch
Sales P6,900,000 P3,765,000
Purchases 6,800,000 1,000,000
Shipments to Branch 1,750,000
Shipments from Home Office 2,187,500
Operating Expenses 356,000 200,000
Inventories, January 1 800,000 120,000
Inventories, December 31 640,000 250,000
Allowance for Overvaluation of Branch Inventory 452,500
• The branch inventory on December 31 includes P130,000 from outside purchases.
Required: a. Journalize the adjusting and closing entries on the books of the home office.
b. Journalize the eliminations for consolidation purposes.
c. Determine the combined net income of the home office and the branch.

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Problem 5
Batangas Corporation maintains a branch in Makati and makes inventory shipment to its branch at 20%
above cost. Selected balances taken from the books of Batangas Corporation and its Makati branch as
of December 31, 2022 are as follows:
Home office Branch
Sales P25,000,000 P15,000,000
Merchandise inventory, January 1 780,000 520,000
Purchases 18,525,000 2,145,000
Shipments from home office 5,694,000
Shipments to branch 4,875,000
Operating Expenses 6,246,000 3,994,275
Branch inventory allowance 1,023,750
Merchandise inventory, December 31 676,000 353,275

The branch’s ending inventory amounting to P158,275 came from outside suppliers.
Required: a. Determine the realized markup.
b. Determine the combined net income of the home office and branch.

Problem 6
On December 31, the Investment in Branch account on the home office books of the Unlimited
Company shows a balance of P168,000. The following are some of the transactions between the home
office and the branch:
1. Merchandise billed at P12,300 was shipped by the home office to the branch on
December 28. The merchandise is in transit and has not been recognized on the
books of the branch.
2. The branch collected a home office accounts receivable of P50,000 but failed to
notify the home office of this collection.
3. The home office was charged P12,800 when the branch returned merchandise to
the home office on December 31. The merchandise is in transit.
4. The home office recorded incorrectly the branch net income for November at
P22,500. The branch reported net income of P25,200.

Required: a. Determine the corrected balance of the reciprocal accounts.

b. Journalize the adjusting entries on the books of the home office and the branch.

Problem7
Manila Branch of the Great Company is billed for merchandise by the home office at cost. The branch in
turn prices merchandise for sales purposes at 25% above cost. On February 14, all of the branch
merchandise is destroyed by fire. No insurance was maintained. Branch accounts showed the following
information:
Merchandise inventory, January 1 P26,400
Shipments from home office (Jan 1- Feb 14) 20,000
Sales 15,000
Sales returns 2,000
Sales allowances 1,000

Required: Determine the cost of merchandise destroyed by fire.

Problem 8
The home office sells merchandise to its branch at 120% of cost. The branch was established several
years ago with the policy that all its merchandise would be acquired by the home office. The following
information is available from the records of the home office and the branch: Allowance for
overvaluation in branch inventory, P103,500; branch beginning inventory, P81,000; branch ending
inventory, P135,000.

Required: a. Determine the total shipments from the home office as recorded by the branch.
b. Determine the amount of realized markup/profit.

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