Problem 1

Sunshine Commercial Corp. maintains a branch in Iloilo City and makes inventory shipment. Selected balances
taken from the books of Sunshine Commercial and its Iloilo branch as of Dec. 31 are as follows:
HO Branch
Merchandise Inventory, Jan 1 26,000
Purchases 39,000
Shipments from HO 104,000
Shipments to Branch 78,000
Branch Inventory allowance 31,200

P7,000 of the branch’s ending inventory came from outside suppliers.

1. The portion of the branch inventory on January 1 that came from the outside supplier is?
2. The total inventory of Sunshine Commercial Corpo. To appear in the consolidated balance sheet is?

Problem 2

AA Branch was billed by Home Office for merchandise at 140% of cost. At the end of its first month, AA branch
submitted among other things, the following data:

Merchandise from Home Office (@ billed price) …………………………………………Php 98,000

Merchandise purchased locally by Branch ………………………………………………. Php 40,000
Inventory, December 31 of which Php7,000 are local purchase ……………………….… Php 28,000
Net sales for month ……………………………………………………………………… Php 180,000

The branch inventory at cost and the gross profit of the branch as far as the home office is concerned are:

Problem 3

BB Co., operates a branch in Cavite City. Selected accounts taken from the May 31, 2022 statements of BB and its
Branch follow:

HO Cavite City
Sales 380,000 353,000
Purchases 300,000 60,000
Shipments from HO 187,500
Shipments to Branch 150,000
Shipments to Branch loading 39,000
Inventory, June 1, 20211 24,000 16,000
Inventory, May 31, 2012 28,000 20,700

The branch ending inventory included items costing Php8,700 that were acquired from outside suppliers. The
realized mark-up that would be recognized by the home office is:

Problem 4

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, P46,000;
branch beginning inventory, P36,000; branch ending inventory, P60,000. The total shipments from the home office
as recorded by the branch are:
Theories

1. Home office and Investment in Branch are reciprocal accounts.

A) True
B) False
2. In accounting for branch transactions, it is improper for the home office to:
a. Credit cash received from a branch to the Investment in Branch ledger account.
b. Maintain Common Stock and Retained Earnings ledger accounts for only the home office.
c. Debit shipments of merchandise to the branch from the home office to the Investment in Branch ledger
account.
d. Credit shipments of merchandise to the branch to the Sales ledger account.
3. The Home Office ledger account in the accounting records of the Tahoe Branch had a credit balance of P
12,000 at the end of April, and the Investment in Branch account in the accounting records of the home office
had a debit balance of P 15,000. The most likely reason for the discrepancy in the two ledger account balances
is:
a. Merchandise shipped by the home office to the branch had not been recorded by the branch.
b. The home office had not recorded the branch net income for April.
c. The branch had just collected home office trade accounts receivable in the amount of P3,000.
d. The branch had not yet recorded the home office net income for April.
4. Jayhawk Company has numerous branches in the state of Kansas. The home office purchases merchandise and
makes shipments to branches from a central warehouse at the request of branch managers. Which of the
following would be an improper accounting practice?
a. The Investment in Branch ledger account is debited in the accounting records of the home office when
merchandise is shipped to a branch, and the Shipments to Branch account is credited (assume use of the
periodic inventory system).
b. The home office debits Trade Accounts Receivable and credits Sales when merchandise is shipped to a
branch.
c. Cash received from a branch is credited to the Investment in Branch ledger account by the home office.
d. Only the home office maintains a Common Stock ledger account and a Retained Earnings account.

5. Both the Home Office ledger account and the Investment in Branch account are displayed in the combined
financial statements for the home office and the branch.
A) True
B) False