HOME OFFICE AND BRANCH

MULTIPLE CHOICE QUESTIONS

PROB. 1 (AICPA)

An enterprise uses a branch accounting system in which it establishes separate formal accounting systems
for its home office operations and its branch office operations. Which of the following statements about
this arrangement is false?
a. The home office account on the books of a branch office represents the equity interest of the
home office in the net assets of the branch.
b. The branch office account on the books of the home office represents the equity interest of the
branch office in the net assets of the home office.
c. The home office and branch office accounts are reciprocal accounts that must be eliminated in
the preparation of the enterprise’s financial statements that are presented in accordance with
GAAP.
d. Unrealized profit from internal transfers between the home office and a branch must be
eliminated in the preparation of the enterprise’s financial statements that are presented in
accordance with GAAP.

PROB. 2 (AICPA)

On December 31, 2021, the Branch Current in the Home Office books shows a balance of P50,000. The
following facts are ascertained:
1. Merchandise billed at P12,500 is in transit on December 31 from the home office to the branch.
2. The branch collected a home office accounts receivable for P3,500. The branch did not notify the
home office of such collection.
3. 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 received the cash as of December 31.
4. Branch profit for December was recorded by the home office at P2,400 instead of P2,040.
5. 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. What is the unadjusted balance of the Home
Office Current account on the branch books on December 31, 2021?
a. 64,140
b. 39,140
c. 14,000
d. 13,000

PROB. 3 (RPCPA)

The following were found in your examination of the interplant accounts between the Home Office and
the Butuan Branch:

a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by the branch.
b. P10,000 covering marketing expense of another branch was charged by Home Office to Butuan.
c. Butuan recorded a debit note on inventory transfers from Home Office of P75,00 twice.
 d. Home Office recorded cash transfer of P65,700 from Butuan Branch as coming from Davao
Branch.
e. Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to P10,500.
Home Office decided that this charge is appropriately Davao Branch’s cost.
f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560.

a. The net adjustment in the home office books related to the Butuan Branch Current account is:
a. 75,700
b. 65,700
c. 86,200
d. 94,820

b. The net adjustment in Butuan’s books related to the Home Office account is:
a. 33,335
b. 31,450
c. 20,950
d. 10,450

c. Before the above discrepancies were given effect, the balance in the home office books of its
Butuan Branch Current account was debit balance of P165,920. The unadjusted balance in the
Butuan Branch books of its Home Office Current account must be:
a. 92,336
b. 98,230
c. 104,500
d. 111,170

d. The adjusted balance of the reciprocal accounts is:

a. 84,807
b. 90,220
c. 99,200
d. 109,120

PROB. 4
The home office of Mang Do Co. ships goods to Iloilo branch billing the branch for the goods at P45,000,
excluding freight of P6,000. Upon receipt of the goods, Iloilo branch was instructed by the home office to
transfer these goods to Cagayan de Oro branch. Iloilo branch ships the goods and paid P4,500 for the
transfer. If the goods had been shipped by the home office directly to Cagayan de Oro branch, the freight
would have been P6,500.

a. What is the journal entry to record receipt of shipment in the books of Cagayan de Oro branch?
a. Shipment from home office 45,000
Home office current 45,000
b. Shipment from home office 45,000
Freight in 6,000
Home office current 51,000
c. Shipment from home office 45,000
Freight in 6,500
Home office current 51,500
 d. Shipment from home office 45,000
Freight in 4,500
Home office current 49,500

b. What is the adjusting journal entry to be recorded by Iloilo branch?

a. Home office current 51,500

Shipment from home office 45,000
Freight in 6,000
b. Home office current 47,000
Shipment from home office 45,000
Freight in 2,000
c. Home office current 55,500
Shipment from home office 45,000
Freight in 6,000
Cash 4,500
d. Shipment from home office 45,000
Freight in 6,000
Home office current 51,000

c. What is the adjusting entry to be recorded by home office?

a. Shipment to Iloilo 45,000

Excess freight on interbranch
transfer of merchandise 2,000
Cagayan de Oro branch current 45,000
Freight in 4,000
Shipment to Cagayan de Oro 45,000
Iloilo branch current 51,000
b. Shipment to Iloilo 45,000
Excess freight on interbranch
transfer of merchandise 6,000
Iloilo branch current 51,000
c. Shipment to Iloilo 45,000
Excess freight on interbranch
transfer of merchandise 6,000
Cagayan de Oro branch current 45,000
Iloilo branch current 51,000
Shipment to Cagayan de Oro 45,000
d. Cagayan de Oro branch current 51,500
Shipment to Iloilo 45,000
Excess freight on interbranch
transfer of merchandise 4,000
Iloilo branch current 55,500
Shipment to Cagayan de Oro 45,000

PROB. 5 (RPCPA)
Vivaldi & Co. has several branches located in key cities in the south namely, Cebu, Mactan, Iloilo, Bacolod,
Davao and Cagayan de Oro. It authorizes transfers of cash and inventories among branches. The head
office ships goods (P10,000 cost) to Cebu branch paying freight for P600. The home office authorizes the
transfer of goods from Cebu branch to Davao branch where the latter is charged for the cost of the goods
(P10,000) and freight charge (P200) for the transfer. If the shipment had been made by the home office
directly to the Davao branch, the freight charge would have been P900. The transfer resulted to difference
in freight charge which should be disposed of as follows:
A. P100 savings
B. P100 charge to Davao branch by Cebu branch.
C. P100 charge to Davao branch by Head Office.
D. P100 to be equally charge among head office, Cebu branch and Davao branch.

PROB. 6 (RPCPA)

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:

Debit Credit
a. No entry
b. Rent P3,000
Cash P3,000
c. Cebu agency 3,000
Working fund 3,000
d. Cebu agency 3,000
Cash 3,000

PROB. 7 (AICPA)

The following information pertains to shipments of merchandise from Home Office to Branch during 2020:

Home office’s cost of merchandise P160,000

Intracompany billings 200,000
Sales by branch 250,000
Unsold merchandise at branch, 12/31/20 20,000

In the combined income statement of Home Office and Branch for the year ended December 31, 2020,
what amount of the above transactions should be included in sales?
a. 250,000
b. 230,000
c. 200,000
d. 180,000

PROB. 8 (RPCPA)

Selected balances from the Amorsolo Company’s Branches A and B are as follows:
 Branch A Branch B
Inventory, Jan. 1, 2020 P21,000 P19,000
Imprest branch fund 2,000 1,500
Inventory, Dec. 31, 2020 19,000 12,000
Accts. Rec., Jan. 1, 2020 55,000 43,500
Accts. Rec., Dec. 31, 2020 70,000 53,500
Mdse. from home office 61,000 47,000
Cash collections 85,000 70,000
Sales 100,000 80,000
Cash expenses 21,000 14,300

All sales, collections and expenses are handled at the branch. All cash received from sales and collections
are sent directly to the home office. Expenses are paid by the branch from the imprest fund and
immediately reimbursed by the home office and credited to the Home Office account. All expenses paid
by the branch are recorded in the branch books.

a. The net profit of branch A is:

a. 16,000
b. 21,000
c. 15,000
d. 18,000

b. The balance of the Home Office account of Branch A on January 1, 2020 is:
a. 80,000
b. 64,000
c. 78,000
d. 75,000

c. The balance of the Home Office account of Branch B on January 1, 2020 is:
a. 80,000
b. 64,000
c. 78,000
d. 95,000

d. The balance of the Branch Current account of Branch B on December 31, 2020 is:
a. 70,000
b. 64,000
c. 67,000
d. 65,000

e. The entry in Branch B records to update the reciprocal account Home Office Current on December
31, 2020 is:
a. Dr. – Home Office / Cr. – Profit & Loss
b. Dr. – Profit & Loss / Cr. – Branch Current
c. Dr. – Branch Current / Cr. – Profit & Loss
d. Dr. – Profit & Loss / Cr. – Home Office Current

PROB. 9 (RPCPA)
On December 31, 2020, the following data are in the records of the Angeles City branch of the Big & Small
Company:

Petty cash P94,500

Accts. Rec. Dec. 31, 2019 85,200
Mdse. Inventory, Dec. 31, 2019 75,500
Accts. Rec. Dec. 31, 2020 88,800
Mdse. Inventory, Dec. 31, 2020 81,000
Sales 272,700
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 2020 were remitted to home office, the total remittances amount to:
a. 262,300
b. 266,800
c. 264,300
d. 267,100

PROB. 10 (RPCPA)

The National Home Company ships 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 2020 are reflected in the branch trial balance that follows:

Debit Credit
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

December 31, inventory P30,000

a. The net profit of the branch was:

a. 22,500
b. 14,400
c. 21,900
d. Answer not given

b. In the home office books, the Branch Current account should be:
a. 134,400
b. 90,000
c. 104,400
 d. Answer not given

PROB. 11 (Adapted)

Which represents the proper journal entry for a periodic inventory system that should be made on the
books of the branch when goods that cost the home office P100,000 to manufacture are shipped to the
branch at a price of P125,000?

a. Shipments from home office 100,000

Home office 100,000
b. Shipments from home office 125,000
Home office 125,000
c. Shipments from home office 125,000
Home office 100,000
Unrealized profit 25,000
d. Shipments from home office 100,000
Unrealized profit 25,000
Home office 125,000

PROB. 12 (Adapted)

Which represents the proper journal entry for a periodic inventory system that should be made on the
books of the home office when goods that cost the home office P100,000 to manufacture are shipped to
a branch at a transfer price of P125,000 and the billed price is not recorded in the shipments to branch
account?

a. Branch office 100,000

Shipments to branch 100,000
b. Branch office 125,000
Shipments to branch 125,000
c. Branch office 125,000
Shipments to branch 100,000
Unrealized profit 25,000
d. Shipments to branch 100,000
Unrealized profit 25,000
Shipments from home office 125,000

PROB. 13 (RPCPA)

Teicher Co. bills its branch for merchandise shipments at 125% of cost. As of cut off date, 31 December
2020, the following data were available:

Mdse. from Mdse.

Home Office purchased
(at billed price) (fr. outsider) Total
Merchandise, 1, Dec. P300,000 P120,000 P420,000
Addition to stock, Dec. 450,000 360,000 810,000
Merchandise, 31 Dec. 420,000 150,000 570,000
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. 63,000
b. 66,000
c. 87,500
d. 84,000

PROB. 14 (Adapted)

Early last year, a Manila-based company established a branch in Iloilo City. It shipped merchandise and
billed the branch for P300,000 prior to opening. For the year, it made additional shipments at billed price
of P120,000. Within the year, the branch shipped back P75,00 inventory and got credit memo for the said
return. On the last working day of the year, an inventory count was made. Ending inventory of P185,000
was established consisting of purchase from outsiders at inventory of P185,000 was established consisting
of purchases from outsiders at P20,000, with the balance coming from the home office shipments at billed
price of 20% above cost. The total purchases of the branch from outsiders amounted to P72,500. What is
the total goods available for sale by the branch at cost?
a. 416,250
b. 422,500
c. 435,250
d. 485,000

PROB. 15 (RPCPA)

JCPENNY, Philippines has two merchandise outlets, its main store in Manila and its Cebu City branch. For
control purposes, all purchases are made by the main store and shipped to the Cebu City branch at cost
plus 10%. On January 1, 2020, the inventories of the main store in Manila and the Cebu City branch are
P13,600 and P3,960, respectively. During 2020, the main store purchased merchandise costing P40,000
and shipped 40% of its merchandise to the Cebu City branch. At December 31, 2020, the following journal
entry to prepare the books for the next accounting period was prepared:

Sales 32,000
Inventory 4,840
Inventory 3,960
Shipments from Main store 17,600
Expenses 10,480
Main store 4,800

a. What was the actual branch income for 2020 on a cost basis, assuming the use of the provisions
of the statement of financial accounting standards?
a. 4,800
b. 6,320
c. 6,480
d. 6,840
 b. If the main store has P11,200 worth of inventory unsold at the end of 2020, the inventory of the
main store and the branch should appear on the combined balance sheet as at December 31,
2020 is:
a. 15,160
b. 15,600
c. 16,040
d. 17,200

PROB. 16 (RPCPA)

The following is the income statement of XYZ, Branch in Cebu City for the six-month period ending June
30, 2020:

Sales P620,000
Cost of Sales:
Shipments from H.O. P550,000
Purchases 50,000
Total 600,000
Inventory, June 30
From H.O. 75,000
From Outsider 10,000 85,000 515,000
Gross profit 105,000
Expenses 85,000
Net profit P 20,000

The home office ships merchandise to, and bills, the Branch office at 125% of cost. The rent of the branch
office for six months, at a monthly rate of P1,000 was paid by the home office.

a. The home office net profit from its Branch Office in Cebu City, for the six-months ending June 30,
2020 is:
a. 125,000
b. 124,000
c. 139,000
d. 109,000

b. The inventory of the Branch office in Cebu City, at cost, as of June 30, 2020 is:
a. 85,000
b. 70,000
c. 60,000
d. 75,000

PROB. 17 (Adapted)

The Manila Corp. has its main office in Cebu City and established a branch in Manila. During 2020, its first
year of operations, the home office in Cebu City shipped goods to the branch in Manila at a total billing
price of P303,050 which was 10% above cost. At December 31, 2020, the branch reported a net loss from
its own operations of P5,500, and an ending inventory of P61,050. How much is the branch net income
(loss) in so far as the home office is connected?
 a. (5,500)
b. 16,500
c. 22,000
d. 27,500

PROB. 18 (Adapted)

At the end of 2019, the branch reported an inventory of P15,625. The home office bills this branch at
125% of cost. During 2020, goods costing P300,000 were shipped to the branch. The account “allowance
for overvaluation of branch inventory” after adjustment, shows a balance of P16,250 at the end of the
year.

a. What was the amount of inventory at January 1, 2020 at cost?

a. 12,500
b. 15,625
c. 19,531
d. 28,125

b. What was the amount of ending inventory at billed price?

a. 309,375
b. 247,500
c. 81,250
d. 65,000

c. What was the amount of allowance for overvaluation before adjustment?

a. 61,875
b. 78125
c. 20,312
d. 20,000

PROB. 19 (RPCPA)

New Era Corp. bills its newly established branch for merchandise at 140% of cost. At the end of its first
month, the branch period, 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 of local purchases 9,000
Net sales for month 43,500

a. The branch inventory at cost should be recorded at

a. 38,000
b. 7,000
c. 9,000
d. None of the above

b. The gross profit of the branch in so far as the home office is concerned was
a. 22,500
 b. 14,500
c. 22,790
d. None of the above

PROB. 20 (RPCPA)

Makati Co. bills its Valenzuela branch for merchandise at 140% of cost. At the end of January 2020, 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. 2,400
b. 2,160
c. 8,080
d. None of the above

PROB. 21 (RPCPA)

Trial balances for the home office and for the branch of Toby Co. show the following accounts before
adjustments as of December 31, 2020. The home office bills merchandise to the branch at 20% above
cost.

H.O. Branch
Unrealized intercompany inventory profit 10,800
Shipments to branch 24,000
Purchases from outsiders 7,500
Shipments from Home Office 28,800
Merchandise inventory, December 1, 2020 45,000

What part of the December 1, 2020 branch inventory represents acquisition from outsider purchases, and
what part represents acquisition from home office?

Outsiders Home Office

a. P9,000 P36,000
b. 10,000 35,000
c. 12,000 33,000
d. 15,000 30,000

PROB. 22 (RPCPA)
The Neneng Corp. established its San Pedro branch in March 2020. During the first year of operations, the
home office shipped to the branch merchandise which had cost of P120,000. Three-fourths of these
merchandise was sold by the branch for P141,000. Operating expenses of the branch amounted to
P27,000. How much net income will the branch report if merchandise is billed by the home office to the
branch at 25% above cost?
a. 800
b. 1,200
c. 1,500
d. 8,000

PROB. 23 (RPCPA)

The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao City. During 2020, the home
office shipped to the branch supplier costing P120,000 at a billed price of 20% above cost. The inventories
of supplies at the branch were as follows: January 1 – P90,000; December 31 – P108,000. On December
31, 2020, the home office holds inventories of P160,500, which includes P10,500 held on consignment.
Both locations use the periodic inventory method. How much inventories should be reported in the
combined balance sheet as of December 31, 2020?
a. 210,000
b. 240,000
c. 270,000
d. 300,000

PROB. 24 – (RPCPA)

A branch store in Marikina was established by Marco Co. on March 1, Merchandise was billed to this
branch at 125% of cost. Shipments of merchandise were as follows:

March 5 P120,000 (at billed price)

March 10 P50,000 (at billed price)
March 20 P35,000 (at billed price)

On March 20, the branch returned defective merchandise worth P3,050 and on March 31, it reported a
net loss of P6,200, and merchandise inventory of P85,000.

a. In the home office books, the cost of merchandise sold by the branch was
a. 93,560
b. 116,950
c. 161,560
d. 161,950

b. In the home office books, the branch operations resulted in a net income (loss) off
a. (6,200)
b. 17,190
c. 20,240
d. 23,390

PROB. 25 (RPCPA)
A home office has a branch in Metro Manila. The branch buys merchandise from outside parties and also
receives merchandise from the home office for which it is billed at 20% above cost. Below are excerpts
from the trial balances and other data of the home office and its branch for the month just ended:

Home Office:
Cr: Allowance for overvaluation 370,000
Cr: Shipments to branch 850,000
Metro Manila Branch:
Dr. Beginning inventory 1,440,000
Dr: Shipments from home office 1,020,000
Dr: Purchases 420,000
Month-end branch inventory:
From home office, at billed price 1,170,000
From outside parties, at cost 290,000

What is the amount of allowance for evaluation that was realized because of branch sales for the month
just ended?
a. 175,000
b. 195,000
c. 200,000
d. 370,000

PROB. 26 (AICPA)

The combined statements may be used to present the results of operations of

Entities under common Commonly
Management controlled entities
a. No Yes
b. Yes No
c. No No
d. Yes Yes

PROB. 27 (AICPA)

Mr. Cord owns four corporations. Combined financial statements are being prepared for these
corporations, which have inter-entity loans of P200,000 and inter-entity profits of P500,000. What amount
of these loans and profits should be included in the combined financial statements?
Inter-entity Inter-entity
Loans Profits
a. 200,000 0
b. 200,000 500,000
c. 0 0
d. 0 500,000

PROB. 28 (Adapted)
The Baguio branch of a home office in Manila is billed for merchandise it receives at 125% of cost. The
branch turns around and sells them at 25% of billed price. On March 15, all branch’s merchandise was
destroyed by fire. The branch’s records recovered shows the following:

Inventory, January 1 (at billed price) 165,000

Shipments, January 1 to the date of fire (at billed price) 110,000
Purchases (at cost) from outsiders all resold at markup of 20% 7,500
Sales 169,000
Sales returns and allowances 3,750

What is the cost of merchandise destroyed by fire?

a. 120,000
b. 120,240
c. 130,000
d. 140,000

PROB. 29 (Adapted)

Zeta Corp. established an agency in Baguio City. For the first month of operation, the agency transactions
were summarized as follows:

Receipts from sales 350,000

Disbursements for:
Purchases 400,000
Rent 20,000
Advertising supplies 10,000
Salaries and commissions 70,000
Other expenses 5,000

At the end of that month, the agency had P100,000 of receivables and P50,000 of payables. Also, there
were P90,000 of unsold merchandise and P6,000 of unused advertising supplies on hand. The Baguio City
agency was conceived as an experiment and it is the intention of management to close it if its operations
prove to be unprofitable. What is the results of operations of the Baguio City agency?
a. No profit, no loss
b. P25,000 profit
c. P9,000 loss
d. P155,000 loss
SOLUTIONS AND EXPLANATIONS

PROB. 1 Suggested answer (b)

In Home Office and Branch accounting, the branch office account on the home office books represents
the investment by the home office in the net assets of the branch, not the branch’s equity in the home
office.

PROB. 2 Suggested answer (b) P39,140

Branch Current
(HO Books)
Unadjusted balance, 12/31/20 P50,000
2. Collection of home office receivable by the branch 3,500
3. Cash sent to branch which was erroneously charged to
Gen. Exp. 7,500
4. Erroneous recording of branch profit
(2,400 – 2,040) (360)
5. Unrecorded supplies retuned by the branch (1,500)
Adjusted balance, 12/31/20 P59,140

HO Current
(Branch Books)
Unadjusted balance, 12/31/20 P39,140
1. Merchandise in transit 12,500
2. Cash sent by home office still in transit 7,500
Adjusted balance, 12/31/20 P59,140

The balances in the Branch Current account in the home office books and the Home Office Current account
in the branch books may not show reciprocal balances at any one time because of certain interoffice data
that have been recorded by one office but not by the other.

The unadjusted balance of the Home Office Current account, in the amount of P39,140 as shown above,
in the Branch books was computed by determining the adjusted balance of the reciprocal accounts and
working back.

PROB. 3

a. Suggested answer (a) P75,700

Dr. (Cr.)
Erroneous charging of expense P(10,000)
Erroneous cash transfer (remittance) (65,700)
Net adjustment to Butuan Branch – Current
account in the home office books P(75,700)
Again, the balances in these reciprocal accounts may not show reciprocal balances at any one time
because of certain interoffice data that have been recorded by one office but not by the other. In addition,
corrections should be made to any errors recorded by either home office or its branch. As a general rule,
errors should be corrected by the unit that committed the said errors. In the aforementioned
computations, it should be observed that the net adjustment in the amount of P75,700 pertains to the
errors that affect the Butuan Branch Current account in the home office books. In item “b”, the home
office erroneously charged the marketing expense of another branch to Butuan, thus to correct this error,
Butuan Branch Current account should be credited. In item “d”, the home office erroneously recorded the
remittance of Butuan Branch as coming from Davao Branch, thus, to correct this error, the Butuan Branch
Current account should be credited.

b. Suggested answer (c) P20,950

Dr.(Cr.)
Transfer of fixed asset from home office not booked by
Butuan Branch P(53,960)
Double recording of inventory transfer from home office 75,000
Understatement of debit memo (90)
Net adjustment to Home Office account in the
Branch books P 20,950

When an asset other than merchandise is transferred and the asset is to be carried on the branch books,
the home office debits the branch account and credits the appropriate asset account. But when the asset
transferred is to be carried on the home office books, an asset account identified with the branch, such
as Equipment – Branch, is debited and the original asset account (Equipment) is credited. Upon receiving
this asset transferred that is to be carried on the branch books, the branch debits the asset account and
credits the Home Office Current account.

But when the asset transferred is to be carried on the home office books, no entry is required in the branch
books. Specifically, this problem failed to identify whether the fixed asset transferred will be carried on
the branch books or on home office books. However, if we will assume that this fixed asset transferred
will be carried in the home office boos and no entry will be recorded in the branch books, no adjustment
will be made and it will eventually lead to net adjustment of P74,910, which is none of the given choices.
Thus, we assumed that this asset transferred will be carried in the branch books, as shown above.

In item “c”, Butuan branch recorded twice the inventory transfer from home office resulting to
overstatement of Home Office Current account, thus, to correct this error, the Home Office Current
account should be debited. In item “e”, this transaction is not a reconciling item in the Home Office
Current account in the Butuan Branch books, because this charge is appropriately Davao Branch’s cost. In
related instances, it should be observed that interbranch transfers of merchandise, like interbranch
transfers of cash, are normally cleared through the home office account rather than through special
account with member branches. When this procedure is followed, settlement between individual
branches is not required; the net extent of branch accountability so far as affiliated units is concerned is
summarized in one account, the Home Office Current account.

c. Suggested answer (d) P111,170

 Branch Current
Dr. (Cr.)
Unadjusted balance, Debit P165,920
Net adjustment to Butuan Branch Current account “a” (75,700)
Adjusted balance P 90,220

H.O. Current
Dr. (Cr.)
Unadjusted balance, Credit P111,170
Net adjustment to Home Office Current account “b” 20,950
Adjusted balance P 90,220

Since, these reciprocal accounts should have identical balances after adjustments, the unadjusted balance
of the Home Office Current account was determined by working back, as shown above.

d. Suggested answer (b) P90,220

As shown in “c” computations, the identical adjusted balances of this reciprocal accounts were
determined by considering the net adjustments in “a” and “b”.

PROB. 4

a. Suggested answer (c)

As a general rule, the branch acquiring the goods shall record the merchandise received from the home
office for an amount equal to the cost of merchandise (in the absence of any mark ups) plus the freight.
In case of interbranch transfer of merchandise, a branch is properly charged with the cost of freight on
goods it receives. However, a branch should not be charged with excessive freight when, because of
indirect routing, excessing costs are incurred. Thus, the freight is P6,500 only.

b. Suggested answer (c)

The branch where the goods were erroneously shipped shall eliminate all entries made in its books, as if
no interbranch transactions occurred. And should record the freight incurred in shipping the goods to
Cagayan de Oro, as if remitted to the home office.

c. Suggested answer (d)

In case of indirect routing of interbranch transfer of merchandise, a branch should not be charged with
excessive freight. Under such circumstances, the branch acquiring the goods should be charged for no
more than the normal freight from the usual shipping point. The office directing the interbranch transfer
and responsible for the excessive cost should absorb the excess as expense.

PROB. 5 Suggested answer (a) P100 savings

Again, in case of interbranch transfer of merchandise, a special problem arises with respect to the handling
of freight charges. A branch is properly charged with the cost of freight on goods it receives. But a branch
should not be charged with excessive freight when, because of indirect routing, excessive costs are
incurred. Instead the branch acquiring the goods should be charged for no more than the normal freight
from the usual shipping point: the office directing the interbranch transfer and responsible for the
excessive cost should absorb the excess as a charge to profit and loss.

Therefore, the excess of freight if the shipment had been made by the home office directly to Davao
branch (P900) over the freight actually paid (P600 + 200) in the amount of P100 should be disposed of as
savings.

PROB. 6 Suggested answer (a) No entry

An agency that operates solely as a local sales organization under the direction of a home office generally
carries no stock other than samples of the lines that are offered for sale. Samples of the merchandise, as
well as advertising materials, are provided by the home office. The agency is normally provided with a
working fund that is to be sued for the payment of expenses that can be more conveniently settled
through agency. The imprest system is often adopted for the control of agency cash. Operating expenses
of the agency, other than those paid by the agency from its working fund, are met by the home office.

In adopting the imprest system for the agency working fund, the home office issues a check to the agency
for the amount of the fund. Establishment of the fund is recorded in the home office books by a charge
to the agency working fund account and a credit to cash. The agency will request fund replenishment
whenever the fund runs low and at the end of each fiscal period. Upon sending the agency check in
replenishment of the fund, the home office charges expenses or other accounts for which disbursements
form the fund were reported and credits cash. Therefore, under the imprest system, no entry should be
recorded by the home office for the P3,000 rent paid by the agency out of its working fund, because
expenses of agency paid out of the working fund should be recorded by the home office only when fund
is replenished.

PROB. 7 Suggested answer (a) P250,000

Generally, a working paper for combined financial statements is prepared for the following purposes: (a),
to eliminate the reciprocal accounts: (b), to eliminate any intercompany inventory profit, and (c), to
combine accounts for like assets and like liabilities.

In preparing a combined balance sheet, the Home Office Current account and the Branch Current account
are eliminated since these are without significance when the related units are recognized as a single
entity. Any other interbranch receivable and payable balances that may have been established are also
irrelevant and without significance in stating the financial position of the business and are eliminated. In
preparing a combined income statement, the accounts Shipments from Home Office and Shipment to
Branch are eliminated, since these balances summarize interoffice transfers that are not significant when
the related units are reported as a single entity. Other interoffice revenue and expense items are also
eliminated so that the combined income statement may report on the results of transactions of the
organization with outsiders.

Therefore, the correct amount of sales to be included in the combined income statement is the P250,000
sold by the branch to outsiders.

PROB. 8
 a. Suggested answer (a) P16,000

Sales 100,000
Less Cost of Sales:
Inventory, 1/1/20 21,000
Mdse. from home office 61,000
TGAS 82,000
Inventory, 12/31/20 19,000 63,000
Gross profit 37,000
Less expenses 21,000
Net profit, Branch A 16,000

Based on the foregoing information, all merchandise available for sale by the branch were supplied by the
home office, and none of which were purchased from outsiders; thus, the net profit of Branch A is
P16,000.

b. Suggested answer (c) P78,000

Inventory, Jan. 1, 2020 21,000

Imprest branch fund 2,000
Accounts Receivable, Jan. 1, 2020 55,000
Home Office account, 1/1/20 78,000

A constructive approach to solve this question is through the use of accounting equation: Asset = Liabilities
+ Capital. Since Home Office account is a customary capital account, and in the absence of any liabilities,
this reciprocal account is equal to the total assets of the branch at January 1, 2020. Thus, the balance of
the Home Office account at January 1, 2020 is P78,000.

c. Suggested answer (b) P64,000

Inventory, Jan. 1, 2020 19,000

Imprest branch fund 1,500
Accts. Rec. Jan. 1, 2020 43,500
Home Office account, 1/1/20 64,000

Again, the approach to solve the question being asked is similar with question b, since accounting for
Branch A is similar with Branch B.

d. Suggested answer (c) P67,000

Inventory, Dec. 31, 2020 12,000

Imprest branch fund 1,500
Accts. Rec. Dec. 31, 2020 53,500
Home Office account, 12/31/20 67,000

Branch Current account is a debit account maintained in home office books, which represents the
investment of home office in its branch. Since, this is a reciprocal account, any balance of which after
adjustment, is similar with that of Home Office Current account, a credit account maintained in Branch
books. Thus, the applicable principle for this question is identical with that of the aforementioned
questions.

e. Suggested answer (d) Dr. – P&L / Cr. – Home Office Current

Sales 80,000
Less Cost of Sales:
Inventory, 1/1/20 19,000
Mdse. from home office 47,000
TGAS 66,000
Inventory, 12/31/20 12,000 54,000
Gross profit 26,000
Less expenses 14,300
Net profit, Branch B 11,700

Again, Home Office Current account is a credit account maintained by the branch in its books. It represents
the customary capital account. Since the operations of Branch B resulted to a net profit of P11,700, the
balance of this reciprocal account should be increased by such an amount; thus, a debit to Profit & Loss
and a credit to Home Office Current.

PROB. 9 – Suggested answer (a) P262,300

Accts. Receivable, Dec. 31, 2019 85,200

Net sales (272,700 – 4,800) 267,900
Accts. Receivable written off (2,000)
Accts. Receivable, Dec. 31, 2020 (88,800)
Total collections, 2020 262,300

The requirement is to determine the amount remitted to the home office. Therefore, the total amount
collected during 2020 of P262,300 is the correct answer, because, as stated in the problem, what was
remitted to the home office is the total amount collected during the period.

PROB. 10

a. Suggested answer (b) P14,400

Sales 112,500
Cost of sales:
Shipments from H.O. 120,000
Inventory, Dec. 31 30,000 90,000
Gross profit 22,500
Expenses 8,100
Net profit 14,400

Generally, the branch accounting system is maintained at the branch. Branch’s cash, merchandise, and
other assets, as may be needed, are supplied by the home office. The branch may purchase merchandise
A home office has a branch in Metro Manila. The branch buys merchandise from outside parties and also
receives merchandise from the home office for which it is billed at 20% above cost. Below are excerpts
from the trial balances and other data of the home office and its branch for the month just ended:

Home Office:
Cr: Allowance for overvaluation 370,000
Cr: Shipments to branch 850,000
Metro Manila Branch:
Dr. Beginning inventory 1,440,000
Dr: Shipments from home office 1,020,000
Dr: Purchases 420,000
Month-end branch inventory:
From home office, at billed price 1,170,000
From outside parties, at cost 290,000

What is the amount of allowance for evaluation that was realized because of branch sales for the month
just ended?
a. 175,000
b. 195,000
c. 200,000
d. 370,000

PROB. 26 (AICPA)
The combined statements may be used to present the results of operations of
Entities under common Commonly
Management controlled entities
a. No Yes
b. Yes No
c. No No
d. Yes Yes

PROB. 27 (AICPA)

Mr. Cord owns four corporations. Combined financial statements are being prepared for these
corporations, which have inter-entity loans of P200,000 and inter-entity profits of P500,000. What amount
of these loans and profits should be included in the combined financial statements?
Inter-entity Inter-entity
Loans Profits
a. 200,000 0
b. 200,000 500,000
c. 0 0
d. 0 500,000

PROB. 28 (Adapted)
The Baguio branch of a home office in Manila is billed for merchandise it receives at 125% of cost. The
branch turns around and sells them at 25% of billed price. On March 15, all branch’s merchandise was
destroyed by fire. The branch’s records recovered shows the following:

Inventory, January 1 (at billed price) 165,000

Shipments, January 1 to the date of fire (at billed price) 110,000
Purchases (at cost) from outsiders all resold at markup of 20% 7,500
Sales 169,000
Sales returns and allowances 3,750

What is the cost of merchandise destroyed by fire?

a. 120,000
b. 120,240
c. 130,000
d. 140,000

PROB. 29 (Adapted)

Zeta Corp. established an agency in Baguio City. For the first month of operation, the agency transactions
were summarized as follows:

Receipts from sales 350,000

Disbursements for:
Purchases 400,000
Rent 20,000
Advertising supplies 10,000
Salaries and commissions 70,000
Other expenses 5,000

At the end of that month, the agency had P100,000 of receivables and P50,000 of payables. Also, there
were P90,000 of unsold merchandise and P6,000 of unused advertising supplies on hand. The Baguio City
agency was conceived as an experiment and it is the intention of management to close it if its operations
prove to be unprofitable. What is the results of operations of the Baguio City agency?
a. No profit, no loss
b. P25,000 profit
c. P9,000 loss
d. P155,000 loss
SOLUTIONS AND EXPLANATIONS
PROB. 1 Suggested answer (b)

In Home Office and Branch accounting, the branch office account on the home office books represents
the investment by the home office in the net assets of the branch, not the branch’s equity in the home
office.

PROB. 2 Suggested answer (b) P39,140

Branch Current
(HO Books)
Unadjusted balance, 12/31/20 P50,000
2. Collection of home office receivable by the branch 3,500
3. Cash sent to branch which was erroneously charged to
Gen. Exp. 7,500
4. Erroneous recording of branch profit
(2,400 – 2,040) (360)
5. Unrecorded supplies retuned by the branch (1,500)
Adjusted balance, 12/31/20 P59,140

HO Current
(Branch Books)
Unadjusted balance, 12/31/20 P39,140
1. Merchandise in transit 12,500
2. Cash sent by home office still in transit 7,500
Adjusted balance, 12/31/20 P59,140

The balances in the Branch Current account in the home office books and the Home Office Current account
in the branch books may not show reciprocal balances at any one time because of certain interoffice data
that have been recorded by one office but not by the other.

The unadjusted balance of the Home Office Current account, in the amount of P39,140 as shown above,
in the Branch books was computed by determining the adjusted balance of the reciprocal accounts and
working back.

PROB. 3

a. Suggested answer (a) P75,700

Dr. (Cr.)
Erroneous charging of expense P(10,000)
Erroneous cash transfer (remittance) (65,700)
Net adjustment to Butuan Branch – Current
account in the home office books P(75,700)
Again, the balances in these reciprocal accounts may not show reciprocal balances at any one time
because of certain interoffice data that have been recorded by one office but not by the other. In addition,
corrections should be made to any errors recorded by either home office or its branch. As a general rule,
errors should be corrected by the unit that committed the said errors. In the aforementioned
computations, it should be observed that the net adjustment in the amount of P75,700 pertains to the
errors that affect the Butuan Branch Current account in the home office books. In item “b”, the home
office erroneously charged the marketing expense of another branch to Butuan, thus to correct this error,
Butuan Branch Current account should be credited. In item “d”, the home office erroneously recorded the
remittance of Butuan Branch as coming from Davao Branch, thus, to correct this error, the Butuan Branch
Current account should be credited.

b. Suggested answer (c) P20,950

Dr.(Cr.)
Transfer of fixed asset from home office not booked by
Butuan Branch P(53,960)
Double recording of inventory transfer from home office 75,000
Understatement of debit memo (90)
 Net adjustment to Home Office account in the
Branch books P 20,950

When an asset other than merchandise is transferred and the asset is to be carried on the branch books,
the home office debits the branch account and credits the appropriate asset account. But when the asset
transferred is to be carried on the home office books, an asset account identified with the branch, such
as Equipment – Branch, is debited and the original asset account (Equipment) is credited. Upon receiving
this asset transferred that is to be carried on the branch books, the branch debits the asset account and
credits the Home Office Current account.

But when the asset transferred is to be carried on the home office books, no entry is required in the branch
books. Specifically, this problem failed to identify whether the fixed asset transferred will be carried on
the branch books or on home office books. However, if we will assume that this fixed asset transferred
will be carried in the home office boos and no entry will be recorded in the branch books, no adjustment
will be made and it will eventually lead to net adjustment of P74,910, which is none of the given choices.
Thus, we assumed that this asset transferred will be carried in the branch books, as shown above.

In item “c”, Butuan branch recorded twice the inventory transfer from home office resulting to
overstatement of Home Office Current account, thus, to correct this error, the Home Office Current
account should be debited. In item “e”, this transaction is not a reconciling item in the Home Office
Current account in the Butuan Branch books, because this charge is appropriately Davao Branch’s cost. In
related instances, it should be observed that interbranch transfers of merchandise, like interbranch
transfers of cash, are normally cleared through the home office account rather than through special
account with member branches. When this procedure is followed, settlement between individual
branches is not required; the net extent of branch accountability so far as affiliated units is concerned is
summarized in one account, the Home Office Current account.

c. Suggested answer (d) P111,170

 Branch Current
Dr. (Cr.)
Unadjusted balance, Debit P165,920
Net adjustment to Butuan Branch Current account “a” (75,700)
Adjusted balance P 90,220

H.O. Current
Dr. (Cr.)
Unadjusted balance, Credit P111,170
Net adjustment to Home Office Current account “b” 20,950
Adjusted balance P 90,220

Since, these reciprocal accounts should have identical balances after adjustments, the unadjusted balance
of the Home Office Current account was determined by working back, as shown above.

d. Suggested answer (b) P90,220

As shown in “c” computations, the identical adjusted balances of this reciprocal accounts were
determined by considering the net adjustments in “a” and “b”.

PROB. 4

a. Suggested answer (c)

As a general rule, the branch acquiring the goods shall record the merchandise received from the home
office for an amount equal to the cost of merchandise (in the absence of any mark ups) plus the freight.
In case of interbranch transfer of merchandise, a branch is properly charged with the cost of freight on
goods it receives. However, a branch should not be charged with excessive freight when, because of
indirect routing, excessing costs are incurred. Thus, the freight is P6,500 only.

b. Suggested answer (c)

The branch where the goods were erroneously shipped shall eliminate all entries made in its books, as if
no interbranch transactions occurred. And should record the freight incurred in shipping the goods to