HOME OFFICE ACCOUNTING

Practice Exercises

1. Home office operates a number of branches. On December 31, 2016, its Branch B showed a Home office
account balance of ₽ 54,700. The interoffice accounts at the beginning of the year were correct, however
during the year there were errors in recording in both home office and branch. The following errors
occurred during the year:

 A P24,000 shipment charged by the home office to Branch B was actually sent to and retained by
Branch C
 A P30,000 shipment intended and charged to Branch was shipped to Branch B and retained by the
latter.
 A P4,000 emergency cash transfer from Branch C was not taken up in the home office books.
 Home office collects Branch B's customer accounts of P7,200 and fails to notify the branch.
 Home office charged for P2,400 for merchandise returned by Branch on December 30 and is in transit.
 Home office erroneously recorded Branch B's net income for the year at P32,550. Branch B reported
net income of P25,350.
a. What is the adjusted balance of the reciprocal accounts on December 31, 2016?
b. What is the unadjusted balance of the Investment in Branch B on December 31, 2016?

2. At the end of the year the Investment in Bacolod account of the home office is P300,500. However, there
are transactions discovered to have errors.
 Bacolod branch bought equipment on June 1, 2016 costing P63,800 for the home office's use and the
policy is to record the asset in Bacolod's books. During that time the home office recorded the
equipment and credited its reciprocal account of its Bacolod branch
 The policy of the company regarding the equipment's depreciation is that it has a life of 8 years with no
salvage value and the straight-line method should be used. No entry has been made by the home office
and branch
 The home office ships merchandise to Bacolod amounting to P96,700. Bacolod recorded the
transaction as P97,600
 Bacolod pays the home office's creditors in the amount of P32,400 and sends a debit memo to the
home office. Upon receipt of the debit memo, the home office debited its reciprocal account in the
amount of P23,400 twice

a. What is the unadjusted balance of the home office current account in the books of Bacolod at the end of the
year?
b. What is the net adjustment of the investment in Bacolod account at the end of the year?
c. What is the net adjustment of the home office current account in the books of Bacolod branch at the end of
the year?

3. The following are transactions relating to branch AA and branch BB:

 On September 30, 2016, branch AA collected branch BB's accounts receivable of P80,000 less 3% discount
 On October 31, 2016, home office shipped merchandise costing P400,000 to branch AA. Freight of P6,000
was paid by the home office. It is the policy of the company to bill its branches at 25% above cost.
 On November 30, 2016, upon the instruction of the home office, branch, AA reshipped a quarter of the
above merchandise to branch BB with freight of P3,000 (freight-collect). Had the goods been shipped
directly to branch BB, the freight would have been only P1,400.

Our Lady of the Pillar College – San Manuel, Inc.

 a. What is the home office current account of branch AA as of October 31, 2016?
b. What is the investment in BB account as of November 30, 2016?

4. The following information is given regarding AAA Company:

 The reciprocal account in the separate income statement of the home office amount to P225,000.
 During the year 2016 (current year), the home office bills merchandise to the branch at 215% on cost.
 The beginning inventory of the branch is 249,375.
 During the 2016, the branch purchased from vendors merchandise amounting to P150,000.
 The ending inventory of the branch as shown in the combined financial statements is P267,125.
 The allowance for overvaluation before adjustment is P320,000.
 The beginning inventory of the branch from the home office at cost is P153,125.
 The unrealized profit at the end of the year must be decreased by P55,000

a. What is the cost of goods sold in the combined financial statements at the end of 2016?
b. What is the total goods available for sale recorded in the branch's books at the end of 2016?

5. The income statement submitted by the branch to the home office for the year ended December 31, 2016
has the following balances: Beginning inventory was P80,000 (of which P10,000 came for known
suppliers). Ending inventory was P100,000 (of which P16,000 came from known suppliers). Shipments
from home office was P350,000 and purchases from known supplier was P30,000. Operating expenses
during the year was P180,000. The branch generated sales in the amount of P600,000. At the end of the
year, after adjustments have been made, the recorded true net income of the branch was ascertained to be
P156,000.

What is the balance of the Unrealized profit in branch inventory account at December 31, 2016?

6. On June 1, 2016, the Greenbelt Main Office established a sales agency in Ortigas. The main office sent
samples of its merchandise amounting to P8,400 and a working fund amounting to P72,000 to be
maintained on the imprest basis. The samples sent were intended to last until January 1, 2017. The agency
transmitted to the home office sale of goods costing P291,600 but the home office was not able to fill up
35% of the said transmitted sales orders.

Collections from customers amounted to P82.175, net of 5% sales discount. Payments made by the agency
during June, July and August were annual rent P70,200, advertising expense P4,650 and utilities P6,300.
The agency also purchased an equipment on July 1, 2016 worth P11,000 which will be depreciated at 15%
per annum. The gross profit rate on sales agency order is 20% of gross sales.

What is the income of the agency for the three months ended August 31, 2016?

Our Lady of the Pillar College – San Manuel, Inc.