— Chapter 8

Home Office, Branch, and

Agency Accounting
I. Introduction
The branches of an enterprises are not separate legal entities, they are separate economic and
accounting entities whose special features necessitate accounting procedures tailored
for those features, such as the reciprocal accounts. On the other hand, the sales agency is
also not a separate business entity.

In this type of business set-up, one location referred to as the home office is usually the base of
operations wherein branches and agencies are maintained on different business locations
depending on the function and mode of operation.

//. Accounting for Branch Operations

Branch is used to describe a business unit located at some distance from the home office. This
unit carries merchandise obtained from the home office, generates sales, approve
customer's credit, and makes collections from its customers. They may also obtain
merchandise from outside suppliers. The cash receipts of the branch are often deposited in a
bank account and branch expenses are paid from an imprest cash fund.

///. Accounting for Agency Operations

An agency is an unincorporated entity in which orders are received and then
transmitted to the home office for processing, shipping and billing of merchandise. They do not
have merchandise available for sale, but they maintain samples inventory, they rarely
collect cash from customers, since collections are remitted by customers directly to the home
office.

Ordinarily, the only accounting records required for sales agencies are for cash receipts and
disbursements, which are handled in essentially the same manner as a petty cash fund
system.
 MULTIPLE CHOICE QUESTIONS

1. The National Home Company ships and bills merchandise to its provincial
branch at cost. The branch carries its own accounts receivable ana
makes its own collections. The branch also pays its expenses.

The transactions for 2017 are reflected in the branch trial balance that follows:

Debit Credit
Cash P 11,900
National Home Co. Current P 90,000
Shipments from National Home Co. 120,000
. Accounts Receivable 62,500
Expenses 8,100
Sales 112,500
Total P202,500 P202,500

December31 inventory P 30,000

Compute the (1) net profit of the branch, and (2) the Branch Current Account
in the home office books:

a. (1) P22,500; (2) P 90,000 c. (1) PI4,400; (2) PI04,400

b. (1) 21,300; (2) 134,400 d. (1) 14,400; (2) 90,000
(PhilCPA)

2. On December 31,2018, the following data are in the records of the Cebu City
branch of the Claire Company-

Petty Cash P 94,500

Accounts Receivable, Dec. 31,2017 : 85,200
Merchandise Inventory, Dec. 31,2017 75,500
Accounts Receivable, Dec. 31,2018 88,800
Merchandise Inventory, Dec. 31,2018 81,000
Sales 272,700
Sales Returns 4,800
Accounts Receivable Written Off 2,000
Shipments From Home Office 220,600
Expenses (Paid By Home Office) 22,500
 If all cash collections in 2018 were remitted to Home Office, the total
remittances amounted to:

a. P262,300 c. P264,300
b. 266,800 d. 267,100
(PhilCPA)

3. A branch store in Caloocan was established by Carlo Company on March 1.

Merchandise was billed to the branch at 125% of cost. Shipments of
merchandise were as follows:

March 5 P120,000 (at billed price)

March 10 50,000 (at billed price)
March 20 35,000 (at billed price)

On March 22, the branch returned defective merchandise worth P3,050. On

March 31, the branch reported a net loss of (P6,200) and merchandise inventory of
P85,000.

In the home office books, the cost of merchandise sold by branch was:

a. PI 61,560 c. PI 16,950
Jo. 93,560 d. 161,950
(PhilCPA)

4. Leila Co.'s Clark branch submitted the following data for 2017, its first year of
operation:

Sales P203,500 Cr.

Shipments from home office 186,120 Dr;
Operating expenses 18,755 Dr.
Home Office-current 48,125 Cr.

Shipments to the branch are billed at cost. The December 31 inventory of the
branch was P25,245. What is the correct balance on December 31,2017 of
the Branch Account- current as per home office books?

a. P46,750 c. P65,505
b. 48,125 d. 71,995
(Adapted)
5. The following information pertains to shipments of merchandise from Home
Office to Branch during 2017:

Home office's cost of merchandise PI 60,000

Intracompany billing ' 200,000
Sales by Branch 250,000
Unsold merchandise at Branch on
December31,2017 20,000

In the combined income statement of Home Office and Branch for the year
ended December 31,2017, what amount of the above transactions should
be included in sales?

a. P250,000 c. P200,000
b. 230,000 d. 180,000
(AICPA)

6. Barros Corporation's shipments to and from its Brazil City branch are billed at
120% of cost. On December 31, Brazil branch reported the following data,
at billed prices: inventory, January 1, of P33,600; shipments received from
home office of P840,000; shipments returned of P48,000; and inventory,
December 31, of P36,000. What is the balance of the allowance for over
-valuation of branch inventory on December 31 before adjustments?

a. P 5,600 c. P 6,000
b. 137,600 d. 145,600
(Adapted)

The Cindy owns the Highest Crown in Dipolog City and a branch in
Dapitan City. During 2017, the home office shipped to the branch
supplies costing PI 20,000 at a billed price of 20% above cost. The
inventories of supplies at the branch were as follows: January 1,2017, P90,000;
December 31,2017, PI 08,000. On December 31,2017, the home office holds
inventories of PI 60,500 which includes PI0,500 held on consignment.
Both locations use the periodic inventory method.

How much is the inventories in a combined balance sheet as of December

31,2017?

a. P210,000 c. P270,000
b. 240,000 d. 300,000
(PhilCPA)
Home Office, Branch, and Agency Accounting

8. The Aparri Branch of Cagayan Products, Inc. buys merchandise from third
parties and receives merchandise from the home office for which it is billed at
20% above cost. Below are excerpts from the trial balances and data on the
home office and Aparri branch for the month just ended:

Home Office Books:

Cr. Allowance for overvaluation of branch
merchandise P 740,000
Cr. Shipment to branch 1,700,000

Branch Books:
Dr. Beginning inventory P2,880,000
Shipments from home office 2,040,000
Purchases 820,000

Month-end additional data:

Ending inventory of branch P2,920,000
From home office at BP P2,340,000
From outsiders, at cost 580,000

For the month just ended:

The total cost of goods sold The amount of allowance

of Aparri Branch at cost for overvaluation that was
(net of overvaluation) realized from branch sales
a. P2,820,000 P400,000
b. 2,470,000 350,000
c. 2,770,000 740,000
d. 2,470,000 390,000
(Adapted)

Fischer Company opened itsTuguegarao Branch on January 1. Merchandise

shipments from home office during the month, billed at 120% of cost, is PI
25,000. Branch returned damaged merchandise worth P15,620. On January 31, the
branch reported a net loss of P2.270 and an inventory of P84,000. What is the
net income (loss) of the branch to be taken up in the books of the Home Office?

a. (PI,690) c. (P2,270)
b. 6,500 d. 1,960
(Adapted)
10. The Robert Corporation established its Bulacan branch in January 2017. During
its first year of operations, home office shipped to its Bulacan branch
merchandise worth P130,000 which included a markup of 15% on cost. Sales
on account totaled P250,000 while cash sales amounted to P80,000. Bulacan
reported operating expenses of P38,000 and ending inventory of PI 5,000, at
billed price. In so far as the home office is concerned, the real net income of
Bulacan is:

a. P 82,000 c. PI77,000
b. 147,000 d. 192,000
(Adapted)

11. The Clark branch of Freeport Corporation submitted the following trial
balance
as of 30 June 2017:

Debit Credit
Cash P 28,600
Accounts receivable 173,800
Shipments from home office 462,000
Home office - Current P324,500
Sales 369,600
Expenses 29,700
Total P694,100 P694,100

Clark reported an ending inventory of P138,600. Shipments are billed at a

mark-up of 40% on cost. What is the real net income of Clark branch?

a. P 70,600 c. P 100,000
b. 92,400 d. 108,900
(Adapted)
12. The Quezon City Sales Company established a branch in Dumaguete City
early last year. It shipped merchandise and billed the branch for
P300,000 prior to its opening. For the year, it made additional shipments at
billed price of PI20,000. Within the year, the branch shipped back P7,500
inventory and got the credit memo for said returns. On the last working
day of the year, an inventory count was made. Ending inventory of
PI85,000 was established consisting of purchases from third parties at
P20,000, with the balance coming from home office shipments at billed
price. The home office billed the branch at 20% above cost. The total
purchases of the branch from outside suppliers amounted to P72,500. The
total cost of goods available for sale by the branch at cost (net of
overvaluation and returns) amounted to:
 a. P416,250 c. P435,200
b. 422,500 d. 485,000

13. The home office of Glendale Company, which uses the perpetual inventory
system, bills shipments of merchandise to the Montrose Branch at a markup
of 25% on the billed price. On August 31, 2017, the credit balance of the
home office's Allowance for Overvaluation of Inventories - Montrose Branch
ledger account was P60,000. On September 17,2017, the home office shipped
merchandise to the branch at a billed price of P400,000. The branch reported
an ending inventory, at billed price, of PI60,000 on September 30, 2017.
Compute the realized gross profit?

a. P20,000 c. PI 20,000
b. 28,000 d. 160,000
(Adapted)

14. Tillman Textile Company has a single branch in Bulacan. On March 1, 2017,
the home office accounting records included an Allowance for Overvaluation of
Inventories - Bulacan Branch ledger account with a credit balance of
P32,000. During March, merchandise costing P36,000 was shipped to the
Bulacan Branch and billed at a price representing a 40% markup on the billed
price. On March 31,2017, the branch prepared an income statement indicating a
net loss of PI 1,500 for March and ending inventories at billed prices of
P25,000. What is the amount of adjustment for Allowance for Overvaluation of
Inventories to reflect the true branch net income?

a. P39,257 debit c. P39,333 debit

b. P46,000 credit d. P46,000 debit
(Adapted)

15. Charity, Inc. established its first branch on May 1, 2017. During the first month of
operation, the home office shipped merchandise to the branch worth PI 38,000
which included a markup of 15% on cost. Sales for cash were P80,000 while sales
on account were P250,000. At month's end, the branch reported operating
expenses of P5U000 and a closing inventory of P23,000 at billed price. As far as the
home office is concerned, the true branch net income for May, 2017 is:

a. P82,000 c. PI 77,000
b. 147,000 d. 192,000
(Adapted)

16. Jaimee Marketing Co. opened a branch in San Fernando City at the beginning
of 2017. The branch extends credit, makes collections, pays expenses from
cash receipts, and acquires goods exclusively from the home office. During
 2017, goods shipped by the home office to the branch, at a billing price of

125% of cost, amounted to PI04,000, of which PI2,500 remained in the

branch's year-end inventory. Other branch transactions in 2017 were as
follows: sales, all on credit, P117,430; expenses, of which P1,500 are unpaid
at year-end, P20,000; collections on account, after deducting discounts of
PI ,480, P84,000; and, total remittances to the home office, P62,500. As far
as the home office is concerned, the operations of the branch in 2017
resulted in a:

a. P4,450 net income c. PI 8,300 net income

b. 9,550 net loss d. 22,750 net income
(Adapted)

17. The account balances shown below were taken from the trial balances
submitted to Bon-Apetit Corporation by its Alabang branch:

2017 2018
Petty cash fund PI ,500 PI ,500
Accounts receivable 43,800 49,140
Inventory - 37,170
Sales 173,180 195,120
Shipments from home (140% of cost) 107,450 136,080
Expenses 51,260 57,930
Accounts written off 1,220 1,920

All branch collections are remitted to the home office. All branch expenses
are paid out of the petty cash fund. When the petty cash fund is replenished,
the branch debits appropriate expense accounts and credits Home Office
Current. The petty cash is counted every December 31, and its composition
was as follows:

12/31/11 12/31/12
Currency and coins P580 P860
Expense vouchers 920 640

The branch inventory on December 31,2018 was P41,370. The correct branch
net income for 2018 was:

a. P3,390 c. P41,070
b. 3,670 d. 41,350
(Adapted)
18. The Gift Co. has a branch in Dipolog City. During 2017, the home office shipped
to the branch merchandise billed at P150,000 including a markup of 20% on cost. The
branch reports opening and closing inventories of P90,000 and PI20,000,
respectively, while the home office has a closing inventories of P210,000 which
includes merchandise v/hich are held on consignment valued at PI0,000. Both
location use the periodic inventory system. What closing inventory would be
reported in the combined statement of income for the year 2017 ?

a. P296,000 c. P320,000
b. 300,000 d. 330,000
(Adapted)

19. Hope Corporation started operating a branch on May 1,2017 with a shipment
of merchandise billed at P250,000. Additional shipments during the month were
billed at P125,000. The branch returned damaged merchandise worth P10,000.
Inter-office shipments are billed uniformly at 125% of cost. On May 31, 2017, the
branch reported a net loss of P52,500 and an inventory of PI50,000. What is
the branch net income (loss) reflected in the combined income statement for
May, 2017 ?

a. P( 9,500) c. P(52,500)
b. 43,000 d. 95,000
(Adapted)

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

Merchandise from Home Office (at billed price) P98.000

Merchandise purchased locally by Branch 40,000
Inventory, December 31 of which P7,000 are of
local purchase 28,000
Net sales for month 180,000

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

Gross Profit Ending Inventory of Branch at Cost

a. P22,000 P92,O00
b. 92,000 22,000
c. 70,000 22,000
 d. 90,000 20,000
(PhilCPA)

21. The Manila branch of the Great Company is billed for merchandise by the
home office at 20% above cost. The branch in turn prices merchandise for
sales purposes at 25% above billed price. On February 16 all of the branch
merchandise is destroyed by fire. No insurance was maintained. Branch
accounts show the following information:

Merchandise inventory, January 1

(at billed price) P26,400
Shipments from home office (Jan. 1 - Feb. 16) 20,000
Sales 15,000
Sales returns 2,000
Sales allowances 1,000

What was the cost of the merchandise destroyed by fire?

a. P36,000 c. P36,800
b. 30,667 d. 30,000
(Adapted)

22. The home office bills its Aklan branch at 125% of cost. During the year 2017,
goods costing-P300,0O0 were shipped to the branch. The account "allowance
for overvaluation of branch inventory''; after adjustment, shows a balance
of PI 4,000 at the end of the year.

Compute the amount of ending inventory at:

Cost Billed Price Cost Billed Price

, a. P56,000 P56,000 a P56,000 P70,000
b. 300,000 375,000 d. 70,000 56,000
(PhilCPA)

23. Lacoste 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 shipments to the Cebu City branch are at cost plus
10%. On January. 1, 2017, the inventories of the main store and the Cebu
City branch were PI3,600 and P3.960, respectively. During 2017, the main
store purchased merchandise costing P40,000 and shipped 40% of these
to the Cebu City branch.
 At December 31, 2017, the following journal entry was made to prepare the
Cebu City branch books for the next accounting period:

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

(1) What was the actual branch income of 2017 on a cost basis, assuming
the use of the provisions of the PAS, and (2) If the main store has PI 1,200
worth of inventory on hand at the end of 2017, the total inventory that should
appear on the combined balance sheet at December 31,2017.

a. (1) P4,8O0; (2) PI5,600 .&; (1) P6,320; (2) PI5,600

b. (1) 6,320; (2) 15,160 d. (1) 6,480; (2). 16,040
(PhilCPA)

24. The Best Co. bills merchandise shipments in its Cavite City branch at 125% of
cost. The branch, in turn, sells the merchandise it receives from the home
office at 25% above the billing price. On August 1,2017, all of the branch's
merchandise stock was destroyed by fire. The branch records that were
recovered showed the following:

Inventor/January 1,2017 (at billed price) PI65,000

Shipments received from home office,
January to July (at billed price) 110,000
Purchases, at cost, from outside sources,
all re-sold at a 20% mark-up 7,500
Sales 169,000
Sales returns and allowances 3,750

The Best Co. will file an insurance claim. How much is the estimated cost of
the merchandise destroyed by the fire?
4

a. P120,000 c. P140,000
b. 130,000 d. 150,000
(Adapted)
25. On August 31,2018, a fire destroyed totally the rented "bodega" or stockroom
of Isabela Company. The following are some of the data of the company:

Merchandise inventory, Dec. 31,2017 PI 10,000

For the period Jan. 1 - Aug. 31, 2018:
Purchases 560,500
Freight in 5,600
Purchases returns 10,200
Sales 695,000
Sales returns and allowances ; 7,500

Using a 20% gross profit rate, the cost of the merchandise lost in the fire was:

a. P 90,700 c. P88,400
b. 115,900 d. 63,200
(PhilCPA)

26. Lobster Trading bills its lloilo City branch for shipments of goods at 25% above
cost. At the close of business on October 31, 2017, a fire gutted the branch
warehouse and destroyed 60% of the merchandise stock stored therein.
Thereafter, the following data were gathered:

January 1 inventory, at billed price P 50,000

Shipments from home office to Oct. 31 130,000
Not sales to October 31 225,000

If undamaged merchandise recovered are marked to sell for P30,000, the

estimated cost of the merchandise destroyed by the fire was:

a. PI 4,400 c. P24,000
. b. 21,600 d. 27,500
(Adapted)

27. Trial balances for the home office and the branch of the Tony Co. show the
following accounts before adjustment, on December 31, 2017. The home
office policy of billing the branch for merchandise is 20% above cost.

Home
Office Branch
Unrealized intercompany inventory profit PI 0,800
Shipments to branch 24,000
Purchase (outsiders) P7,500
Shipments from home office 28,800
 Merchandise inventory, December 1,2017 45,000

What part of the branch inventory as of December 1,2017 represent purchases

from outsiders and what part represents goods acquired from the home office?

Outsiders Home Office

a. PI 2,000 P33,000
b. 16,500 28,500
c. 15,000 30,000
d. 9,000 36,000
(PhilCPA)

28. Masaya Commercial Corp. maintains a branch in lloilo City. Selected account
balances taken from the books of Masaya and its lloilo branch as of December
31,2017 are as follows:

Home Office Branch

Merchandise Inventory, Jan. 1,2017 P 12,000 P 8,000
Purchases 150,000 30,000
Shipments from Home Office 93,750
Shipments to branch 75,000
Branch Inventory Allowance 19,750
Sales 115,000 176,500
Merchandise Inventory,
Dec. 31.2017 14,000 10,350

P4,350 of the branch's ending inventory came from purchases/suppliers other

than the Home Office.

(1) As far as the Home Office is concerned, the cost of sales of the branch; (2)
the branch's net income must be understated by:

a. (1) PI02,850; (2) PI8,550 c. (1) P97,120; (2) PI8,550

b. (1) P10Z850; (2) P18,250 d. (1) PI21.400; (2) P18,000
(PhilCPA
)

29. Selected balances from the Legaspi Company's Branch A and Branch B are
as follows:

Branch A Branch B
Inventory. Jan. 1,2017 P21.000 P19,000
Imprest Branch Fund 2,000 1,500
Inventory, Dec. 31,2017 19,000 12,000
A/Receivable, Jan. 1,2017 55,000 43,500
Merchandise from Home Office 61,000 47,000
A/Receivable, Dec. 31,2017 70,000 53,500
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 books of the branch.

Compute the balance of the Home Office account on January 1,2017.

Branch A Branch B Branch A Branch B

Books Books Books Books
a. P78,000 P67,0O0 c. P64,000 P78,000
b. 75,000 64,000 d. 78,000 64,000
(PhilCPA)

30. Pangasinan Branch of Malate Company, at the end of its first quarter of
operations, submitted the following income statement:

Sales P300,000
Cost of sales:
Shipments from Home Office P280,000
Local purchases 30,000
Total P310,000
Inventory at end 50,000 260,000
Gross profit on sales P 40,000
Expenses 35,000
Net income P 5,000

Shipments to the branch were billed at 140% of cost. The branch inventory at
September 30 amounted to P50,000 of which P6,600 was locally purchased.
Markup on local purchases, 20% over cost. Branch expenses incurred by
Head Office amounted to P2,500 not yet recorded by the branch.

Compute the (1) branch ending inventory that should be presented in

the combined income statement, and (2) true branch net income.

-cr (1) P37,600; (2) P70,100 c. (1) P50,000; (2) P70,100

b. (1) P37,6O0 (2) P 2,500 d. (1) P50.000; (2) P 2,500
(PhilCPA)
31. The income statement submitted by the Pampanga Branch to the Home Office
for the month of December, 2017 is shown below. After effecting the necessary
adjustments the true net income of the Branch was ascertained to be PI 56,000.

Sales P600,000
Cost of sales:
Inventory, December 1 P 80,000
Shipments from home office 350,000
Local purchases 30,000
Total available for sale P460,000
Inventory, December 31 100,000 360,000
Gross margin P240,000
Operating expenses 180,000
Net income for December, 2017 P 60,000

The Branch inventories were:

12/01/2017 12/31/2017
Merchandise from home office P70,000 P 84,000
Local purchases 10,000 16,000
Total P80.000 P100.000

(1) The billing price based on cost imposed by the home office to the branch,
and (2) The balance of allowance for overvaluation of branch December 31,
2017 after adjustment.

a. (1) 140%; (2) P10,000 c. (1) 40%; (2) P24,000

b-. (1) 140%; (2) P24,000 d. (1) 40%; (2) PI6,000
(PhilCPA)

32. The following information are extracted from the books and records of
Rona Company and its branch. The balances are at December 31,2017 of the
company's operations.

Home Office Branch

Sales P260,000
Shipments to branch P78,000
Shipments from home office 104,000
Purchases 39,000
Expenses 78,000
Inventory, January 1,2017 26,000
Allowance for overvaluation of branch
 inventory 31,200

However, no shipments in transit between the home office and the branch
were made. Both shipments accounts are properly recorded. The ending
inventory includes merchandise acquired from the home office in the amount
of P26,000 and P7,800 acquired from outsiders for a total of P33,800.

Compute the (1) realized inventory profit of home office from sales made by
the branch, and (2) The amount of branch merchandise beginning inventory
that was acquired from the home office?

a. (1) P24,700; (2) PI5,600 c. (1) P22,533; (2) PI5,600

b. (1) P31,200; (2) P20,800 d. (1) P24,700; (2) P20,800
(Adapted)

33. Best Buy Ventures operates a branch in Cebu City. Selected accounts taken
from the May 31,2018 statements of Best Buy and its branch follow:

H/Office Branch
Sales P380,000 P353.000
Shipments to branch 150,000
Shipments to branch - loading 39,500 -
Inventory, June 1,2017 24,000 16,000
Purchases 300,000 60,000
Shipments from home office - 187,500
Inventory, May 31,2018 28,000 20,700

The branch ending inventory included items costing P8,700 that were acquired
from outside suppliers. The realized markup on branch merchandise that would
be recognized by the home office is:
a. P36,O00 c. P37,100
b. 36,700 d. 37,500
(Adapted)

34. The Bicol Corporation operates a branch in Naga City. The information from
the December 31,2017 trial balance are as follows:

Home Office Naga Branch

Sales P840.000 P420.000
Shipments to branch 280,000
Purchases 490,000
Shipments from home office 350,000
Inventor/January 1,2017 140,000 56,000

Inventory at December 31, Home Office P42,000; Branch, P84,000

 Compute the realized inventory profit of home office from sales made by the
branch (the overvaluation of cost of goods sold)?

a. P 56,000 c. P64,400
b. 120,400 d. 80,000
(Adapted)

35. The Dumaguete City branch of Silliman Enterprises, Negros, was billed for
merchandise shipments from home office at cost plus 25% in 2017 and cost
plus 20% in 2018. Other pertinent data for 2018 show:

Dumaguete Home
Branch Office
Sales P63,0O0 P212.000
Inventory, beginning
at cost 23,000
at billed price 8,900
Purchases 164,000
Inventory transfers
To Dumaguete, at cost 42,000
From Negros, at billed price 50,400
Inventory, end
at cost 28,500
at billed price 11,700
Expenses 20,300 76,400

Compute the (1) net income (loss) of Dumaguete City per branch books and
(2) The combined net income (loss) of Silliman Enterprises.

a. (1) P(4,900); (2) PI8,740 c. (1) P3,330; (2) P22,430

b. (1) (4,900); (2) 22,430 d. (1) 8,230; (2) 25,270
(Adapted)
36. The Quezon City branch of Asser Enterprises, Manila, was billed for merchandise
shipments from home office at cost plus 25% in 2017 and cost plus 20% in 2018.
Other pertinent data for 2018 show:

Quezon City Home

Branch Office
Sales P63,O00 P212,000
Inventory, beginning
at cost 23,000
at billed price 8,900
Purchases 164,000
Inventory transfers
to Quezon City, at cost 42,000
from Manila, at billed price 50,400
Inventory, end
at cost 28,500
at billed price 11,700
Expenses 20,300 76,400

Compute the (1) realized inventory profit from branch sales (or overvaluation
of cost of goods sold, and (2) The ending inventory that should be presented
in the combined income statement.

a. (1) P8,230; (2) P40,200 c. (1) P7,933; (2) P38,250

b. (1) 8,230; (2) 38,250 d. (1) 9,520; (2) 37,860
(Adapted)

37. Selected accounts from the December 31, 2017 trial balances of Betty Star
Co. and its branch follow:

5-Star Branch
Inventory, Jan. 1 P46,000 P23,100
Branch Current 116,600
Purchases 380,000
Shipments from home office - 209,000
Freight in - 10,450
Expenses 104,000 58,100
Home Office Current - (106,600)
Sales (310,000) (280,000)
Shipments to branch (200,000)
Branch merchandise markup (22,000)
 As of December 31, 2017, a shipment with a billing price of PI 1,000 was in
transit to the branch. Freight cost, typically 5% of the billing price, is
inventoriable. Merchandise on hand at year-end were: at home office, P64,000 at
cost; at branch, P33,000 at billing price.

Compute the (1) branch net income in so far as home office is concerned,
and (2) the combined net income for 2017:

a. (1)P40,900;(2)P84,900 -c: (1)P32,000;(2)P76,000

b. (1)P32,100;(2)P76,100 d. (l)P33,OO0;(2)P77,0O0
(Adapted)

38. The Kester Store operates a branch in Cebu. Operating data for the home
office and the branch for 2017 are as follows:

Home Office Branch

Sales P365,000 P 174,500
Shipment to branch 90,000
Purchases from outsiders 220,000 35,000
Advertising expenses 13,700 2,500
Salaries & commission expense 35,000 9,500
Rent Expense 10,000 2,000
Miscellaneous expense 3,300 500
Shipment from home office 112,500
Inventories, Jan. 1:
Home Office , 85,000
Branch:
Acquired from outsiders 9,500
Acquired from office at billed price
which is 20% above cost 42,000
Inventories, Dec. 31:
Home Office 65,000
Branch:
Acquired from outsider 6,500
Acquired from home office
at 2017 billed price 30,000

Compute the combined net income of Kester Store:

a. PI 11,000 c. P250,5O0
b. 63,000 d. 174,000
(PhilCPA)
39. The lloilo Co. operates a branch in Davao. There are shipments in transit from
home office to the branch. The home office ship merchandise to branch at
125% of cost in year 2017. Profit and loss data for the home office and branch for
2017 follows:

Home Office Branch

Sales P250,000 P75,000
Purchases from outsiders 200,000 15,000
Shipments to branch:
Cost to Home Office 30,000
Billing price to branch 32,500
Expenses 40,000 10,000
Inventories, Jan. 1, 2017:
Home Office, acquired from outsiders, at cost 80,000
Branch: Acquired from outsiders at cost 7,500
Acquired from Home Office at billing price,
which averaged 20% above cost 24,000
Inventories, Dec. 31, 2017:
Home Office, acquired from outsiders at cost 55,000
Branch: Acquired from outsiders at cost 5,500
Acquired from Home Office, at 2017
billed price (physical count) 21,000

Compute the (1) amount of merchandise in transit, and (2) combined cost
of goods sold.

a. (1) P5,000; (2) P241,200 c. (1) P3,500; (2) P242.400

b. (1) 5,000; (2) 240,000 d. (1) 3,500; (2) 245,200
(PhilCPA)

40. Betzier Company branch in Malate began operations on January 1, 2017.

During the first year of operations, the home office shipped merchandise to
the Malate branch that cost P250,000 at a billed price of P300,000. One-fourth
of the merchandise remained unsold at the end of 2017. The home office
records the shipments to the branch at the P300,000 billed price at the time
shipments are made.

Freight-in of P2,000 on The shipments from the home office was paid by the
branch. The home office should make an adjusting entry for freight-in as follows:

a. A year-end adjusting entry debiting the branch account for P500

b. A year-end adjusting entry debiting the branch account for P2,000
c. A year-end adjusting entry crediting the branch account for P500
d. No year-end adjusting entry for the freight charge
41. Tagum Supply Company is engaged in merchandising both at its Home Office in
Manila and at its Branch in Davao City. Selected accounts taken from the trial
balances of the Home Office and the branch as of December 31,2017 follow:

Debits Manila Davao Branch

Inventory, January 1,2017 P23,000 P 11,550
Davao Branch 58,300
Purchases 190,000 105,000
Freight in from Home Office - 5,500
Sundry Expenses 52,000 28,000

Credits
Home Office P - P 53,300
Sales 155,000 140,000
Sales to branch 110,000
Allowance for Overvaluation of
Branch inventory at Jan. 1,2017 1,000

Additional Information:

The Davao City branch gets all of its merchandise from the home
office. The home office bills the goods at cost plus a 10% mark-up. At
December 31, 2017, a shipment with a billed value of P5,000 was
still in transit. Freight on this shipment was P250 and is to be
treated as part of the inventory.

Inventories on December 31,2017, excluding the shipment in transit,

follow:

Home office, at cost P30,000

Branch, at billed price (excluding freight of P520) 10,400

Compute the (1) net income of the home office from own operations, and
(2) the net income of the branch in so far as home office is concerned.

a. (1) P30,470; (2) P 870 c. (1) P20.000; (2) P 870

b. (1) 20,000; (2) 10,470 d. (1) 30,470; (2) 10,470
(PhilCPA)
42. The Brazil Corporation operates a branch in Mactan, Cebu. Trial balance of the
Home Office and Mactan Branch at December 31,2017 is reproduced below:

Brazil Corporation
Home Office and Branch
Trial Balance
December 31,2017

Home Office Mactan Branch

Dr. Cr. Dr. Cr.
Cash P 12,000 P 3,400
Accounts receivable 28,000 7,000
Inventory, January 1 16,000 5,000
Branch current 8,000
Allowance for over-valuation
in branch merchandise. P 2,800
Fixed assets (net) 89,800
Accounts payable 2,000 P 1,400
Home Office, current 8,000
Capital stock 100,000
Retained earnings 5,000
Sales 110,000 37,400
Purchases 80,000 2,000
Shipments from Home Office 26,400
Shipments to Branch 24,000
Operating expenses 10,000 3,000
P243,800 P243.800 P46,800 P46,800

Home Office inventory at December 31, 2017 was P20,000; while

the
composition of the Branch inventory was:

From Outside
Home Office Purchases Total
January 1,2017 P4,400 P600 P5.000
December 31,2017 3,960 540 4,500

Shipments to branch are billed at 10% mark-up.

 The combined net income of the Home Office and Branch for the year
ended December 31,2017:

a. P55,940 c. P53,140
b. 53,500 d. 48,000
(PhilCPA)

43. Swift Corporation, operates a number of branches in Metro Manila. On June

30,2017, its Sn. Lorenzo branch showed a Home Office Account balance
of P27,350 and the Home Office books showed a Sn. Lorenzo branch
account balance of P25,550. The following information may help in
reconciling both accounts:

1. API 2,000 shipment, charged by Home Office to Sn. Lorenzo branch,

was actually sent to and retained by Sto. Tomas branch.

2. API 5,000 shipment, intended and charged to Sn Jose branch was

shipped to Sn. Lorenzo branch and retained by the latter.

3. A P2,000 emergency cash transfer from Sto. Tomas branch was not
taken up in the Home Office books.

4. Home office collects a Sn. Lorenzo branch accounts receivable of

P3,600 and fails to notify the branch.

5. Home office was charged for P1,200 for merchandise returned by

Sn. Lorenzo branch on June 28. The merchandise is in transit.

Home office erroneously recorded Sn. Lorenzo's net income for May, 2017
at PI 6,275. The branch reported a net income of PI 2,675.

What is the reconciled amount of the Home Office and Sn. Lorenzo
branch reciprocal accounts?

a. P21,750 c. P27,350
ir. 23,750 d. 20,150
(Adapted)
44. On December 31,2017, the Investment in Branch account on the home office's
books has a balance of PI02,000. In analyzing the activity in each of these
accounts for December, you find the following differences:

1. A PI2,000 branch remittance to the home office initiated on

December 27, 2017, was recorded on the home office books on
January 3,2018.

2. A home office inventory shipment to the branch on December 28,

2017, was recorded by the branch on January 4,2018; the billing of
P24,000 was at cost.

3. The home office incurred PI4,400 of advertising expenses and

allocated P6,000 of this amount to the branch on December 15,
2017. The branch has not recorded this transaction.

4. A branch customer erroneously remitted P3,600 to the home office.

The home office recorded this cash collection on December 23,2017.
Meanwhile, back at the branch, no entry has been made yet.

5. Inventory costing P51,600 was sent to the branch by the home

office on December 10,2017. The billing was at cost, but the branch
recorded the transaction at P40,800.

Compute the balances as of December 31,2017:

Unadjusted Balance Adjusted

of the Home Office Account Balance ofihe Reciprocal Account
a. P 76,800 P 114,000
b. 52,800 93,600
c. 151,200 139,200
d. 52,800 90,000
(Adapted)

4.5. Lakers Trading Co. operates a branch in Dagupan City. At close of business
on December 31, 2017, Dagupan Branch account in the home office books
showed a debit balance of P225,770. The interoffice accounts were in
agreement at the beginning of the year. For purposes of reconciling the
interoffice accounts, the following facts were ascertained:
 1. An office equipment costing the home office P3,500 was picked
up by the branch as P350.

2. Insurance premium of P675 charged by the home office was taken

up twice by the branch.

3. Freight charge on merchandise made by the home office for PI ,125

was recorded in the branch books as PI,215.

4. Home office credit memo representing a discount on merchandise

for P800 was not recorded by the branch.

5. The branch failed to take up a P700 debit memo from the home
office representing the share of the branch in advertising.

6. The home office inadvertently recorded a remittance for P3,000

from its Cebu branch as a remittance from its Dagupan branch.

Compute the balance as of December 31,2017.

Unadjusted Balance Adjusted Balance

of the Home Office Account of the reciprocal account
a. P226,485 P225,770
b. 228,485 228,770
c. 225,770 226,485
d. 226,485 228,770
(PhilCPA)

46. The following were found in your examination of the interplant accounts
between the Home Office and the Bacolod Branch.

1. Transfer of fixed assets from Home Office amounting to P53,960

was not recorded by the branch. Fixed assets used in the branch are
required to be maintained in the books of the branch.

2. PI0,000 covering marketing expense of another branch was

charged by Home Office to Bacolod.

3. Bacolod recorded a debit note on inventory transfers from Home

Office of P75,000 twice.
 4. Home office recorded cash transfer of P65,700 from Bacolod Branch
as coming from Tacloban Branch.

5. Bacolod reversed a previous debit memo from Samar Branch

amounting to PI0,500. Home Office decided that this charge is
appropriately Tacloban's Branch's cost.

6. Bacolod recorded a debit memo from Home Office of P4,650 as P4,560.

The net adjustments Debit (Credit) to the Bacolod Branch Current account
and the Home Office Current account are:

Bacolod Branch Current Home Office Current

Account Account
a; P (75,700) P20,950
b. 75,700 (20,950)
c. (55,700) 75,000
d. (65,700) (74,000)
(PhilCPA)

47. After examining on a comparative basis the interoffice account of the Bulacan
Company with its suburban Branch and the similar account carried on the
latter's books, the following discrepancies at the close of the business on
June 30,2017 were seen:

a. A charge for labor by the Home Office, P500 was recorded twice
by the branch.
b. A charge of P895 was made by the Home office for freight on
merchandise, but the amount was recorded by the Branch as P89.50.
c. A charge of P980 (furniture and fixture) on the Home Office books
was taken up by the branch as P890.
d. A credit by the Home Office for P350 (merchandise allowances)
was taken up by the Branch as P400.
e. The Home Office charged the Branch P425 for interest on open
account which the Branch failed to take up in full; instead, the
Branch sent to the Home Office a wrong adjusting memo, reducing
the charge by PI00 and set up a liability for the net amount.
f. The Home Office received P5,000, from the sale of a truck which it
erroneously credited to the Branch; the Branch did not charge the
Home Office therewith.
g. The Branch by mistake sent the Home Office a debit note for P370
representing its proportion of a bill for repairs of truck; the Home
 Office did not record it.
h. The Branch inadvertently received a copy of the Home Office entry
dated July 19,2017 correcting item (f) and entered a credit in favor of
the Home Office as of June 30, 2017.

At June 30,2017, the unadjusted balance of the Branch current account on

the Home Office books showed PI 75,520. At the beginning of the year, the
interoffice accounts were in balance.

Compute the (1) unadjusted balance of the Home Office current account
on the branch books, and (2) The adjusted balance of the reciprocal account
on June 30,2017

a. (1) PI84,279.50; (2) PI86,000 c. (1) PI80,520; (2) PI84,279.50

b. (1) 184,279.50; (2) 180,520 d. (1) 180,520; (2) 180,020.00
(PhilCPA)

48. Video and Company has several branches located in the cities in the south
namely, Dipolog, Dumaguete, Cebu, Bacolod, and Cagayan de Oro. It
authorizes transfers of cash and inventories among branches. The head office
ships goods P100,000 cost to Dipolog branch paying freight charges for P6,000.
The home office authorizes the transfer of goods from Dipolog Branch to
Cebu Branch where the latter is charged for the cost of the goods, P100,000
and freight charges of P2,000 for the transfer. If the shipment had been made
by the head office to the Cebu Branch, the freight charges would have been
P9,000. The transfers resulted to difference in freight charge which should be
disposed of as follows:

a. PI ,000 charge to Cebu branch by Dipolog branch.

b. PI ,000 charge to Cebu branch by Head office.
c. PI ,000 to be equally charge among Head office, Dipolog branch,
and Cebu branch.
d.' PI,000 savings.
(PhilCPA
)

49. Aca, Inc. has several branches. Goods costing PI0,000 were transferred by
the head office to Cebu Branch with the latter paying P600 for freight cost.
Subsequently, the head office authorized Cebu Branch to transfer the goods
to Davao Branch for which the latter was billed for the PI0,000 cost of the
goods and freight charge of P200 for the transfer. If the head office had
• shipped the goods directly to Davao Branch, the freight charge would have
been P700. The P100 difference in freight cost would be disposed of as follows:

a. Considered as savings
 b. Charged to Cebu Branch
c. Charged to Davao Branch
d. Charged to the Head Office
(Adapted)

50. On December 3, 2017, the home office of Kathy Office Supply Company
recorded a shipment of merchandise to its Davao Branch as follows:

Davao Branch 30,000

Shipments to Branch 25,000
Unrealized Profit in Branch inventory. . 4,000
Cash (for freight charges) 1,000

The Davao branch sells 40% of the merchandise to outside entities during the
rest of December 2017. The books of the home office and Kathy Office Supply
are closed on December 31 of each year.

On January 5, 2018, the Davao branch transfer half of the original shipment
to the Baguio branch, and the Davao branch pays P500 as the shipment.

The entry on the books of the Davao Branch to record receipt of the shipment
from the home office on December 3, 2017 would be:

a. Shipments from Home Office 29,000

Freight-out 1,000
Home Office 30,000

b. Shipments from Home Office 25,000

Accounts Receivable 4,000
Freight-in 1,000
Home Office 30,000

c. Shipments from Home Office 30,000

Home Office 30,000

d. Shipments from Home Office 29,000

Freight-in 1,000
Home Office 30,000
(Adapted)

51. Using the same information in No. 50, at what amounts should the 60% of the
merchandise remaining unsold at December31,2017 be included in (1) the
inventory of the Davao Branch at December 31,2017, and (2) the published
balance sheet of Kathy Office Supply Company at December 31, 2017
shows inventory at:

a. (1) PI5,600; (2) P 18,000 c. (1) P18,000; (2) P15,600

 b. (1)P17,400;(2)P15,000 d. (1) P18,400; (2) P16,000
(Adapted)

52. Using the same information in No. 50, what is the entry on the books of Baguio
Branch for the January 5, 2018 transfer, assuming that the freight cost of the
merchandise from the home office to Baguio branch would have been P600:

a. Shipments 15,100
Home Office 15,100

b. Shipments 14,500
Freight-in 600
Home Office 15,100

c. Shipments 15,000
Freight-in 600
Home Office 15,600

d. Shipments 14,500
Freight-in 1,100
HomeOffice 15,600
(Adapted)

53. Using the same information in Nos. 50, 51, and 52, what is the entry on the
books of Davao Branch in respect to January 5,2018 transfer:

a. HomeOffice 15,500
Inventory 15,500

b. HomeOffice 15,100
Shipments Inventory 15,000
Cash (for freight charges) 100

c. HomeOffice 15,500
Cash (for freight charges) 500
Inventory 15,000

d. HomeOffice 15,600
Cash (for freight charges) 500
Freight-In 600
Inventory 14,500
(Adapted)
54. Using the same information in Nos. 50, 51 and 52, what is the entry on the
home office books in respect to January 5,2018 transfer:

a. HomeOffice 15,500
Cash 500
Inventory 15,000

b. Shipments 14,500
Freight-In... 600
Home Office Current 15,100

C. Branch Current-Baguio 15,100

Excess freight 400
Branch Current - Davao i... 15,500

d. Branch Current - Baguio 15,100

Excess freight 600
Branch Current - Davao 15,700
(Adapted)

55. Lipton Company had an agency in Antipole For the period just ended, the
agency transactions showed the following:

Receipt from sales P350,000

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

The agency hqd P100,000 receivables and P50,000 payables as of the end of
the period. Also, they were inventories on hand of P90,000 and unused
advertising supplies of P6,000. The agency was set up as an experiment for
one period and would be closed if losses were incurred. The agency should:

a. Review again because it was a break even operation.

b. Close with the period's operational loss of PI 55,000.
c. Close with the period's operational loss of P9,00O.
d. Continue with the period's profit of P25,000.
(Adapted)
56. The JJ Company, Inc. opened an agency in Makati in 2017. The following is a
summary of the transactions of the agency:

Sales orders sent to home office P66,000

Sales orders filled by home office in 2017 55,800
Freight on shipment to agency 1,320
Collections, net of 2% discount 47,628
Selling expenses paid from the agency working fund.. 3,384
Administrative expenses charged to agency 5% of gross sales
Samples shipped to agency:
Cost P3,600
Inventory, December 31,2017 1,320

The company maintains its gross margin on agency gross sales at 30%
excluding the freight cost on shipments to agency.

The agency's cost of sales including freight and agency's net income
would amount to:

Cost of Sales Net Income

a. P39,O00 P5,994
b. 47,520 7,668
a 40,380 5,994
d. 40,380 7,320
(Adapted)

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

a. No entry
b. Rent 3,000
Cash 3,000
c. Davao Agency 3,000
Cash 3,000
d. Davao Agency 3,000
Working Fund 3,000
(Adapted)
58.. Sad Co. has a sales agency in Cebu. Agency revenues and expenses
are recorded in separate agency accounts, with the operating results of
both the agency and the home office generated at each month-end. For
the month of October, 2017, the home office paid PI0,000 for advertising
costs on behalf of the agency and recorded this as follows:

a. Cebu agency 10,000

Cash 10,000
b. Advertising expense 10,000
Cash.: 10,000
c. Accounts receivable-Cebu agency 10,000
Cash 10,000
d'. Advertising expense - Cebu agency 10,000
Cash 10,000
(Adapted)