HOME OFFICE, SALES AGENCY & BRANCH ACCOUNTING

1. On July 2, 20x11, the Home Office opened a sales agency in Baguio City, sending samples of its merchandise amounting to
P14,000 and a working fund amounting to P120,000 to be maintained on the imprest basis. The samples sent were
intended to last until March 1, 20x12. During the first two months of operations, the agency transmitted to the home
office sale of goods costing P486,000, but the home office was not able to fill-up 25% of the said transmitted sales orders.
Collections from customers amounted to P123,235, net of 2% sales discount. Payments made by the agency during July
and August were as follows: annual rent of P96,000, advertising expenses worth P25,000 and utilities amounting to
P30,000. It also purchased an equipment worth P30,000 which will be depreciated at 20% per annum. The gross profit
rate on sales agency order is 25% of sales.
What is the net income of the agency as of August 31, 20x11?
a. P43,235 b. P43,485 c. P47,985 d. P44,485

2. Home Office opened a sales agency in La Union on January 1, 20x11. The following is a summary of the transactions of the
sales agency:
Volume discount 1.5% & 2.5% Selling expense P7,500
Invoice price P214,000 Freight on shipment to agency 3,500
Administrative expenses of agency 4% of net Collections(20% availed of a 5% disc)
sales 140,125

Samples shipped to the agency amounting to P11,000 are to be properly depreciated to its carrying amount of P9,539 as of
December 31, 20x11. Remaining receivables are estimated to be 95% collectible. The company’s gross profit rate based on
invoice price is 30% excluding the freight cost on shipments to agency.
What is the net income of the agency for 20x10?
a. P38,143 b. P41,643 c. P38,489 d. P39,618

3. During the year 20x11 goods billed at P840,000 were shipped to the branch at 125% of cost. The account Loading in
Branch Inventory has a balance of P242,000 before adjustment. The beginning inventory of the branch from the home
office at cost is P370,00; the beginning inventory of the branch from outsiders is P35,000; purchases from outsiders is
P220,000.
How much is the cost of goods available for sale of the branch?
a. P1,297,000 b. P1,465,000 c. P1,539,000 d. P1,767,500

4. During 20x11 goods were shipped to a branch at 120% above cost. The reciprocal account in the income statement of the
home office amounted to P237,500. The balance of the contra branch current account reports a balance of P375,000
before adjustment. The beginning inventory of the branch from the home office at cost is P360,000 and from outsiders,
P93,000. The branch purchased goods from outsiders during the year amounting to P125,200.

If the ending inventory of the branch as reported in the combined statement of financial position is P345,000, 20% of which
are purchased from outside suppliers, how much is the cost of goods sold to be reported in the branch’s income statement for
the year ended December 31, 20x11?
a. P514,500 b. P431,700 c. P790,500 d. P470,700

5. Home office bills its branch fro merchandise shipments at 30% above cost. The following are some of the account
balances on the books of home office and its branch as of December 31, 20x10.
Home Office Books Branch Books
Inventory, January 1 P 5,000 P 14,500
Shipments from Home Office 37,700
Purchases 225,000 50,000
Shipments to branch 36,250
Branch inventory allowance 13,125
Sales 300,000 180,000
Operating expenses 72,500 27,500
Per physical count, the ending inventory of the branch is P10,500 including goods from outside purchases of P6,925; the
ending inventory of the home office is P30,000.
What is the amount of the unrealized profit in the separate books of the home office on January 1, 20x11; the beginning
inventory in 20x10 that came from outside purchases and cost of goods available for sale of the branch?
a. P3,000; P6,925; P102,200 c. P2,250; P4,750; P111,625
b. P3,000; P4,750; P111,625 d. P2,250; P6,925; P102,200

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 HOME OFFICE, SALES AGENCY & BRANCH ACCOUNTING
What is the total ending inventory to be shown on the combined financial statements and the combined net income for the
year?
a. P39,675; P136,850 c. P46,925; P134,675
b. P39,675; P134,675 d. P46,925; P136,850

6. Demanding Co operates a branch in Dagupan. On December 31, 20x10, Dagupan branch account in the HO books showed
a debit balance of P518,890. The interoffice accounts were in agreement at the beginning of the year. For purposes of
reconciling the interoffice accounts, the following facts were given:
a. Shipments to Dagupan at cost of P97,520 were in transit as of year-end. Dagupan recorded the said transfer on
January 2, 20x11.
b. On December 31, 20x10, the home office paid P68,000 worth of rent for two years starting January 1, 20x11. It sent a
debit memo to Dagupan allocating ¾ for the branch’s corresponding share in the rent expense for one year, but the
branch recorded the said debit memo by debiting the home office-current account and crediting rent payable.
c. The branch was entrusted with the collection of the home office’s accounts receivable. AR of the home office with the
amount P9,120 was written-off by the branch. Home office recorded the write-off by crediting Accounts Receivable.
d. Home office collected AR from Dagupan’s customers amounting to P92,640, net of 4% discount. The home office
treated the said transaction as if it was a collection from its own customers. Dagupan was not yet notified of the
collection.
It is the policy of the home office to bill its branches at 20% above cost.
What is the unadjusted balance of the HO-current of Dagupan branch on December 31, 20x10?
a. P367,246 b. P417,130 c. P341,746 d. P290,746

7. On July 1, 20x11, the Cry Co established two branches: Baguio and Bicol branches. The home office transferred P80,000
worth of cash and P350,000 worth of inventory to its Baguio branch and instructed Baguio to transfer ¾ of the goods and
cash received to Bicol. In addition, on August 1, 20x11, shipments from home office were received by Baguio amounting to
P125,000 and the branch paid freight costs amounting to P6,500. 3/5 of the said shipments were sold to outsiders. On
September 1, 20x11, Baguio transferred half of the remaining August shipments from the home office to Bicol, with Bicol
paying freight costs of P2,500. Had the merchandise been shipped from the home office to Bicol, only P1,900 worth of
freight would have been incurred.
How much is the balance of Bicol branch account in the HO books?
a. P206,200 b. P349,400 c. P346,900 d. P348,800

8. Mystery Trading Co operates a branch in Laoag City. On December 31, 20x11, the Home Office Current account in the
branch books showed a credit balance of P522,912. The interoffice accounts were in agreement at the beginning of the
year. For purposes of reconciling the interoffice accounts, the following facts were determined:
a. The branch recorded a piece of equipment costing P21,232 which it purchased for its own use on December 31,
20x11. The equipment will be recorded in the books of the home office. The home office recorded the memo received
from the branch by debiting Branch Current and crediting Payable to Branch in the amount of P21,322.
b. Total general expenses were P86,550. The HO allocated 2/5 of the expenses to Laoag branch. The branch
inadvertedly debited 2/5 of the allocated amount to the HO account twice.
c. Laoag branch paid P32,500 representing accommodation expenses of the executive vice president of the company,
when the vice president attended a seminar. Of the amount paid, 40% was charged to the HO, 20% to Laoag and 40%
to Mystery’s other branch. Laoag recorded a receivable from the home office at the said amount and credited cash.
The HO was not yet notified of the said event.
d. The HO transferred inventory costing P45,000 to Laoag and the branch paid the corresponding freight of P2,500.
Laoag was instructed by the HO to transfer ¾ of the said inventories to the other branch and to shoulder the freight
costing P3,500. Laoag made the transfer on its books but it recorded the transfer at ¼ of the original inventories and
erroneously credited the payment for freight at P350.
What is the unadjusted balance of the Investment of Branch account on December 31, 20x11?
a. P566,262 b. P587,034 c. P600,882 d. P580,534

9. Use the following information to answer the subsequent questions.

ABC Products Corporation has two branches, Baguio and Davao, to which merchandise is billed at 20% above cost. Partial
trial balance accounts of the three entities at December 31, 2015 are summarized as follows:
Baguio
Home Office branch Davao branch
Inventory 800,000 180,000 240,000
Baguio branch 450,000
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 HOME OFFICE, SALES AGENCY & BRANCH ACCOUNTING
Davao branch 420,000
Shipments from home office 600,000 360,000
Purchases 1,600,000
Expenses 900,000 250,000 200,000
Home office 450,000 300,000
Loading-Baguio branch 130,000
Loading-Davao branch 120,000
Sales 1,950,000 900,000 750,000
Shipments to Baguio branch 500,000
Shipments to Davao branch 400,000

Additional information:
Physical inventories on hand at December 31,2015 were as follows:
Home office P700,000 at cost
Baguio branch P210,000 at billed prices
Davao branch P150,000 at billed prices

The ending inventory of ABC Products Corporation must be: (A) P1,100,000 (B) P1,000,000 (C) P1,150,000 (D)
P1,220,000

Using the information above, the combined net income of home office and branches for 2015 must be (A) P250,000 (B)
P430,000 (C) P350,000 (D) P600,000

10. On July 1, the ABC Company, organized a sales outlet in Cebu City. Following are the home office-branch transactions for
the month of July:
July 1 The home office transferred P250,000 to its Cebu Branch.
2 Merchandise costing the home office P30 per unit was shipped to the branch at an invoice price of P40 per
unit. Ten thousand units were shipped on July 2; a second order was to be filled by local suppliers.
2 Shipping costs on the above were paid as follows: By the home office – P15,000; By the branch – P5,000.
5 Additional merchandise was acquired by the branch from regional distributors, 5,000 units at P31.00.
6 Display equipment was purchased by the home office, cost P360,000, and was delivered to the branch. Plant
assets accounts were kept by the home office.
10 Branch sales for the period July 3-10; on account, 8,000 units at P50.
18 Branch collections on account, P320,000.
25 Branch sales for the period July 11-24; on account, 5,000 units at P50.
29 Cash remittance by branch to home office, P100,000.
30 Month summary of branch cash expenses: Advertising, P4,000; Sales commission, P65,000; Miscellaneous,
P1,000.
31 Depreciation recorded by the home office for July included P15,000 that related to the display equipment
used by the branch. Insurance on this equipment was amortized by the home office in the amount of P2,500.
31 Inventories of merchandise at the branch on July 31 included the following: From home office, 1,500 units at
P40; From local suppliers, 500 units at P31.

Determine the correct balance of reciprocal accounts after recording branch net income or loss. (A) P648,500 (B)
P582,500 (C) P665,500 (D) P599,500

11. Happy Inc has a branch operation located in Davao. On the home office financial record, Happy reports Investment in
Davao Branch account with a P117,000 debit balance. At the same time, the branch operation is reporting Home Office
account with a P121,500 credit balance. Which of the following statements is true? (A) Cash may have been collected by
the home office for the branch but not yet reported to the branch (B) The difference indicates that cash may be in transit
from the branch to the home office (C) The difference indicates that inventory may ne in transit from the branch to the
home office (D) The difference indicates that the home office might have assigned an expense allocation to the branch

12. The Home Office account of a branch is a/an (A) Asset Account (B) Asset and Capital Account (C) Liability Account (D)
Equity Account

13. When the home office ships merchandise to the branch above its cost, the cost of goods sold on the branch income
statement is (A) Overstated by the overvaluation of the branch inventory acquired from outsiders (B) Overstated by the
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 HOME OFFICE, SALES AGENCY & BRANCH ACCOUNTING
difference between the unadjusted and post-closing balance in the allowance for overvaluation in the branch inventory
account of the home office books (C) Overstated by the overvaluation of the branch inventory acquired from home office
(D) Understated by the overvaluation of the inventory

14. The following information for the month of January is provided for Jane Company and its only branch:
Home Office Control
Mar 1 Balance 60,000
Mar 3 Cash remitted to the home office 80,000
Mar 5 Shipments from the Home Office 120,000
Mar 28 Expenses from the home office 45,200
Mar 28 Cash remitted to the home office 30,000
Mar 28 Merchandise returned from the home office 12,000

Branch Control
Mar 1 Balance 60,000
Mar 3 Cash received from Branch 80,000
Mar 4 Shipments to Branch 120,000
Mar 28 Expense allocation 52,400
Mar 28 Shipments to Branch 24,000
Mar 28 Collection from branch customer 18,000
Mar 28 Supplies purchased 8,000

Except for the error by the branch in recording its share of allocated expenses, all differences are timing differences.

What is the adjusted balance of reciprocal accounts? (A) 103,200 (B) 166,400 (C) 124,400 (D) 117,200

15. Prestige Company has established a branch in Baguio by sending goods costing P46,225 and P20,000 cash on July 1, 2016.
Home office initiated transactions for the remainder of the year are found below. At the end of the year, the company’s
controller has found out that the accounting staff assigned in recording the transactions between the home office and the
branches had failed to record all the transactions initiated by the branch. Because of this, there is a significant discrepancy
between the balance of the reciprocal accounts.

• Prestige Company acquired a money counter and vault amounting to P105,000 for the Baguio Branch on August 1,
2016. As per agreement, the branch will keep all the property, plant and equipment records.
• Goods costing P80,000 were shipped from Prestige Company to Baguio branch on November 9, 2016.
• Additional cash amounting to P13,250 was transferred to the Baguio branch on December 2, 2016.
• Manolo Trading, a Baguio branch customer has incorrectly paid P6,250 cash to the home office on December 13,
2016.
• Prestige Company incurred P16,250 of advertising cost and P24,000 of salaries. Baguio branch is to shoulder
30% and 20% of these expenses, respectively.

For the purposes of reconciling the reciprocal accounts, the controller has instructed the Baguio branch accountant to
send a copy of the Home Office Current general ledger to the home office.

Home Office Current

3-Aug Supplies and equipment acquisition 105,000 1-Jul Goods from HO 46,225
5-Nov Cash remittance 19,500 1-Jul Cash 20,000
20-Dec Return of goods to HO 12,250 15-Aug Collection of HO's AR 28,400
10-Oct Goods from HO 57,500
4-Dec Cash 12,575

Balance 27,950

Compute for the unadjusted balance of Investment in Baguio Branch account (A) P285,700 (B) P261,200 (C)
P267,900 (D) P264,550

16. During 2016, goods were shipped to the branch at 120% above cost. The reciprocal account in the income statement of
the home office amounted to P237,500. The balance of the contra branch current account reports a balance of P375,000
before adjustment. The beginning inventory of the branch from the home office at cost is P360,000 and from outsiders,
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 HOME OFFICE, SALES AGENCY & BRANCH ACCOUNTING
P93,000. The branch purchased goods from outsiders during the year amounting to P125,200. If the ending inventory of
the branch as reported in the combined statement of financial position is P345,000. The branch net income as reported in
the branch’s books are P201,125 and P120,750, respectively.

How much is the cost of goods sold to be reported in the branch’s income statement for the year ended December
31, 2016? (A) P551,075 (B) P514,500 (C) P470,700 (D) P790,500

17. MOBC operates a branch in Naga City. At the close of business on December 31, 20x11, the Home Office account in the
books of the Naga branch showed a credit balance of P928,100. The interoffice accounts were in agreement at the
beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were ascertained:
a. Freight charge of P4,200 on merchandise shipped to the branch was paid by the Home Office and was recorded in the
branch books as P420.
b. Home Office debit memo for P6,900 was recorded twice by the branch by debiting Home Office Current account.
c. The branch failed to take up a P4,000 debit memo from the home office.
d. Branch store insurance premiums of P3,200 were paid by the home office. The home office debited Insurance
expense and credited cash in its books. The branch recorded the amount of P32,000 as a liability.
e. A branch customer remitted P5,000 to the home office. The home office recorded this as a cash collection of its own
receivable on December 23, 10x11. Upon notification on the same year, the branch debited the amount of Receivable
from Home Office and credited to Home Office Current.
f. A P35,000 shipments, charged by home office to Naga branch, was actually sent to and retained by Manaoag branch.
g. On December 27, 20x11, the branch sent a check for P4,500 to its suppliers. The branch erroneously recorded the
transaction as a remittance to the home office and sent a copy of the debit memo to the home office. The home office
recorded this upon receiving the debit memo on January 2, 20x12.
h. The home office allocated advertising and rent expense totaling P6,000 to Naga branch. The home office charged the
said expense to Manaoag branch by mistake, Naga branch had not entered the allocation at year end.
i. Inventory costing P13,000 was sent to the branch by the home office on December 12, 20x11. The branch recognized
a liability by crediting Accounts payable upon the receipt of the inventory.
j. A branch customer remitted P21,000 to the home office. The home office recorded this cash collection on December
21, 20x11. Upon receiving a credit memo, the branch recorded the transaction twice on December 23, 20x11.
What is the unadjusted balance of the branch current account as of December 31, 20x11?
a. P994,280 b. P1,018,180 c. P1,025,080 d. P987,380

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