HO Branch Accounting MC Problems

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Problem 1

Alabang Head Office opened a sales agency in Nuvali on January 1, 2020. The following is a summary of the transactions
of the sales agency:
o Volume discount 1.5% and 2.5%
o Invoice price P1,926,000
o Freight on shipment of agency 31,500
o Collections, 20% of which were able to avail of the 5% discount 1,261,125
o Selling expenses paid from the agency fund 67,500
o Administrative expenses allocated to the agency 4% of net sales.
o Samples shipped to the agency amounting to P99,000 are to be properly depreciated to it carrying amount of
P85,851 as of December 31, 2020.
o Remaining receivables are estimated to be 95% collectible.
o The company's gross profit rate based on invoice price is 30% excluding the freight cost on shipments to the agency.

What is the net income of the agency for 2020?


A. P374,787 C. P343,287
B. P356,562 D. P346,401

Problem 2
On August 1, 2018, the home office in Ortigas established a branch in General Santos to act as a sales agency. The
following assets are sent to the sales agency on that date: Cash (for the working fund to be operated under the imprest
system), P22,000 Samples from the merchandise stock, P36,000. During August, the sales agency submitted a sales order
of P272,000, sales per invoice was billed at P268,000 duly approved by the home office. Collections during the month
amount to P58,200, net of 3% discount. Cost of merchandise shipped from customers obtained by the sales agency is
P124,000. Home office disbursements chargeable to the sales agency are as follows: Furnitures, P40,000; Manager's and
salesmen's salaries for the month, P21,600 and annual rent of office space, P36,000. On August 31, the sales agency
working fund was replenished; paid vouchers submitted by the sales agency amounting to P17,925. Sales agency samples
are useful until December 1, 2018 which, at this time, are believed to have a salvage value of 15% of cost. Furniture is
depreciated at 18% per annum.
What is the net profit of the sales agency for the month of August?
A. P91,425 C. P93,225
B. P51,825 D. P58,425

Problem 3
On June 1, 2019, Elite Fam Co. established an agency in Davao, sending samples costing P4,200,000 which are useful
until May 31, 2020 and have a salvage value of 20% of cost. A working fund of P3,412,500 is to be maintained using the
imprest basis. During 2019, the agency submitted to the home office order amounting to P35,437,500. Sales per invoice
were P27,562,500 which were duly approved by the home office. Collections during the year amounted to P14,784,000 net
of 4% sales discount. The cost of merchandise sold during the year is equal to 70% of the gross selling price. Vouchers
for expenses amounted to P1,837,500.
How much net income would be reported by the BGC agency on December 31, 2019?
A. P4,471,250 C. P5 535,250
B. P4,135,250 D. P3,855,250

Problem 4
On December 31, 2018, the following information was collected by Ivonne Company's office and branch for reconciling the
branch and home office accounts. The home office's branch account balance at December 31, 2018 is P628,000.
1. On December 30, 2018, the branch sent a check for P47,000 to the home office to settle its account. The branch
debited accounts payable. The check was recorded twice by the home office amounting to P4,700, one on
December 31, 2018 and another on January 4, 2019.
2. On December 27, 2018 the branch returned P32,000 of limited-edition merchandise to the home office for the
January introductory sale. The home office debited the Investment in branch account when the merchandise was
received on December 30, 2018.
3. The home office allocated 2/5 of its general expenses to the branch. The branch had entered 3/5 by mistake at
year-end. The home office recorded in its books general expenses amounting to P27,000.
4. Branch store insurance premiums of P9,750 were paid by the home office. The branch recorded the amount of
P7,590.
5. A furniture costing the home office P17,000 was picked up by the branch as P1,700.
6. Meals and representations of P12, 000 charged by the home office were taken up twice by the branch in the amount
of P1, 200.
7. Freight charge on merchandise made by the home office for P5,830 was recorded in the branch books as P8,350.
8. Home office credit memo representing a discount on merchandise for P5,900 was recorded twice by the branch.
9. The home office failed to take up a P7,000 debit memo from the branch representing the defective merchandise
returned by the branch.
10. Home office erroneously recorded the branch's credit memo at P45,625 The branch collected from the customers
of the home office amounting to P54,265.
What is the unadjusted balance of the home office account in the books of the branch at December 31, 2018?
A. P644,620 C. P560,020
B. P545,300 D. P577,300

Problem 5
On December 31, 2018, the Home Office account on the branch's books has a balance of P580,000. In analyzing the activity
in each of these accounts for December, you find the following differences: Branch is Cabanatuan.
1. A P22,000 branch remittance to the home office initiated on December 28, 2018, was recorded at P2,200 on the
home office books on December 30, 2018. The home office credited accounts receivable.
2. A home office inventory shipment to the branch on December 29, 2018, was recorded by the branch on January 3,
2019; the billing of P26,000 was at cost. The home office credited the supplies account.
3. The home office incurred P19,000 of advertising expenses and allocated P5,900 of this amount to the branch on
December 17, 2018. The branch recorded half of the advertising expense incurred by the home office.
4. A branch customer remitted P9,000 to the home office. The home office recorded this cash collection on December
22, 2018 with a credit to Accounts Receivable. The branch is not yet notified.
5. Inventory costing P31,950 was sent to the branch by the home office on December 12, 2018. The billing was at
cost, but the branch recorded the transaction at P39,150 twice.
6. A P23,000 shipment, charged by home office to the Cabanatuan branch, was actually sent to and retained by the
Cagayan branch.
7. A P36,000 shipment, intended and charged to the Camiguin branch, was shipped to the Cabanatuan branch and
retained by the latter.
8. A P17,000 emergency cash transfer from the Home office was taken up twice by the branch.
9. Home office collects Cabanatuan branch accounts receivable or P15,400, the branch recorded the transaction with
a debit to Home Office Current and credited Sales.
10. Home office was charged P5,700 for merchandise returned by Cabanatuan branch on December 28. The branch
credited Home office current and the home office erroneously debited the Investment in branch account twice.
How much is the unadjusted balance of the Branch Current account in the home office books?
A. P553,750 C. P559,450
B. P548,050 D. P530,050

Problem 6
Jan Trading Co. operates a branch in Batangas. At close of business on December 31, 2018, Batangas branch account in
the home office books showed a debit balance of P224,800. 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. The branch writes off uncollectible accounts of P9,700. The allowance for doubtful accounts is maintained on the
books of the home office. The home office is not yet notified about the write-off.
2. The home office inadvertently recorded a remittance for P12,000 from its Batanes branch as a remittance from its
Batangas branch.
3. Machinery and equipment costing the home office P28,000 was sent to Batangas branch. The home office will
maintain the records of the asset used by the branch. The branch credited its reciprocal account.
4. The home office charged the branch for freight amounting to P6,300. It should have been charged to its customer.
The branch erroneously recorded the debit memo from the home office.
5. The home office inadvertently recorded a Batangas branch remittance of P18,000, as collection from its customers
on account.
6. On December 27, 2018, the home office sent a check for P20,000 to its Batangas branch to settle an account. The
home office erroneously recorded the transaction as payment for the acquisition of equipment.
7. On December 28, 2018 the branch returned P7,000 of excess merchandise to the home office. The merchandise
was received by the home office on December 30, 2018 and credited Bataan Branch Current.
8. The home office allocated advertising and rent expenses totaling P10,000 to Batangas branch. The home office
charged the said expense to Bulacan branch by mistake, Batangas branch had entered the allocation twice at year-
end.
9. A home office customer remitted P14,000 to the branch. The branch inadvertently recorded this transaction on
December 26, 2018 as a collection from its own customer. The home office made no entry during the year.
10. Inventory costing P45,000 was sent to the branch by the home office on December 12, 2018. The branch recorded
the transaction as a debit to furniture in the same year.
How much is the unadjusted balance of the home office current account as of December 31, 2018?
A. P250, 100 C. P239,800
B. P209,500 D. P270,100

Problem 7
A home office ships inventory to its branch at a mark-up of 125% above cost. The required balance of the allowance for
overvaluation account is P1,425,000. During the year, the home office sent merchandise to the branch costing P9,000,000.
At the start of the year, the branch's Statement of Financial Position shows P1,800,000 of inventory on hand that was
acquired from the home office. By what amount will the Allowance for Unrealized Gross Margin in Branch Inventory account
be debited at the end of the year?
A. P12,250,000 C. P1,185,000
B. P10,825,000 D. P2,610,000

Problem 8
During the year 2019 goods billed at P3,250,000 were shipped to the branch at 130% of cost. The account Loading in
Branch Inventory has a balance of P1,225,000 before adjustment. The beginning inventory of the branch from the home
office at cost is P2,375,000; the beginning inventory of the branch from outsiders is P540,000; purchases from outsiders is
P1,450,000. How much is the total goods available for sale of the branch from the home office?
A. P5,308,335 C. P8,090,000
B. P6,337,500 D. P6,100,000

Problem 9
The following transactions were entered in the branch current account of Makati Head Office for the year 2019:
Investment in Branch-Ortigas
Beg. Balance, 1/1 459,258 33,300 Collection of AR
Shipments to branch, 4/1 212,400
Cash forwarded,6/1 15,000
Operating expenses charged to the 2,880
branch 12/31

1. Shipments to the branch during the year were made at 20% above cost
2. The balance of the Allowance for Overvaluation of Branch Inventory account was P21,300 at the beginning, and
the allowance was written down to P14,700 at year-end.

3. On December 10, 2019, the home office purchased a piece of equipment amounting to P36,000 for its annual
branch in Ortigas. The said equipment has a useful life of five years and will be carried in the books of the branch,
but the home office recorded the purchase by debiting Equipment.

4. The branch recorded the depreciation of the equipment by debiting the Home Office Current account and crediting
Accumulated Depreciation.

5. Debit memo regarding the allocation of operating expenses to the Ortigas branch was received by the branch on
January 2, 2020.
6. The Ortigas branch reported net income of P197,730.

7. It also remitted cash to the home office on December 31, 2019 amounting to P33,000, which the home office
received and recorded on January 1, 2020

8. The interoffice accounts were in agreement at the beginning of the year.

1. How much is the adjusted balance of the Branch Current account on December 31, 2019 before the necessary closing
entries were made?
A. P701,718 C. P623,238
B. P659,238 D. P665,718

2. What is the amount of adjustment in the Allowance for Overvaluation of Branch Inventory account?
A. P56,700 C. P14,700
B. P49,080 D. P42,000

3. How much is the net income of Ortigas branch that will be reported in the combined income statement of Makati
Company?
A. P236,250 C. P194,250
B. P208,950 D. P239,130

4. What is the amount of the Home Office Current account that will be reported in the books of Ortigas branch after closing
entries are made?
A. P856,668 C. P856,368
B. P895 488 D. P853,488

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