ADVANCED ACCOUNTING

Home Office, Branch and Agency Transactions

Problem 1. The National Home Company ships and bills merchandise to its provincial branch
at cost. The branch carries its own accounts receivables and 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 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

1. Compute the net profit of the branch and the branch current account in the home office
books:

Net profit Branch current account

A. P22,500 P90,000
B. 21,300 134,400
C. 14,400 104,400
D. 14,400 90,000

Problem 2. 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.

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

A. P161,560
B. 93,560
C. 116,950
D. 161,950

3. In the home office books, the branch’s true net income (loss) was:

A. (P6,200)
B. 17,190
C. 6,200
D. (17,190)

Problem 3. 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.

4. What is the balance of the allowance for over-valuation of branch inventory on December 31
before adjustments?

A. P5,600
B. 137,600
C. 6,000
D. 145,600
Problem 4. 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 P740,000
Cr. Shipments to branch 1,700,000

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

Month-end additional data

Ending inventory of branch:
From home office at BP 2,340,000
From outsiders, at cost 580,000

5. For the month just ended:

The amount of allowance for

The total COGS of branch at
overvaluation that was realized
cost (net of overvaluation)
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

Problem 5. 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 P160,000 on September 30, 2017.

6. Compute the realized gross profit/allowance for overvaluation.

A. P108,000
B. 20,000
C. 120,000
D. 28,000

Problem 6. 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 P1,500 P1,500
Accounts receivable 43,800 49,140
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:

12/31/2017 12/31/2018
Currency and coins P580 P860
Expense vouchers 920 640
The branch ending inventory on December 31, 2018 and 2017 were P41,370 and P37,170,
respectively.

7. The correct branch net income for 2018 was:

A. P3,390
B. 3,670
C. 41,070
D. 41,350

Problem 7. Lacoste Philippines has two merchandise outlets, its main store in Manila and its
Cebu branch. For control purposes, all purchases 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 P13,600 and P3,960, respectively. During 2011, 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:

Debit Credit
Sales P32,000
Inventory 4,840
Inventory P3,960
Shipments from main store 17,600
Expenses 10,480
Main store 4,800

8. What was the actual branch income?

A. P4,800
B. 6,370
C. 6,320
D. 6,480

9. If the main store has P11,200 worth of inventory on hand at the end of 2017, the total
inventory on the combined balance sheet as at December 31, 2017 would be:

A. P15,060
B. 15,160
C. 15,600
D. 16,040

Problem 8. 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 are 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

10. What was the cost of the merchandise destroyed by fire?

A. P36,000
B. 30,667
C. 36,800
D. 30,000
Problem 9. Lobster Trading bills its Iloilo 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 P50,000

Shipments from home office to Oct. 31 130,000
Net sales to Oct 31 225,000

11. If undamaged merchandise recovered are marked to sell for P30,000, the estimated cost of
the merchandise destroyed by the fire was:

A. P14,400
B. 21,600
C. 24,000
D. 27,500

Problem 10. Masaya Commercial Corp. maintains a branch in Iloilo City. Selected account
balances taken from the books of Masaya and its Iloilo branch as at December 31, 2017 are as
follows:

Home Office Branch

Inventory, January 1, 2017 P12,000 P8,000
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
Inventory, December 31, 2017 14,000 10,350

P4,350 of the branch’s ending inventory came from purchases/suppliers other than the Home
Office.

12. Compute for the following:

Understatement of Branch’s
Branch’s cost of sales
net income
A. P102,850 P18,550
B. 102,850 18,250
C. 97,120 18,550
D. 121,400 18,000

Problem 11. 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 P156,000.

Sales P600,000
Cost of sales:
Inventory, December 1 P80,000
Shipments from home office 350,000
Local purchases 30,000
Total available for sale 460,000
Inventory, December 31 100,000 360,000
Gross margin 240,000
Operating expenses 180,000
Net income for December 2017 P60,000

The Branch inventories were:

12/1/2017 12/31/2017
Merchandise from home office P70,000 P84,000
Local purchases 10,000 16,000
Total P80,000 P100,000
13. Compute for the following:

Balance of allowance for

Billing price based on cost
overvaluation as at 12/31/2017
imposed to Branch
after adjustment
A. 140% P10,000
B. 140% 24,000
C. 40% 24,000
D. 40% 16,000

Problem 12. The Dumaguete City Branch of Siliman 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 are as follows:

Dumaguete Branch Home Office

Sales P63,000 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

14. Compute for the following:

Net income (loss) of Dumaguete Combined net income (loss)

City per branch books of Siliman Enterprises
A. (P4,900) P18,740
B. (4,900) 22,430
C. 3,330 22,430
D. 8,230 25,270

Problem 13. Selected accounts from the December 31, 2017 trial balances of Betty Star Co.
and its branch follow:

Betty Star Branch

Inventory, January 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 P11,000 was in transit to the
branch. Freight cost is typically 5% of the billing price. Merchandise on hand at yearend were: at
home office, P64,000 at cost; at branch, P33,000 at billing price.

15. Compute for the following:

Branch true net income Combined net income

A. P40,900 P84,900
B. 32,100 76,100
C. 32,000 76,000
D. 33,000 77,000

Problem 14. 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 (1/4) 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.

16. 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 2,000
C. A year-end adjusting entry crediting the branch account for 500
D. No yearend adjusting entry for the freight charge

Problem 15. Tagum Supply Company is engaged in merchandising both at its Home Office in
Manila and its Branch in Davao City. Selected accounts taken from the trial balances of the
Home Office and the branch as at December 31, 2017 are as follows:

Manila Davao Branch

Debits
Inventory, January 1, 2017 P23,000 P11,550
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 - P53,300
Sales 155,000 140,000
Sales to branch 110,000 -
Allowance for Overvaluation
of Branch inventory at
January 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, are as follows:

Home office, at cost P30,000

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

17. Compute for the following:

Net income of the Home Branch’s true net

Office from own operations income
A. P30,470 P870
B. 20,000 10,470
C. 20,000 870
D. 30,470 10,470

Problem 16. 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:

 An office equipment costing the home office P3,500 was picked up by the branch as
P350.
 Insurance premium of P675 charged by the home office was taken up twice by the
branch.
 Freight charge on merchandise made by the home office for P1,125 was recorded in the
branch books as P1,215.
 Home office credit memo representing a discount on merchandise for P800 was not
recorded by the branch.
 The branch failed to take up a P700 debit memo from the home office representing the
share of the branch in advertising.
 The home office inadvertently recorded a remittance for P3,000 from its Cebu branch as
a remittance to its Dagupan branch..
18. Compute for the following:

Unadjusted balance of the Adjusted balance of

Home Office account the reciprocal account
A. P226,485 P225,770
B. 228,485 228,770
C. 225,770 226,485
D. 226,485 228,770

Problem 17. 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
Admin expenses charged to agency 5% of gross sales
Samples shipped to agency:
Cost 3,600
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.

19. The agency’s cost of sales including freight and agency’s net income would amount to:

Cost of Sales Net Income

A. P39,000 P5,994
B. 47,520 7,668
C. 40,380 5,994
D. 40,380 7,320

Problem 18. 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.

20. This transaction should be recorded by the home office as follows:

A. No entry
B. Dr. rent, 3,000; Cr. Cash, 3,000
C. Dr. Davao Agency, 3,000; Cr. Cash, 3,000
D. Dr. Davao Agency, 3,000; Cr. Working fund, 3,000

-end-