ACCT602_PQ1 6.

Mandalagan Branch purchased an equipment for cash at

P150,000. Araneta Home office will maintain records over the
1. The Stone Corporation has one remote location operating purchased asset. Which of the following statements is most
as a branch, Rock Branch. Stone makes shipments of correct?
merchandise to Rock at cost plus 10%. For the current a. Investment in Branch account will be debited by Araneta.
accounting period, Rock branch has P2,000 of branch b. Home Office account will be credited by Araneta.
profit and has P5,000 of inventory on hand at cost which c. Home Office account will be debited by Mandalagan.
was originally received from Stone. Which of the following d. Investment in branch account will be credited Mandalagan.
statements concerning Stone and Rock is correct?
a. Stone will have both a Rock Branch Account & Shipments 7. Investment in Branch account is affected by which of the
from Stone account on its home office books. following transactions?
b. Stone will have both a Stone Home Office account and a a. Shipments of merchandise from Home office to customers.
Rock Branch Account on its branch office books. b. Branch expenses paid by branch
c. Rock will have both a Stone Home Office account and a c. Options A and B both affect the investment in branch.
Shipment from Stone account on its branch office books. d. Neither A nor B affect the investment in branch.
d. Rock will have both a Rock Branch Account and
Shipments from Stone account on its branch office books. 8. Maganda Inc. has a branch operation located in Cebu. On
the home office financial record, Maganda reports Investment
2. In the preparation of Stone’s financial statements at the in Cebu Branch account with a P78,000 debit balance. At the
end of the period, Stone will do which of the following? same time, the branch operation is reporting a Home Office
(base the answer on the data from the previous number) account with an P81,000 credit balance.
a. Credit the Rock Branch Account for the P2,000 of branch Which of the following statements is correct?
profit and eliminate the P5,000 of ending inventory. a. Since two separate sets of records are being kept, these two
b. Credit the Rock branch account for the P2,000 of the accounts are designed to disagree.
branch profit and combine the P5,000 of the branch b. The difference indicates that inventory may be in transit from
inventory with its own ending inventory. home office to the branch.
c. Debi the Rock Branch account for the P2,000 of branch c. Cash may have been collected by the home office for the
profit, credit Rock Branch profit for P2,000 branch profit branch but not yet reported to the branch.
and eliminate the 5,000 of branch ending inventory. c. The difference indicates that cash may be in transit from the
d. Debi the Rock Branch account for the P2,000 of branch branch to the home office.
profit, credit Rock Branch profit for P2,000 branch profit
and combine the 5,000 of branch ending inventory. 9. Compaq Inc. operates branch in Ilo-ilo. On the home office
financial records at the end of 2011, Compaq reports
3. When a home office ships merchandise to Branch A which Investment in Ilo-ilo branch account with a P167,000 debit
is later shipped to Branch B, the additional freight charges balance. The branch operation reports on the same date a
to ship the merchandise from branch A to Branch B Home Office Account with a P162,000 credit balance.
should: Which of the following statements is true?
a. Treated as an expense on the home office books to the a. Home office might have collected P5,000 of branch’s
extent it exceeds the normal freight had the merchandise receivable but the latter was not informed.
been shipped directly to Branch B by home office. b. The branch might have purchased supplies worth P14,000
b. Included as part of the cost of merchandise to Branch B. for Home office but was booked by the latter at P19,000.
c. Included as part of the cost of merchandise to Branch A. c. There was a transfer equipment worth P35,000 from Home
d. None of the statements are correct. office that was recorded at P30,000 by the branch.
d. Check representing replenishment of expenses was not
4. When the home office ships merchandise to the branch recorded by home office.
above its cost, the cost of goods sold on the branch
income statement is: 10. A consolidated financial statement is being prepared for
a. Understated by the overvaluation of the inventory. Makati Home office and Bacolod Branch. Which of the
b. Overstated by the overvaluation of the branch inventory following procedures is most correct?
acquired from outsiders. a. In the worksheet, Home Office and Branch Current accounts
c. Overstated by the overvaluation of the branch inventory are not eliminated since both will appear on the separate
acquired from home office. financial statements of the entities.
d. Overstated by the difference between the unadjusted and b. After eliminating entries are prepared, the accounts are
post-closing balance in the allowance for overvaluation in combined line by line to arrive at the consolidated balances for
the branch inventory account on the home office books. home office and the branch.
c. Shipments to branch are treated as sales by the Makati
5. The unadjusted (pre-closing) balance in the Allowance for Office, thus the same shall be eliminated against Sales.
Overvaluation account at year end represents: d. None of the statements are correct.
a. The mark-up on merchandise shipped to the branch during
the year.
b. The mark-up on merchandise shipped to the branch during <<<END>>>
the year less than the mark-up on the merchandise
returned by the branch during the year.
c. The mark-up on the merchandise available for sale (all
from home office) by the branch for the year.
d. The mark up on cost of goods sold by the branch for the
year.