AFAR-05-Home Office, Agency and Branch Accounting

ADVANCED FINANCIAL ACCOUNTING AND REPORTING
FAR EASTERN UNIVERSITY – INTEGRATED REVIEW

AFAR-05 HOME OFFICE, AGENCY, AND BRANCH ACCOUNTING
PROBLEM 1:
ABC Company established a sales agency during 2022. The following transactions occurred during
the year:
a) Establishment of the working fund for the agency, P50,000.
b) Shipped merchandise to the agency for use as samples, P20,000.
c) Purchased equipment to be used by the agency, P100,000.
d) Paid salaries of agency employees, P25,000.
e) Received sales orders from the agency of P500,000.
f) Billed customers related to item (e) after delivery of the merchandise.
g) Paid the following expenses out of the working fund:
• Utilities expense P10,000
• Advertising expense P15,000
• Miscellaneous expense P20,000
h) Replenished the agency’s working fund as of December 31, 2022.
Information pertinent to adjustment is as follows:

a) Cost of goods sold identified with the sales orders from the agency, P300,000.
b) Depreciation of agency equipment, P10,000.
c) Agency samples as of December 31, 2022 should be valued at P5,000.
REQUIREMENTS:
1. Prepare the necessary journal entries to record the above transactions.
2. How much is the net income of the agency for 2022?
PROBLEM 2:
On January 1, 2022, ABC Company establishes its first branch in Bulacan. Separate books are to be
kept by the branch, and financial statements of the branch are to be submitted to the home office at
the end of each month. It is the policy of ABC Company to carry the depreciable assets of the
branch on the books of the home office. Transactions of the branch for the first month of
operations are as follows:
a) Received cash of P80,000 from the home office.
b) Purchased equipment with a five-year life for P40,000 cash. All depreciable assets acquired
during the period are depreciated for the full period in the year of acquisition and no
depreciation is recognized in the period of disposition.
c) Received merchandise shipments from the home office. These merchandise cost the home
office P64,000. The home office paid for the freight charges amounting to P4,000.
d) Purchased merchandise from outside suppliers for P8,000 cash.
e) Sold merchandise for P90,000 cash.
f) Paid the following expenses: salaries, P24,000; utilities, P4,000; rent, P12,000; miscellaneous,
P8,000.
g) Remitted P60,000 to the home office.
Information pertinent to adjustment is as follows:

a) Salaries payable at month-end was P8,000.
b) Depreciation expense is to be recognized for the period.
c) Merchandise branch inventory at year-end amounted to P4,000 merchandise acquired from
outside suppliers and P20,000, excluding freight of P800, acquired from the home office.
Assume that all inventory items shipped by the home office to the branch are billed at 25%
above cost.
REQUIRED:
1. Prepare all the necessary journal entries to record the above transactions in the books of the
home office and the branch.
2. How much is the reported net income of the branch?
3. How much is the net income of the branch insofar as the home office is concerned?
PROBLEM 3:
The unadjusted balance of the Investment in Branch account of X Company amounted to
P1,250,000 before considering the following items:
a) The home office collected a branch trade accounts receivable of P9,000. The branch was not
notified about the collection.
b) Merchandise billed at P6,150 was shipped by the home office to the branch on December
30. The merchandise was still in transit as of December 31 and has not been recognized in
the books of the branch.
c) The home office was charged P6,400 when the branch returned merchandise to the home
office on December 31. The merchandise is in transit.
d) The home office acquired a piece of furniture to be used by the branch for P8,700. The
furniture will be carried in the books of the branch. This was erroneously recorded as
P7,800.
e) Salaries expense charged by the home office to the branch amounted to P4,500. This was
recorded twice by the branch.
f) A charge amounting to P800 for freight on shipments of merchandise is made by the home
office but the amount was recorded by the branch as P80.
g) The home office sold a fully depreciated equipment for P4,750 and erroneously credited the
proceeds to the branch; the branch did not charge the home office.
h) A home office credit memo representing a discount on merchandise for P800 was not
recorded by the branch.
i) The branch failed to take up a P7,000 debit memo from the home office representing share
of the branch in advertising expense.
j) The home office recorded branch net income of P84,000. The correct net income of the
branch should be P48,000.
REQUIRED:
1. How much is the adjusted balance of the Investment in Branch account?
2. How much is the unadjusted balance of the Home Office Current account?
PROBLEM 4:
The following information pertains to a home office and its branch:
Home Office Branch
Inventory, beg.
From outside suppliers P 480,000 P 32,000
From home office, at 10% mark-up 132,000
Purchases from outside suppliers 1,200,000 320,000
Shipments to branch 360,000
Shipments from home office 416,000
Inventory, end (per physical count at year-end)
From outside suppliers 300,000 160,000
From home office 130,000
During the year, the home office bills its branch at 130% of cost. On December 31, the home office
sent additional merchandise to the branch which was still in transit as of year-end.
REQUIRED:
1. How much is the shipment in transit at cost?
2. How much is the combined cost of goods sold?
Problem 5:
ABC Co. shipped merchandise costing P150,000 to Baguio branch and paid freight of P10,000.
Shortly afterward, the home office instructed Baguio branch to transfer this merchandise to the
Bicol branch. Freight costs of P7,500 were paid by the Baguio branch to carry out the order. If the
merchandise had been shipped directly from the home office to Bicol branch, the freight cost could
have been P12,500.
REQUIRED:
Prepare the entries to be made on the books of the home office and the two branches.

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING

FAR EASTERN UNIVERSITY – INTEGRATED REVIEW

Information pertinent to adjustment is as follows:

Information pertinent to adjustment is as follows:

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