Part I: Theory of Accounts

1.       In the separate statement of financial position of the home office, the investment in branch account shall be p
a.       Liability
b.       Equity
c.       Asset
d.       Income

2.       If the home office receives debit memo from the branch, the home office shall record it in its separate statem
a.       Increasing the investment in branch account
b.       Decreasing the investment in branch accoun
c.       Disclosure only
d.       None of the above

3.     If the branch receives credit memo from the home office, the branch shall record it in its separate statement o
a.       Increasing the home office account
b.       Crediting the home office account
c.       Debiting the home office account
d.       Disclosure

4.       Which of the following transactions will increase the home office account in the branch’s separate statement
a.       Net loss of the branch
b.       Collection by the home office of branch’s receiv
c.       Debit memo received from the home office
d.       Payment by the branch of home office’s liability

5.     Which of the following transactions will decrease the investment in branch’s account in the home office’s sep
a.       Net income of the branch
b.       Payment of branch’s liability by the home offic
c.       Credit memo received from the branch
d.       Return by branch to home office of merchan

6.       Which of the following reconciling transactions will require credit to home office current account in Branch
a.       Collection by Branch A of Branch B’s accoun
b.       Payment by branch A of home office’s accounts
c.       Credit memo received by branch A from home
d.       Reshipment of goods received by branch A to b
Part II: Problem Solving

Problem 1. LGM Inc. Head Office and its sole branch in Cavite reported the following for the month of January 2023

Home Office Current Account

Jan. 1, 2023 Beginning balance 117,000
Jan. 4, Shipments from the home office 234,000
Jan. 5, Cash remitted to the home office 156,000
Jan. 28, Expenses allocated by the home office 78,000
Jan. 28, Cash remitted to the home office 58,000
23,000

Investment in Branch Account

Jan. 1, 2023 Beginning balance 117,000
Jan. 3, Shipments to branch 234,000
Jan. 5, Cash received from branch 156,000
Jan. 28, Expense allocation to branch 87,000
Jan. 28, Shipments to branch 46,000
Jan. 28, Collection from branch customer 35,000
Jan. 28, Supplies purchased for branch 15,000

Except for the error by the branch in recording its share of allocated expenses, all other reconciling items are due to ti

How much is the correct balance of reciprocal accounts?

a. 218,000
b. 227,000
c. 308,000
d. 539,000

inv m br
*117,000 156,000*
*234,000 35,000*
*87,000 58,000*
*46,000 23,000*
*15,000
227,000
#1 B

Problem 2. On December 31, 2023, DMF Corp. showed a debit balance of P85,000 in its investment in branch accoun

a)     On December 31, 2023, merchandise billed at cost of P8,000 was in transit from the home office to the branch.
the goods.
b)     The branch had collected home office accounts receivable of P1,000 and recorded the correct entry. However, it n

c)     A debit memo amounting to P2,000 was issued by the home office to the branch for the share of the branch in ad
account for the same amount.

d)     The newly hired branch accountant mistakenly thought the debit memo in item (c) has not yet been recorded, w
current account once more.

e)     Acquisition of equipment by the branch, P15,000. The equipment account is to be maintained in the home
acquisition.

f)      A branch customer remitted P1,250 to the home office for their own personal convenience. The home office re
entry.

g)     Home office purchased P11,000 worth of supplies for the branch. The branch was not notified of the transaction
accountant presumed that the transaction will not be recorded in the home office books since it is for the benefit of th

How much is the unadjusted balance of the home office current account in the books of the branch?
a. 58,250
b. 69,250
c. 71,000
d. 82,000

HO booles br boole
mv m br HOC
unadj. 85,000
a.) 8,000
b.) 1,000
c.) 4,000
d.) 2,000
e.) 15,000
f.) 1250
g.) 11,000 11,000
adj, 82,000

#2 A

Problem 3. LUCAS Inc. has two branches. One is situated in Subic, and the other in Baguio.

During the month, the head office shipped goods billed at cost of P880,000 to its Subic
branch. The shipping fee of P40,000 was paid by Subic branch. Immediately after
receiving these goods, the home office instructed Subic to store only P396,000 worth of
goods, and ship the rest to the Baguio branch. Subic branch paid P30,000 for the
reshipping of goods to the Bacoor branch.

1.What if it would have only costed the main office P29,000 to ship the goods intended
for Baguio branch directly to its location, how much is the loss to be recognized by the
main office?
a. 23,000
b. 20,000
c. 17,000
d. 0

HO Subic
in in subic 880,000 ship from HO 880,000
ship to br 880,000 f-m 40,000
Cash 40,000
HOC 880,000

HOC 536,00 ship from HO 484,000

ship from HO 484,000f-m
f-m 22,000
cash 30,000
#1 A
2.   What if it would have costed the main office P62,000 to ship the goods intended for
Baguio branch directly to its location, how much is the debit to freight-in in the Baguio
branch books?

a. 22,000
b. 40,000
c. 52,000
d. 62,000

HO → S → B Actual = 52,000
→ vs
₱62 SB = 62,000

Problem 4. During 2022, LUNA Corporation’s home office shipped its goods to its branch at a markup
of 20% above cost. In 2023, this rate was increased to 25%, when the branch had a total of P112,200
beginning inventory, all of which came from the home office.

During the year 2023, the branch purchased P240,000 worth of goods from its suppliers, and received
goods from the home office billed at P215,625. As per the 2023 separate statement of financial position
of the home office, the loading in branch inventory account had an adjusted ending balance of P18,750.
As per the 2023 combined statement of profits and losses, the cost of goods sold totaled P852,600,
inclusive of P446,600 attributable to the home office.

1.     How much is the cost of goods sold reported by the branch for the year ended December 31, 2023?
a. 496,000
b. 424,750
c. 443,325
d. 449,075
CBP = @cost
BI - 0 0 0
BI - 4 112,200 93,500
purch 240,000 240,000
shipment 212,625 172,500
TGAS 567,825 506,000
EI-0 25,000 #3 D 25,000
 EI-H 93,750 75,000
COGS 449 075 #1 D 406,000

2.     By how much is the 2023 branch net income understated?

a. 61,825
b. 43,075
c. 18,750
d. 0

3.     As of December 31, 2023, how much inventory will the branch report in its separate statement of finan
a. 75000
b. 93750
c. 100,000
d. 118,750

Problem 5. GENELYN Corporation’s home office ships goods to its only branch at the same mark-up percentage ev

Home Office Branch

Sales revenue 7,500,000 6,000,000
Inventory, January 1, 2023 1,666,500 1,256,400
Inventory, December 31, 2023 450,000 2,593,500
Shipments to branch 1,224,000 -
Shipments from home office - 1,508,400
Purchases 2,257,500 1,986,000
Operating expenses 2,018,400 1,785,750

Additional information:
·       All inventory balances were derived from a physical inventory count.
·       There were no goods in transit at the beginning of the year.
·       The branch beginning inventory from outsiders is valued twice as much as its beginning inventory from th
·       Allowance for overvaluation of branch inventory account at the start of the year amounted to P157,050.
·       Cost of goods sold reported by the branch for 2023 is overvalued by P191,700.

1.     How much is the true cost of goods sold of the branch?
a. 1,965,600
b. 2,157,300
c. 2,349,000
d. 2,540,700
@BP = @cost
BI-0 837,600 837,600
BI-H 418,800 [160%] 261 750 [100%]
purch 1,986,000 1,986,000
ship frm 1958400 [160%] 1,224,000 [100%]
TGAS 5,200,800 4309350
 EI-0
EI-H 3043.500
COGS 2157.300 1,965,600

2.     How much is the net income in the combined financial statements of the company?
a. 4,256,250
b. 4,706,250
c. 5,288,550
d. 5,480,250

Problem 6. On December 1, 2023, GENEFER

Corp established a sales agency in Pasay by
sending cash to be maintained at a P100,000
imprest balance and by shipping a year’s worth of
samples costing P312,000. During the month, the
agency submitted to the home office sales order
amounting to P528,000 but only 75% of which
were approved and invoiced by the end of the
calendar year. Expense vouchers for the month
were as follows: meal allowance P4,000, rent
P9,000, transportation allowance P2,000. The
gross profit rate of the company is 50% based on
sale.

How much is the net income to be reported by the sales agency for the year ended December 31, 2023?
a. 157,000
b. 183,000
c. 223,000
d. 249,000
Agency
SR 396,000
(COGS) (198,000)
GP 198,000
meal (4000)
rent (9000)
transpo (2000)
samples (26000)
NI 157,000 #1 A
branch account shall be presented as

d it in its separate statement of financial position by

nt in branch account
ment in branch account

its separate statement of financial position by

ice account

ce account

nch’s separate statement of financial position?

office of branch’s receivable

rom the home office
of home office’s liability

in the home office’s separate statement of financial position?

bility by the home office

rom the branch
home office of merchandise shipped

rrent account in Branch A’s book for the adjustment?

A of Branch B’s accounts receivable
f home office’s accounts payable
y branch A from home office
ceived by branch A to branch B
e month of January 2023:

ciling items are due to timing differences.

HDC
*156,000 117,000*
*58,000 234,000*
*23,000 87,000*
*35,000 46,000*
15,000*
227,000

estment in branch account. The following facts were ascertained:

me office to the branch. The branch only records the shipments on the day it receives
 rect entry. However, it neglected to inform the home office of the said collection.

share of the branch in advertising expense. The branch debited its home office current

not yet been recorded, which led to the accountant debiting P2,000 to the home office

aintained in the home office books. The home office had not been notified of the

nce. The home office recorded this cash collection, but the branch is yet to make an

otified of the transaction, hence it did not record it. On the other hand, the home office
it is for the benefit of the branch.
Baguio

adj. 82,000 83,000

actual:₱52
Ship from HO 484,000 22 30
f-m 52,000 HO → S → B 23,000
HOC 536,000 → loss
should have been ₱27
ecember 31, 2023?

+ AFOBIA
0
18,700 → BB
0
43,125
61,825
0
 18,750 adjusted/ cost
#2 B 43,075 adjusted

rate statement of financial position?

mark-up percentage every year. The following data were made available:

inning inventory from the home office.

mounted to P157,050.

+ AFOBIA HO COMBINED SPL

0 BI 1,666,500 SR 13,500,000
1 750 [100%] 157,850 [60%] purcj 2257,500 (COGS) (4215600)
0 (sh to) (1224,000) GP 9284400
24,000 [100%] 734,400 [60%] TGAS 2700,000 (OPEX) 3804150
891,450 NI 5480250
 (0) (EI) (450,000)
COGS 2250,000
#1 A 191,700

mber 31, 2023?

#2 D