Since 1977

PRACTICAL ACCOUNTING 2
P2.706- Home Office and Branch

DE LEON/DE LEON
OCTOBER 2009

LECTURE NOTES
Agencies and branches are established to decentralize
operations or to expand into new markets. Agencies are
simple extensions of the home office; branches,
generally, are with regulated autonomy to operate as an
independent entity.
Because agencies do not maintain its own set of
accounting records, all its transactions are recorded in
the books of the home office. If the home office would
like to determine viabilities of the agencies, real and
nominal accounts for the agency are identified in the
home office books to facilitate such determination.
Otherwise, the agency items are merged without
identification with those of the home office.
The branch has its own complete set of accounting
records, therefore all its transactions, including those
with the home office, are recorded in its books. It also
presents its own set of financial statements: the income
statement, the balance sheet, and the statement of
cash flows. But because the branch is but a part of the
home office, therefore, these set of financial statements
are not acceptable for general purposes. And since the
home office is just also a part of the whole organization,
its own set of financial statements: the income
statement, the balance sheet and the statement of cash

flows are also not acceptable for general purposes.

These two different sets of financial statements are
internal to each of the reporting entities, combined
financial statements must be prepared for the combined
entities (taken as one and the same) to meet the
requirements of general-purpose statements.
A branch and its home office represent two accounting
systems but just one accounting and reporting entity.
All entries in the accounting records of the branch are
also entered, at least in summary form, in the
accounting records of the home office. The records of
the home office and the branch are linked by two
reciprocal accounts; the Home Office Equity account in
the books of the Branch and the Investment in Branch
account in the books of the Home Office. Because they
are reciprocal, it means that the two accounts always
have the same balance although the Investment in
Branch is a debit account (as an asset in the books of
the Home Office) and the Home Office is a credit
account (as an equity item in the books of the branch).
The two accounts frequently show different balances on
a temporary basis due to errors and items in transit. A
very important aspect of the study of home office and
branches is the reconciliation of the reciprocal balances.

An illustration of journal entries recorded for interoffice transactions follow:

Transactions
Transfer of cash from the home office
Transfer of cash from the branch
Transfer of mdse from HO at cost
Transfer of mdse from HO at above
cost
Payment by HO of branch expenses
Allocation of prev. paid branch exp
Transfer of Fixed asset from home
office to Branch

To take-up branch Profit/(loss)

To adjust the reported branch NI /NL)

for realized allowance

Page 1 of 8

Home Office Books

Investment in branch
Cash
Cash
Investment in branch
Investment in branch
Shipment to branch
Investment in Branch
Allowance for OV
Shipment to branch
Investment in branch
Cash
Investment in branch
Expenses
Memo entry

x
x
x
x

x
x
x
x
x

x
x

x
x

Branch Books
Cash
Home office equity
Home Office Equity
Cash
Shipment from HO
HO Equity
Shipment from HO
HO Equity
Expenses
HO Equity
Expenses
HO Equity
Memo entry

x
x
x
x

x
x
x
x

x
x

x
x

(Note: There will be no entry if all fixed assets are accounted in the books of
the home office); otherwise:
Investment in branch
x
Fixed Assets
x
Accumulated depn
x
Acc Depn
x
Fixed Assets
x
HO Equity
x
Investment in branch
x
Income Summary
x
Branch Income
x
HO Equity
x
Branch loss
x
HO Equity
x
Investment in branch
x
Income Summary
x
Allowance for Ovrvltn
x
No Entry
Branch Income
x
Note: The adjusting entry to reflect the true net income or loss of the branch
from the standpoint of the home office is always favorable and only relevant
when billing policy is above cost:

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EXCEL PROFESSIONAL SERVICES, INC.

Detailed
computation
of
realized
allowance
for
overvaluation thru sales by the branch to outsiders during
the period:
Billed
Cost
Mark-up
Price
Price
on Cost
Branch Beg Invty
xx
xx
xx
(from HO))
Current shipments
xx
xx
xx
(from HO
Branch End Invty
(xx)
(xx)
(xx)
(from HO)
Cost of Goods Sold
xx
xx
xx
Cost = Billed Price/100% + % mark-up on cost = Markup on cost/% mark-up on cost. The amount of allowance
considered realized will be the allowance carried by the
cost of goods sold.
There are two pricing methods generally used by the
home office in billing the branch for merchandise
transfers:
1. Billed at cost the merchandise is transferred at
cost, thus when the branch sells the merchandise,
the entire gross margin is included in the branch net
income.
2. Billed at cost plus markup the merchandise is
transferred at an amount between cost and the
selling price. This intermediate pricing method
allocates part of the gross margin to the branch and
the remainder to the home office.
Working paper adjustments and eliminations must be
determined in order to:
1. Eliminate inter-company balances from the combined
statements to avoid redundancy, and

2.

Adjust some items in the cost of sales section of the

branch income statement to their true costs (as a
consequence of the billing policy not equal to cost).

The working paper adjustment/elimination entries are as

follows:
a. Billed at Cost
b. Billed above cost
HO Equity
x
HO Equity
x
Investment in Branch
x
Investment in Branch
x
Accounts Payable
x
Accounts Payable
x
Accounts Receivable
x
Accounts Receivable
x
Shipment to Branch x
Shipment to Branch
x
Shipment from
Allowance for Ovrvltn x
Home Office
x
Shipment from HO
x
None
Allownce for Ovrvltn
x
Branch Beg Invty
x
None
Br Ending Invty (I/S) x
Branch End Invty (B/S) x
When a company is composed of a home office and more
than one branch, the home office records include a
separate investment in branch account and a separate
allowance for overvaluation account for each branch.
Separate worksheet adjustments are made for each
branch.
When assets are transferred from one branch to another
branch, the home office account on each branchs records
are used to record the transfers. (Inter-branch
receivables and payables are not created.) In essence,
the transferring branch reverses the entry to record the
transfer from the home office and the receiving branch
enters a transfer as if it comes from the home office.
- done -

MULTIPLE CHOICE THEORETICAL

Select the best answer for each of the following multiple-choice questions:
1.

May be Investment in Branch account of a home office

be accounted for by the
Cost Method
Equity Method
of accounting
of accounting
a.
Yes
Yes
b.
Yes
No
c.
No
Yes
d
No
No

5.

Does the branch use a Shipments from Home Office

ledger account under the:
Perpetual Inventory
Periodic Inventory
Method
Method
a.
Yes
Yes
b.
Yes
No
c.
No
Yes
d.
No
No

2.

Which of the following generally is not a method of

billing merchandise shipments by a home office to the
branch?
a. Billing at cost
b. Billing at a percentage above cost
c. Billing at a percentage below cost
d. Billing at retail selling price

6.

3.

A branch journal entry debiting Home Office and

crediting Cash may be prepared for:
a.
The branchs transmittal of cash to the
Home Office
b.
The branchs acquisition for cash of plant
assets to be carried in the home office accounting
records only
c.
Either (a) or (b)
d.
Neither (a) nor (b)

A journal entry debiting Cash in Transit and crediting

Investment in Branch is required for:
a.
The Home Office to record the mailing of a
check to the branch early in the accounting period.
b.
The branch to record the mailing of a check
to the home office early in the accounting period.
c.
The home office to record the mailing of a
check by the branch on the last day of the
accounting period.
d.
The branch to record the mailing of a check
to the home office on the last day of the
accounting period.

7.

For a home office that uses the periodic inventory

system of accounting for shipments of merchandise to
the branch, the credit balance of the Shipments to
Branch ledger account is displayed in the home office
separate:
a.
Income statement as an offset to purchase
b.
Balance sheet as an offset to Investment in
Branch
c.
Balance sheet as an offset to inventories
d.
Income statement as revenue.

4.

A Home Office s
Allowance for Overvaluation of
Inventories: Branch ledger account, which has a credit
balance, is
a. an asset valuation account c. an equity account
b. a liability account
d. a revenue account

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EXCEL PROFESSIONAL SERVICES, INC.

8.

9.

If the home office maintains in its general ledger

accounts for a branchs plant assets, the branch debits
its acquisition of office equipment to:
a. Home Office
b. Office Equipment
c. Payable to Home Office
d. Office equipment carried by home office
In a working paper for combined financial statements
of the home office and the branch of a business
enterprise, an elimination that debits Shipments to
Branch and credits Shipments from Home Office is
required under:
a.
The periodic inventory system only
b.
The perpetual inventory system only
c.
Both the perpetual inventory system and
the periodic inventory system
d.
Neither the perpetual inventory nor the
periodic inventory system

10. The appropriate journal entry for the home office to

recognize the branchs expenditure of P10,000 for
equipment to be carried in the home office accounting
records is:
a. Equipment
10,000
Inv in Branch
10,000
b. Home Office
10,000

c.
d.

Equipment
Investment in branch
Cash
Equipment-Branch
Inv in Branch

10,000
10,000

10,000
10,000
10,000

11. On January 31, 2009, East Branch of Far Company,

which uses the perpetual inventory system, prepare
the following journal entry.
Inventories in transit
10,000
Home Office
10,000
To record merchandise shipment in transit from home
office.
When the merchandise is received on February 4,
2009, East Branch should:
a. Prepare no journal entry
b. Debit Inventories and credit Home Office, P10,000
c. Debit Home Office and credit Inventories in transit,
P10,000
d. Debit inventories and credit Inventories in transit,
P10,000.
12. If a Home Office bills merchandise shipments to the
branch at a markup of 20% on cost, the markup on
billed price is:
a. 16.67%
c. 25%
b. 20%
d. Some other percentage

STRAIGHT PROBLEMS
Problem 1 (Branch was billed at cost)
Alet Company, which prepares financial reports at the end
of the calendar year, established a branch on July 1,
2009. The following transactions occurred during the
formation of the branch and its first six months of
operations, ending December 31, 2009.
1. The Home Office sent P35,000 cash to the branch to
begin operations.
2. The Home Office shipped inventory to the branch.
Intracompany billings totaled P75,000, which was the
Home Office's cost. (Both the Home Office and the
Branch use a periodic inventory system.)
3. The branch acquired merchandise display equipment
which cost P15,000 on July 1, 2009. (Assume that
branch fixed assets are carried on the home office
books).
4. The branch purchased inventory costing P53,750
from outside vendors on account.
5. The branch had credit sales of P106,250 and cash
sales of P43,750.
6. The branch collected P55,000 of its accounts
receivable.
7. The branch paid outside vendors P35,000.
8. The branch incurred selling expenses of P18,750 and
general and administrative expenses of P15,000.
These expenses were paid in cash when they were
incurred and include the expense of leasing the
branch's facilities.
9. The home office charged the branch P2,500 for its
share of insurance.
10. Depreciation expense on the display equipment
acquired by the branch is P1,250 for the six-month
period. (Depreciation expense is classified as a selling
expense.)
11. The branch remitted P12,500 cash to the home office.
12. The branch's physical inventory on December 31,
2009 is P41,250, of which P31,250 was acquired from
the home office (there was no beginning inventory).

Page 3 of 8

Requirements:
1. Prepare journal entries in the books of the home
office and in the books of the branch office for the
above transactions.
2. Prepare closing entries in the books of the branch
office to close its income statement accounts.
3. Prepare adjusting entry in the books of the home
office to reflect the increase or decrease in the
branch's net assets resulting from the branch
operations.
Problem 2 (Branch was billed at more than cost)
The following transactions pertain to a branch's first
month's operations:
1. The home office sent P11,250 cash to the branch.
2. The home office shipped inventory costing P50,000 to
the branch; the intracompany billing was for P62,500.
3. Branch inventory purchases from outside vendors
totalled P37,500.
4. Branch sales on account were P100,000.
5. The home office allocated P2,500 in advertising
expense to the branch.
6. Branch collections on accounts receivable were
P56,250.
7. Branch operating expenses of P17,500 were incurred,
none of which were paid at month-end.
8. The branch remitted P21,250 to the home office.
9. The branch's ending inventory (as reported in its
balance sheet) is composed of:
Acquired from outside vendors.............. .P15,000
Acquired from home office (at billing price). 25,000
Total ............................................... 40,000
Requirements:
1. Prepare the home office and branch journal entries
for these transactions, assuming a periodic inventory
system is used
2. Prepare the month-end closing entries for the branch.
3. Prepare the month-end adjusting entries for the
home office relating to the branch's operations for the
month.

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EXCEL PROFESSIONAL SERVICES, INC.

Problem 3
The pre-closing trial balances of Nicole Company and its
Angeles City branch for the year ended December 31,
2009, prior to adjusting and closing entries are as
follows:
Home Office
Accounts
Cash
Accounts
receivable,
net
Inventory,
January 1,
2008:
Acquired
from
vendors
Acquired
from
home
office
Deferred
profit
Fixed
assets, net
Investment
in branch
Accounts
payable
Long-term
debt
Common
stock
Retained
Earnings,
January 1,
2008
Home
office
equity
Sales
Purchases
Shipments
from home
office
Shipments
to branch
Selling
expenses
Administra
tive
expenses
Totals

Debit
P 35,000

Branch Office

Credit

80,000

Debit
P10,000

Credit

50,000

230,000

20,000

25,000
90,000

155,000

3.
221,000

45,000

400,000
300,000
350,000

4.
5.

960,000

800,000

115,000
320,000

120,000
90,000

84,000
101,000
69,000
P2,340,000

34,000
_______
P2,340,000

16,000
P 480,000

_______
P480,000

Inventory per physical count on December 31, 2009:

Acquired from vendors
P180,000
P 20,000
Acquired from home office
30,000
Additional information:
1. Inventory transferred to the branch from the home
office is billed at 125% of cost.
2. The home office billed the branch P15,000 for
inventory it shipped to the branch on December 28,
2009; the branch received and recorded this
shipment on January 2, 2010.
3. The branch remitted P25,000 cash to the home office
on December 31, 2009; the home office received and
recorded this remittance on January 4, 2010.
Requirements:
1. Prepare the year-end adjusting entries to bring the
intracompany accounts into agreement. Be sure to
adjust the other accounts in the trial balance as
appropriate.
2. Complete the following analysis of the branchs
inventory
Transfers
Above cost

Transfers
__at cost__

Total goods
available for
sale
Less: Ending
inventory
Acquired
from
vendors
Acquired
from home
office
Cost of goods
sold

50,000

870,000

inventory:
Acquired
from
vendors
Acquired
from home
office
Add:
Purchases
(from vendors)
Shipments
from office

Mark-up

6.

Prepare the following year-end adjusting entries to:

a. Record the branch income on the home office
books
b. Adjust the deferred profit account to the proper
balance
Prepare the year-end closing entries for the home
office and the branch
Prepare a combining statement worksheet as of
December 31, 2009, after completing requirements 1
to 4
From the completed worksheet prepare:
a. An income statement and balance sheet for the
branch.
b. An income statement and balance sheet for the
home office.
c. An income statement and balance sheet
combined for home office and branch office.

Problem 4
On December 31, the Inv. in Branch account on the home
books shows a balance of P150,000. The following facts
are ascertained:
1. Merchandise billed at P5,000 is in transit on
December 31, from the home office to the branch.
2. The branch collected a home account receivable for
P2,000. The branch did not notify the home office of
cash collection.
3. On December 30, the home office mailed a check of
P10,000 to the branch but the bookkeeper charged
the check to General Expenses; the branch has not
received the check as of December 31.
4. Branch profit for December was recorded by the
home office at P8,900 instead of P9,800.
5. Branch returned supplies of P1,000 to the home office
but the home office has not yet recorded the receipt
of the supplies.
Required:
a) Compute the balance of the Home Office account on
the branch book as of December 31 before its
adjustment.
b) Prepare a reconciliation statement to compute the
adjusted balances on December 31.
Problem 5
The interoffice accounts between the main office of ABC
COMPANY and its branch in Ayala were adjusted to
P145,500 as of December 31, 2008. The transactions
between the home office and the branch for 2009 were:

Beginning

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EXCEL PROFESSIONAL SERVICES, INC.

a.
b.
c.
d.
e.
f.

g.

Remittance by the branch (P38,000 was still in transit

as of December 31, 2009) P 178,000.
Shipments to branch (includes goods worth P44,000
that are not yet received by the branch as of
December 31, 2009) are P470,000.
The home office has not yet informed the branch of
its share in the advertising expense amounting to P
15,000.
Accounts receivable of the branch amounting to
P30,000 was collected by home office, net ,of 4%
discount. The branch has not yet been notified.
The home office incorrectly credited the branch by P
10,000 for the remittance of its Cubao Branch. The
Ayala Branch made no entry.
The home office corrected the above entry on
January 5, 2010. However, the Ayala Branch
inadvertently received a copy of this memo and
entered a credit in favor of the home office as of
December 31, 2009
The branch returned merchandise worth P 12,500 to
the office and was duly acknowledge by the latter
during the year.
1. The unadjusted balance of the Home Office
Current account as of December 31, 2009.
2. The adjusted balance of the interoffice accounts
as of December 31, 2009.

Problem 6
The Armani Corp. established a branch store in Ortigas on
June 30, 2009. The branch is to receive substantially all
merchandise for sale from the home office. During the
remainder of 2009, shipments to the branch amounted to
P240,000 that included a 20% mark-up on cost. The
branch purchased P 180,000 additional merchandise for
cash and reported unsold merchandise for P 145,000 at
year-end. The branch made sales of P420,000, paid
expenses of P105,000 and remitted to the home office all
sales proceeds.
The allowance for overvaluation of branch inventory
account on the home office books showed a balance of
P22,500 after adjustment.
1. The branch ending inventory that represented
purchase from outsiders
2. The branch net income as far as the home office is
concerned.
Problem 7
Home office bills its branch for merchandise shipment at
25% above cost. The following are some of the account
balances appearing on the books of home office and its
branch as of December 31
Home Office
Branch's
Books
Books
Inventory, Jan I
P 22,500
P36,000
Shipments from Home Office
210,000
Purchases
675,000
225,000
Shipments to branch
180,000
Allowance for overvaluation of

branch inventory
Sales
Operating Expenses

49,500
900,000
217,500

540,000
82,500

The ending inventory of the branch of P54,000 includes

goods from outside purchases of P12,000; the ending
inventory of the home office is P 112,500
1. The amount of shipments in transit at cost
2. The overstatement of branch cost of sales
3. The combined net income for the year
Problem 8
Branch A was authorized by its home office to send cash
of P1,500 that it can spare to Branch B. How is this
transfer best recorded on the books of
(a) Branch A
(b) Branch B and
(c) the Home Office
Problem 9
The DIANNA Company has established several branches
that sell the product that it manufactures. Manufactured
units are billed to the branches at the manufacturing
costs, the branches paying the freight charges from the
home office. On November 1, the home office ships goods
to Branch No.1 charging the branch P10,000. The branch
pays freight charges of P500. It is subsequently
discovered that the home office had shipped the goods to
Branch No. 1 by mistake and the home office directs
Branch No.1 to forward to goods to Branch No.2. Branch
No.2 upon receiving the goods pays freight charges from
Branch No. 1 of 150. If the shipment had been made
directly from the home office the freight would have been
P350.
Give journal entries to record all of the foregoing
transactions on the books of (1) home office; (2) Branch
No.1 and (3) Branch No. 2.
Problem 10
On December 31, 2009, the branch manager of Nancy
Company in Iloilo City submitted the following data to the
home office in Manila:
Petty cash fund
6,000
Sales
390,000
Shipment from home office
270,000
Accounts receivable, January 1, 2009
86,000
Inventory, January 1, 2009
74,000
Inventory, December 31, 2009
82,000
Expenses
96,000
All cash collected on Accounts Receivable amounting to
P378,000 were remitted to the Home Office.
Required:
1. What is
January
2. What is
January

the balances of the Home Office Account on

1, 2009.
the balance of the Home Office Account on
1, 2010.

MULTIPLE CHOICE
Romy Corporation has one branch office, named Tibo
Branch. Romy is performing the end-of-the-period
reconciliation of its Tibo Branch account whose current
balance is P000,000 and Tibos Home Office account
whose current balance is P000,000. The following items
are unsettled at the end of the accounting period (you
may assume that the item has been reflected in the
accounts of the underlined entity):
Romy has agreed to remove P750 of excess freight
charges charged to Tibo when Romy shipped twice
as much inventory as Tibo requested.

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Tibo mailed a check for P11,000 to Romy as a payment

for merchandise shipped from Romy to Tibo. Romy
has not yet received the check.
Tibo returned defective merchandise to Romy. The
merchandise was billed to Tibo at P4,000 when its
actual cost was P3,000.
Advertising expense attributable to the branch office
were paid for by the home office in the amount of
P5,000.
1. If the adjusted balances for the Tibo Branch Account
and the Romy Home Office Account is P500,000,
what unadjusted balance was listed in (1) Romys

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Tibo Branch Account and (2) Tibos Home Office
Account?
a. (1) P510,250 and (2) P505,000.
b. (1) P515,000 and (2) P495,750.
c. (1) P514,000 and (2) P516,000.
d. (1) P504,000 and (2) P500,750.
The Meycauayan branch of Marco Company, at the end of
its first quarter of operations, submitted the following
income statement:
Sales
Cost of sales:
Shipments from home office
Local purchases
Total
Inventory at end
Gross margin on sales
Expenses
Net income

P300,000

P280,000
30,000
P310,000
50,000

260,000
P 40,000
35,000
P 5,000

Shipments to the branch were billed at 140% of cost.

The branch inventory as at September 30 amounted to
P50,000 of which P6,600 was locally purchased. Markup
on local purchases, 20% over cost. Branch expenses
incurred by home office amounted to P2,500.
2. On September 30, the branch inventory at cost and
net income realized by the home office from the
branch operations, respectively are:
a. P37,600 and P72,600
b. P31,600 and P 5,000
c. P50,000 and P55,000
a d.
P37,600 and P70,100
b
A home office transfers inventory to its branch at a 20%
markup on cost. During 2008, inventory costing the
home office P80,000 was transferred to the branch. At
year-end, the home office adjusted its Unrealized
Intercompany Inventory Profit account downward by
P18,200. The branchs year-end balance sheet shows
P4,800 of inventory acquired from the home office.
3. How much is the beginning inventory of the branch
at cost?
a. P 15,000
c. P 3,000
b. P 18,000
d. P 16,000
Sulu, Inc. established a branch in Jolo to distribute part
of the goods purchased by the home office. The home
office prices inventory shipped to the branch at 20%
above cost. The following account balances were taken
from the ledger maintained by the home office and the
branch:
Sales
Beginning inventory
Purchases
Shipment to branch
Shipment from home office
Operating expenses
Ending inventory

Sulu, Inc.
P 600,000
120,000
500,000
130,000
72,000
98,000

Jolo, Branch
P 210,000
60,000
156,000
36,000
48,000

All of the branch inventory is acquired from the home

office.
4. On the basis of these account balances, the
combined net income of the home office and the
branch is:
a. P170,000
c. P278,000
b. P 70,000
d. P132,000
Bicol Company is engaged in merchandising both at
Home Office in Makati and a branch in Cebu. Selected
accounts in the trial balances of the Home Office, and
the branch at December 31, 2008 follow:
Debit
Inventory, January
Branch
Purchases
Shipments from Home Office

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Home Office
P 23,000
58,300
190,000

Branch
P 11,550

Freight in from Home Office

Sundry expenses
Credit
Home Office
Sales
Shipments to Branch
Allow. for overvaluation of
branch inventory Jan. 1

50,000
155,000
110,000

5,500
25,000
53,300
140,000

1,000

Additional information:
a.
Cebu branch receives all its merchandise from
the home office. The Home Office bills the goods at
cost plus 10% mark-up. At December 31, 2008 a
shipment with a billing price of P5,000 was in transit
to the branch. Freight on this shipment was P250
which is to be treated as part of inventory.
b.
December 31, 2008 inventories, excluding the
shipment in transit was:
Home Office, at cost
30,000
Cebu Branch, at billed value
(excluding freight of P520)
10,400
5.

Net income of the Home Office was

a. P 10,000
c. P 20,000
b. P 15000
d. P 22,000

6.

True income of Cebu Branch was

a. P 10,470
c. P 12,470
b. P 11,470
d. P 13,470

The following data were taken from the records of Star

Corporation of Manila and its Bulacan Branch for 2008:
Manila office Bulacan branch
Sales
P 530,000
P157,500
Inventory, Jan. 1
57,500
22,250
Purchases
410,000
Shipment to branch
105,000
Shipment
from
home office
126,000
Inventory, Dec. 31
71,250
29,250
Expenses
191,000
50,750
In 2008, Home office billed the branch at 120% of cost
which was lower by 5% than last years.
7. The combined net income of the home office and the
branch for 2006 was:
a. P48,325
c. P49,850
b. P48,575
d. P56,075
Nicole Company has a branch in Boracay established on
April 1, 2008. During the year 2008, the home office
shipped merchandise to the branch at billed value of
P125,000 which was 25% above cost. At the end of the
year, the branch reported sales of P200,000, operating
expenses of P95,000, and a net income from the
operation of P15,000.
8. The true income of the branch was
a. P 15,000
c. P 18,000
b. P 25,000
d. P 33,000
Xero Corporation operates a number of branches in
Metro Manila. On June 30, 2008, its Sta. Clara branch
showed a Home Office account balance of P27,350 and
the Home Office books showed a Sta. Clara branch
account balance of P25,550. The following information
may help in reconciling both accounts:
1. A P12,000 shipment charged by Home Office to Sta.
Clara branch was actually sent to and retained by
Sta. Isabel branch.
2. A P15,000 shipment, intended and charged to Sto.
Domingo branch was shipped to Sta. Clara branch
and retained by the latter.
3. A P2,000 emergency cash transfer from Sta. Isabel
branch was not taken up in the Home Office books.
4. Home Office collects a Sta. Clara branch accounts
receivable of P3,600 and fails to notify the branch.

105,000

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EXCEL PROFESSIONAL SERVICES, INC.

5.

6.

Home office was charged for P1,200 for merchandise

returned by Sta. Clara branch on June 28. The
merchandise is in transit.
Home office erroneously recorded Sta. Clara branch's
net income for May, 2008 at P16,275. The branch
reported a net income of P12,675.

9. What is the reconciled amount of the Home Office and

Sta. Clara branch reciprocal accounts?
a.
P21,750
c. P27,350
b.
P23,750
d.P20,150
The LL Company established a branch in Makati City on
June 1, 2008. The branch is to receive substantially all
merchandise from the home office. During the remainder
of 2008, shipments to the branch amounted to P180,000

which included a 20% mark-up on cost. The branch

purchased P45,000 additional merchandise for cash and
reported unsold merchandise of P60,000 at year-end.
The branch made sales of P292,500, paid expenses of
P72,000 and remitted to the home office all sales
proceeds. The allowance for overvaluation of branch
inventory account on the home office books showed a
balance of P7,500 after adjustment.
10. Compute the: (1) branch inventory on December 31,
2008 at cost, and (2) the branch net income as far
as the home office is concerned:
a.
(1) P45,000; (2) P78,000
b.
(1) P52,500; (2) P78,000
c.
(1) P52,000; (2) P55,500
d.
(1) P50,000; (2) P79,500

- now do the DIY drill DO-IT-YOURSELF (DIY) DRILL

The following information are extracted from the books
and records of PP Company and its branch. The
balances are at December 31, 2009, the third year of
the corporation's existence.
Home Office
Books
Branch
Books
Sales
P600,000
Expenses
200,000
Shipments from home office
360,000
Allowance for overvaluation
P72,500
The branch acquired all of its merchandise from the
home office. The inventories of the branch at billed
prices are as follows:
January 1, 2009
P75,000
December 31, 2009
84,000
1.

The adjusted profit of the branch in so far as the

home office is concerned is:
a. P107,500
c. P 58,500
b. P 49,000
d. P 60,000

Nicole Companys Kalibo branch reports a profit of

P17,000 for the year 2009 and a balance in its Home
Office account at the end of the year of P88,000 after
closing. The branch income currently is unrecorded by
the home office. During the year, the home office had
shipped inventory to the branch at an intracompany
profit of P14,000. Of that amount, P6,000 currently is
unrealized.
2. Assuming the branch has made all entries to adjust
and close its books for 2009, what is balance in the
home offices Investment in Branch account?
a. P 65,000
c. P 88,000
b. P 71,000
d. P 94,000
On December 1, 2009, the Dustine Company
established an agency in Las Pinas, sending its
merchandise samples costing P15,750 and a working
fund of P9,000 to be maintained on the imprest basis.
During the month of December, the agency transmitted
to the home office sales orders which were billed at
P64,380 of which 20,400 was collected. A home office
disbursement chargeable to the sales agency is the
acquisition of furniture and fixtures for Las Pinas,
P25,000 to be depreciated at 24% per annum. The
agency paid expenses of P3,815 and received
replenishment thereof from the home office. On
December 31, 2008, the agency samples were valued at
P10,075. It was estimated that the gross profit on

Page 7 of 8

goods shipped to bill agency sales orders average 25%

of cost.
3. How much is the net income of the agency for the
month ended December 31, 2008?
a. P 2,886
c. P 12,876
b. P 3,386
d. P (2,614)
Trial balances for the home office and for the branch of
Mermaid Company show the following accounts before
adjustment as of December 31, 2008. The home office
bills merchandise to the branch at 20% above cost.
HO
Branch
Unrealized intercompany
inventory profit
P10,800
Shipments to branch
24,000
Purchases (other vendors)
P7,500
Shipments from Home Office
28,800
Merchandise
inventory
December 1, 2008
45,000
4.

What part of the December 1, 2008 branch

inventory represents acquisitions from outside
purchases, and what part represents acquisitions
from the home office?
Outsider
Home Office
a.
P9,000
P36,000
b.
10,000
35,000
c.
12,000
33,000
d.
15,000
30,000

Universal Textiles has a single branch in Cagayan de

Oro City. On March 1, 2009, the home office accounting
records included an Allowance for Overvaluation of
Inventories with a credit balance of P32,000. During
March, merchandise costing P36,000 was shipped to the
CDO branch and billed at a price representing a 40%
markup on the billed price. On March 31, the branch
reported a net loss of P11,500 for March and ending
inventories at billed prices of P25,000. Mark-up was
uniform on all shipments.
5. Calculate the overstatement of the cost of sales in
the branch income statement in terms of the actual
cost of sales, i.e. per home office cost.
a. P46,000
c. P39,257
b. P22,000
d. P40,000
On December 31, 2009, the Branch account in the
Manila Home Office books shows a balance of P55,500.
You ascertain the following facts in analyzing this
account.

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EXCEL PROFESSIONAL SERVICES, INC.

1.
2.
3.

4.
5.

6.

On December 31, 2009, merchandise billed at

P5,800 was in transit from the home office to the
branch.
The branch had collected home office accounts
receivable of P560; the home office was not
notified.
On December 29, 2009, the home office mailed a
check for P2,000 to the branch, but the accountant
for the home office had recorded the check as a
debit to Charitable Contributions; the branch had
not received the check as of December 31, 2009.
Branch net income for December 2009 was
recorded erroneously by the home office at P840
instead of P480.
On December 28, 2009, the branch had returned
supplies costing P220 to the home office; the home
office had not recorded the receipt of the supplies
as at Dec. 31.
Calculate the adjusted balance of the reciprocal
accounts at December 31, 2009.
a. P49,680
c. P46,980
b. P57,480
d. P54,870

Excel Corporation operates a branch in Calamba City.

The Home Office ships merchandise to the branch at
20% of the billed price. Selected information from the
December 31, 2009 trial balance are as follows:
Home Office
Branch
Books
Books
Sales
P600,000
P300,000
Shipments to branch
200,000
Purchases
350,000
Shipments from home
office
250,000
Inventory, January 1
100,000
40,000
Unrealized inter-company
inventory profit
58,000
Expenses
120,000
50,000
Inventory at December
31, 2009
30,000
60,000
7. Calculate the combined net income for the home
office and the branch for 2009:
a. P236,000
c. P280,000
b. P263,000
d. P326,000

8.

The AB Trading Co. operates a branch in Iloilo. At

close of business on December 31, 2008, Home
Office account in the branch books showed a credit
balance of P372,900. The interoffice accounts were
in agreement at the beginning of the year. For
purpose of reconciling the interoffice accounts, the
following facts were ascertained;
a. A furniture costing the home office P4,600 was
picked up by the branch as P460. The branch
will maintain and use the asset.
b. The branch writes-off uncollectible, accounts of
P1,260. The allowance for doubtful accounts is
maintained on the books of the home office.
The home office was not yet notified.
c. Freight charge on merchandise made by the
home office for P2,715 was recorded in the
branch books as P7,215.
d. Home office credit memo for P9,710 was
recorded by the branch at P7,91 0.
e. Iloilo branch failed to take up a P2,450 debit
memo from the home office.
f
The home office inadvertently recorded a
remittance for P3,730 from its Ilocos branch as
remittance from its Iloilo branch.
g. Insurance premium of P1,675 charged by the
home office was taken up twice by the branch.
h. A P14,500 branch remittance to the home office
initiated on December 28, 2008, was recorded
on the home office books on January 2, 2009.
i. A home office inventory shipment to Ilocos
branch on December 29, 2008, was recorded by
the branch on January 3, 2009; the billing of
P47,000 was at cost,
j. A branch customer remitted a P19,000 to the
home office, The home office recorded this cash
collection on December 22, 2008. Meanwhile,
back at the branch, no entry has been made
yet.
Determine the balance of the Investment in Branch
account before adjustments:
a. P364,545
c. P319,545
b. P307,515
d. P366,545

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P2.706