Since 1977

PRACTICAL ACCOUNTING 2 DE LEON/DE LEON

P2.706- Home Office and Branch OCTOBER 2009

LECTURE NOTES

Page 1 of 13 www.prtc.com.ph P2.706

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 Home Office Books Branch Books

Transfer of cash from the home office Investment in branch x Cash x
Cash x Home office equity x
Transfer of cash from the branch Cash x Home Office Equity x
Investment in branch x Cash x
Transfer of mdse from HO at cost Investment in branch x Shipment from HO x
Shipment to branch x HO Equity x
Transfer of mdse from HO at above Investment in Branch x Shipment from HO x
cost Allowance for OV x HO Equity x
Shipment to branch x
Payment by HO of branch expenses Investment in branch x Expenses x
Cash x HO Equity x
Allocation of prev. paid branch exp Investment in branch x Expenses x
Expenses x HO Equity x
Transfer of Fixed asset from home Memo entry Memo entry
office to Branch
(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
To take-up branch Profit/(loss) 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
To adjust the reported branch NI /NL) Allowance for Ovrvltn x No Entry
for realized allowance 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:

Page 2 of 13 www.prtc.com.ph
P2.706
 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

Detailed computation of realized allowance for follows:
overvaluation thru sales by the branch to outsiders a. Billed at Cost b. Billed above cost
during the period: HO Equity x HO Equity x
Billed Cost Mark-up Investment in Branch x Investment in Branch x
Price Price on Cost Accounts Payable x Accounts Payable x
Branch Beg Invty xx xx xx Accounts Receivable x Accounts Receivable x
(from HO)) Shipment to Branch x Shipment to Branch x
Current shipments xx xx xx Shipment from Allowance for Ovrvltn x
(from HO Home Office x Shipment from HO x
Branch End Invty (xx) (xx) (xx) None Allownce for Ovrvltn x
(from HO) Branch Beg Invty x
Cost of Goods Sold xx xx xx None Br Ending Invty (I/S) x
Branch End Invty (B/S) x
Cost = Billed Price/100% + % mark-up on cost = Mark-
up on cost/% mark-up on cost. The amount of allowance When a company is composed of a home office and more
considered realized will be the allowance carried by the than one branch, the home office records include a
cost of goods sold. separate investment in branch account and a separate
allowance for overvaluation account for each branch.
There are two pricing methods generally used by the Separate worksheet adjustments are made for each
home office in billing the branch for merchandise branch.
transfers: When assets are transferred from one branch to another
1. Billed at cost – the merchandise is transferred at branch, the home office account on each branch’s records
cost, thus when the branch sells the merchandise, are used to record the transfers. (Inter-branch
the entire gross margin is included in the branch net receivables and payables are not created.) In essence,
income. the transferring branch reverses the entry to record the
2. Billed at cost plus markup – the merchandise is transfer from the home office and the receiving branch
transferred at an amount between cost and the enters a transfer as if it comes from the home office.
selling price. This intermediate pricing method
allocates part of the gross margin to the branch and
the remainder to 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 a. Income statement as an offset to purchase
be accounted for by the b. Balance sheet as an offset to Investment in
Cost Method Equity Method Branch
of accounting of accounting c. Balance sheet as an offset to inventories
a. Yes Yes d. Income statement as revenue.
b. Yes No
c. No Yes 8. If the home office maintains in its general ledger
d No No accounts for a branch’s plant assets, the branch debits
its acquisition of office equipment to:
2. Which of the following generally is not a method of a. Home Office
billing merchandise shipments by a home office to the b. Office Equipment
branch? c. Payable to Home Office
a. Billing at cost d. Office equipment carried by home office
b. Billing at a percentage above cost
c. Billing at a percentage below cost 9. In a working paper for combined financial statements
d. Billing at retail selling price of the home office and the branch of a business
enterprise, an elimination that debits Shipments to
3. A branch journal entry debiting Home Office and Branch and credits Shipments from Home Office is
crediting Cash may be prepared for: required under:
a. The branch’s transmittal of cash to the a. The periodic inventory system only
Home Office b. The perpetual inventory system only
b. The branch’s acquisition for cash of plant c. Both the perpetual inventory system and
assets to be carried in the home office accounting the periodic inventory system
records only d. Neither the perpetual inventory nor the
c. Either (a) or (b) periodic inventory system
d. Neither (a) nor (b)
10. The appropriate journal entry for the home office to
recognize the branch’s expenditure of P10,000 for
4. A Home Office ‘s Allowance for Overvaluation of
equipment to be carried in the home office accounting
Inventories: Branch ledger account, which has a credit
records is:
balance, is
a. Equipment 10,000
a. an asset valuation account c. an equity account
Inv in Branch 10,000
b. a liability account d. a revenue account
b. Home Office 10,000
Equipment 10,000
5. Does the branch use a Shipments from Home Office
c. Investment in branch 10,000
ledger account under the:
Cash 10,000
Perpetual Inventory Periodic Inventory
d. Equipment-Branch 10,000
Method Method
Inv in Branch 10,000
a. Yes Yes
b. Yes No 11. On January 31, 2009, East Branch of Far Company,
c. No Yes which uses the perpetual inventory system, prepare
d. No No the following journal entry.
Inventories in transit 10,000
6. A journal entry debiting Cash in Transit and crediting Home Office 10,000
Investment in Branch is required for: To record merchandise shipment in transit from home
a. The Home Office to record the mailing of a office.
check to the branch early in the accounting period.
b. The branch to record the mailing of a check When the merchandise is received on February 4,
to the home office early in the accounting period. 2009, East Branch should:
c. The home office to record the mailing of a a. Prepare no journal entry
check by the branch on the last day of the b. Debit Inventories and credit Home Office, P10,000
accounting period. c. Debit Home Office and credit Inventories in transit,
d. The branch to record the mailing of a check P10,000
to the home office on the last day of the d. Debit inventories and credit Inventories in transit,
accounting period. P10,000.

7. For a home office that uses the periodic inventory 12. If a Home Office bills merchandise shipments to the
system of accounting for shipments of merchandise to branch at a markup of 20% on cost, the markup on
the branch, the credit balance of the Shipments to billed price is:
Branch ledger account is displayed in the home office a. 16.67% c. 25%
separate: 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 Inventory,
from outside vendors on account. January 1,
2008:
5. The branch had credit sales of P106,250 and cash Acquired
sales of P43,750. from
6. The branch collected P55,000 of its accounts vendors 230,000 50,000
receivable. Acquired
7. The branch paid outside vendors P35,000. from 20,000
home
8. The branch incurred selling expenses of P18,750 and office
general and administrative expenses of P15,000. Deferred
These expenses were paid in cash when they were profit 25,000
incurred and include the expense of leasing the Fixed
branch's facilities. assets, net 870,000 90,000
Investment
9. The home office charged the branch P2,500 for its in branch 155,000
share of insurance. Accounts
10. Depreciation expense on the display equipment payable 221,000 45,000
acquired by the branch is P1,250 for the six-month Long-term
debt 400,000
period. (Depreciation expense is classified as a selling
Common
expense.) stock 300,000
11. The branch remitted P12,500 cash to the home office. Retained 350,000
12. The branch's physical inventory on December 31, Earnings,
2009 is P41,250, of which P31,250 was acquired from January 1,
2008
the home office (there was no beginning inventory).
Home
office
equity 115,000
Requirements: Sales 960,000 320,000
1. Prepare journal entries in the books of the home Purchases 800,000 120,000
office and in the books of the branch office for the Shipments
above transactions. from home
2. Prepare closing entries in the books of the branch office 90,000
Shipments
office to close its income statement accounts. to branch 84,000
3. Prepare adjusting entry in the books of the home Selling
office to reflect the increase or decrease in the expenses 101,000 34,000
branch's net assets resulting from the branch Administra
operations. tive
expenses 69,000 _______ 16,000 _______
Problem 2 (Branch was billed at more than cost) Totals P2,340,000 P2,340,000 P 480,000 P480,000
The following transactions pertain to a branch's first
month's operations: Inventory per physical count on December 31, 2009:
1. The home office sent P11,250 cash to the branch. Acquired from vendors P180,000 P 20,000
2. The home office shipped inventory costing P50,000 to Acquired from home office 30,000
the branch; the intracompany billing was for P62,500.
3. Branch inventory purchases from outside vendors Additional information:
totalled P37,500. 1. Inventory transferred to the branch from the home
4. Branch sales on account were P100,000. office is billed at 125% of cost.
5. The home office allocated P2,500 in advertising 2. The home office billed the branch P15,000 for
expense to the branch. inventory it shipped to the branch on December 28,
6. Branch collections on accounts receivable were 2009; the branch received and recorded this
P56,250. shipment on January 2, 2010.
7. Branch operating expenses of P17,500 were incurred, 3. The branch remitted P25,000 cash to the home office
none of which were paid at month-end. on December 31, 2009; the home office received and
8. The branch remitted P21,250 to the home office. recorded this remittance on January 4, 2010.
9. The branch's ending inventory (as reported in its Requirements:
balance sheet) is composed of: 1. Prepare the year-end adjusting entries to bring the
Acquired from outside vendors............….. .P15,000 intracompany accounts into agreement. Be sure to
Acquired from home office (at billing price). 25,000 adjust the other accounts in the trial balance as
Total .........................................………...... 40,000 appropriate.
2. Complete the following analysis of the branch’s
Requirements: inventory
1. Prepare the home office and branch journal entries
for these transactions, assuming a periodic inventory
system is used Transfers Transfers
2. Prepare the month-end closing entries for the branch. Above cost __at cost__ Mark-up
3. Prepare the month-end adjusting entries for the Beginning
home office relating to the branch's operations for the inventory:
month. Acquired
Problem 3 from
The pre-closing trial balances of Nicole Company and its vendors P P P
Angeles City branch for the year ended December 31, Acquired
from home
2009, prior to adjusting and closing entries are as
office
follows:
Add:
Purchases
Home Office Branch Office
(from vendors)
Accounts Debit Credit Debit Credit Shipments
Cash P 35,000 P P10,000 from office
Accounts
receivable, Total goods
net 80,000 50,000
 available for
sale
Less: Ending
inventory
Acquired
from
vendors
Acquired
from home
office
Cost of goods
sold
3. 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
4. Prepare the year-end closing entries for the home
office and the branch
5. Prepare a combining statement worksheet as of
December 31, 2009, after completing requirements 1
to 4
6. 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:
a. Remittance by the branch (P38,000 was still in transit
as of December 31, 2009) P 178,000.
b. Shipments to branch (includes goods worth P44,000
that are not yet received by the branch as of
December 31, 2009) are P470,000.
c. The home office has not yet informed the branch of
its share in the advertising expense amounting to P
15,000.
d. 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.
e. The home office incorrectly credited the branch by P
10,000 for the remittance of its Cubao Branch. The
Ayala Branch made no entry.
f. 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
g. 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 49,500
Sales 900,000 540,000
Operating Expenses 217,500 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 Shipment from home office 270,000
directly from the home office the freight would have been Accounts receivable, January 1, 2009 86,000
P350. Inventory, January 1, 2009 74,000
Inventory, December 31, 2009 82,000
Give journal entries to record all of the foregoing
Expenses 96,000
transactions on the books of (1) home office; (2) Branch
No.1 and (3) Branch No. 2. All cash collected on Accounts Receivable amounting to
P378,000 were remitted to the Home Office.
Problem 10
On December 31, 2009, the branch manager of Nancy Required:
Company in Iloilo City submitted the following data to the 1. What is the balances of the Home Office Account on
home office in Manila: January 1, 2009.
Petty cash fund 6,000 2. What is the balance of the Home Office Account on
Sales 390,000 January 1, 2010.

MULTIPLE CHOICE
Romy Corporation has one branch office, named Tibo Shipment to branch 130,000 -
Branch. Romy is performing the end-of-the-period Shipment from home office 156,000
reconciliation of its Tibo Branch account whose current Operating expenses 72,000 36,000
balance is P000,000 and Tibo’s Home Office account Ending inventory 98,000 48,000
whose current balance is P000,000. The following items
are unsettled at the end of the accounting period (you All of the branch inventory is acquired from the home
may assume that the item has been reflected in the office.
accounts of the underlined entity): 4. On the basis of these account balances, the
Romy has agreed to remove P750 of excess freight combined net income of the home office and the
charges charged to Tibo when Romy shipped twice branch is:
as much inventory as Tibo requested. a. P170,000 c. P278,000
Tibo mailed a check for P11,000 to Romy as a payment b. P 70,000 d. P132,000
for merchandise shipped from Romy to Tibo. Romy Bicol Company is engaged in merchandising both at
has not yet received the check. Home Office in Makati and a branch in Cebu. Selected
Tibo returned defective merchandise to Romy. The accounts in the trial balances of the Home Office, and
merchandise was billed to Tibo at P4,000 when its the branch at December 31, 2008 follow:
actual cost was P3,000. Debit Home Office Branch
Advertising expense attributable to the branch office Inventory, January P 23,000 P 11,550
were paid for by the home office in the amount of Branch 58,300
P5,000. Purchases 190,000
1. If the adjusted balances for the Tibo Branch Account Shipments from Home Office 105,000
and the Romy Home Office Account is P500,000, Freight in from Home Office 5,500
what unadjusted balance was listed in (1) Romy’s Sundry expenses 50,000 25,000
Tibo Branch Account and (2) Tibo’s Home Office Credit
Account? Home Office 53,300
a. (1) P510,250 and (2) P505,000. Sales 155,000 140,000
b. (1) P515,000 and (2) P495,750. Shipments to Branch 110,000
Allow. for overvaluation of
c. (1) P514,000 and (2) P516,000.
branch inventory – Jan. 1 1,000
d. (1) P504,000 and (2) P500,750.
The Meycauayan branch of Marco Company, at the end Additional information:
of its first quarter of operations, submitted the following a. Cebu branch receives all its merchandise from
income statement: the home office. The Home Office bills the goods at
Sales P300,000 cost plus 10% mark-up. At December 31, 2008 a
Cost of sales: shipment with a billing price of P5,000 was in transit
Shipments from home office P280,000 to the branch. Freight on this shipment was P250
Local purchases 30,000 which is to be treated as part of inventory.
Total P310,000
b. December 31, 2008 inventories, excluding the
Inventory at end 50,000 260,000
Gross margin on sales P 40,000 shipment in transit was:
Expenses 35,000 Home Office, at cost 30,000
Net income P 5,000 Cebu Branch, at billed value
Shipments to the branch were billed at 140% of cost. (excluding freight of P520) 10,400
The branch inventory as at September 30 amounted to
5. Net income of the Home Office was
P50,000 of which P6,600 was locally purchased. Markup
a. P 10,000 c. P 20,000
on local purchases, 20% over cost. Branch expenses
b. P 15000 d. P 22,000
incurred by home office amounted to P2,500.
2. On September 30, the branch inventory at cost and 6. True income of Cebu Branch was
net income realized by the home office from the a. P 10,470 c. P 12,470
branch operations, respectively are: b. P 11,470 d. P 13,470
a. P37,600 and P72,600
b. P31,600 and P 5,000 The following data were taken from the records of Star
c. P50,000 and P55,000 Corporation of Manila and its Bulacan Branch for 2008:
a d. P37,600 and P70,100 Manila office Bulacan branch
b Sales P 530,000 P157,500
A home office transfers inventory to its branch at a 20% Inventory, Jan. 1 57,500 22,250
markup on cost. During 2008, inventory costing the Purchases 410,000
home office P80,000 was transferred to the branch. At Shipment to branch 105,000
year-end, the home office adjusted its Unrealized Shipment from
Intercompany Inventory Profit account downward by home office 126,000
P18,200. The branch’s year-end balance sheet shows Inventory, Dec. 31 71,250 29,250
P4,800 of inventory acquired from the home office. Expenses 191,000 50,750
3. How much is the beginning inventory of the branch In 2008, Home office billed the branch at 120% of cost
at cost? which was lower by 5% than last year’s.
a. P 15,000 c. P 3,000 7. The combined net income of the home office and the
b. P 18,000 d. P 16,000 branch for 2006 was:
a. P48,325 c. P49,850
Sulu, Inc. established a branch in Jolo to distribute part b. P48,575 d. P56,075
of the goods purchased by the home office. The home
Nicole Company has a branch in Boracay established on
office prices inventory shipped to the branch at 20%
April 1, 2008. During the year 2008, the home office
above cost. The following account balances were taken
shipped merchandise to the branch at billed value of
from the ledger maintained by the home office and the
P125,000 which was 25% above cost. At the end of the
branch:
year, the branch reported sales of P200,000, operating
Sulu, Inc. Jolo, Branch
Sales P 600,000 P 210,000 expenses of P95,000, and a net income from the
Beginning inventory 120,000 60,000 operation of P15,000.
Purchases 500,000 - 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.
5. Home office was charged for P1,200 for merchandise
returned by Sta. Clara branch on June 28. The
merchandise is in transit.
6. 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 disbursement chargeable to the sales agency is the
and records of PP Company and its branch. The acquisition of furniture and fixtures for Las Pinas,
balances are at December 31, 2009, the third year of P25,000 to be depreciated at 24% per annum. The
the corporation's existence. agency paid expenses of P3,815 and received
Home Office replenishment thereof from the home office. On
Books Branch December 31, 2008, the agency samples were valued
Books at P10,075. It was estimated that the gross profit on
Sales P600,000 goods shipped to bill agency sales orders average 25%
Expenses 200,000 of cost.
Shipments from home office 360,000
Allowance for overvaluation P72,500 3. How much is the net income of the agency for the
month ended December 31, 2008?
The branch acquired all of its merchandise from the a. P 2,886 c. P 12,876
home office. The inventories of the branch at billed b. P 3,386 d. P (2,614)
prices are as follows:
January 1, 2009 P75,000 Trial balances for the home office and for the branch of
December 31, 2009 84,000 Mermaid Company show the following accounts before
adjustment as of December 31, 2008. The home office
1. The adjusted profit of the branch in so far as the bills merchandise to the branch at 20% above cost.
home office is concerned is: HO Branch
a. P107,500 c. P 58,500 Unrealized intercompany
b. P 49,000 d. P 60,000 inventory profit P10,800
Shipments to branch 24,000
Nicole Company’s Kalibo branch reports a profit of Purchases (other vendors) P7,500
P17,000 for the year 2009 and a balance in its Home Shipments from Home Office 28,800
Office account at the end of the year of P88,000 after Merchandise inventory -
closing. The branch income currently is unrecorded by December 1, 2008 45,000
the home office. During the year, the home office had
shipped inventory to the branch at an intracompany 4. What part of the December 1, 2008 branch
profit of P14,000. Of that amount, P6,000 currently is inventory represents acquisitions from outside
unrealized. purchases, and what part represents acquisitions
2. Assuming the branch has made all entries to adjust from the home office?
and close its books for 2009, what is balance in the Outsider Home Office
home office’s Investment in Branch account? a. P9,000 P36,000
a. P 65,000 c. P 88,000 b. 10,000 35,000
b. P 71,000 d. P 94,000 c. 12,000 33,000
d. 15,000 30,000
On December 1, 2009, the Dustine Company
established an agency in Las Pinas, sending its
Universal Textiles has a single branch in Cagayan de
merchandise samples costing P15,750 and a working
Oro City. On March 1, 2009, the home office accounting
fund of P9,000 to be maintained on the imprest basis.
records included an Allowance for Overvaluation of
During the month of December, the agency transmitted
Inventories with a credit balance of P32,000. During
to the home office sales orders which were billed at
March, merchandise costing P36,000 was shipped to the
P64,380 of which 20,400 was collected. A home office
CDO branch and billed at a price representing a 40%
markup on the billed price. On March 31, the branch Expenses 120,000 50,000
reported a net loss of P11,500 for March and ending Inventory at December
inventories at billed prices of P25,000. Mark-up was 31, 2009 30,000 60,000
uniform on all shipments. 7. Calculate the combined net income for the home
5. Calculate the overstatement of the cost of sales in office and the branch for 2009:
the branch income statement in terms of the actual a. P236,000 c. P280,000
cost of sales, i.e. per home office cost. b. P263,000 d. P326,000
a. P46,000 c. P39,257
b. P22,000 d. P40,000 8. The AB Trading Co. operates a branch in Iloilo. At
close of business on December 31, 2008, Home
On December 31, 2009, the Branch account in the Office account in the branch books showed a credit
Manila Home Office books shows a balance of P55,500. balance of P372,900. The interoffice accounts were
You ascertain the following facts in analyzing this in agreement at the beginning of the year. For
account. purpose of reconciling the interoffice accounts, the
1. On December 31, 2009, merchandise billed at following facts were ascertained;
P5,800 was in transit from the home office to the a. A furniture costing the home office P4,600 was
branch. picked up by the branch as P460. The branch
2. The branch had collected home office accounts will maintain and use the asset.
receivable of P560; the home office was not b. The branch writes-off uncollectible, accounts of
notified. P1,260. The allowance for doubtful accounts is
3. On December 29, 2009, the home office mailed a maintained on the books of the home office.
check for P2,000 to the branch, but the accountant The home office was not yet notified.
for the home office had recorded the check as a c. Freight charge on merchandise made by the
debit to Charitable Contributions; the branch had home office for P2,715 was recorded in the
not received the check as of December 31, 2009. branch books as P7,215.
4. Branch net income for December 2009 was d. Home office credit memo for P9,710 was
recorded erroneously by the home office at P840 recorded by the branch at P7,91 0.
instead of P480. e. Iloilo branch failed to take up a P2,450 debit
5. On December 28, 2009, the branch had returned memo from the home office.
supplies costing P220 to the home office; the home f The home office inadvertently recorded a
office had not recorded the receipt of the supplies remittance for P3,730 from its Ilocos branch as
as at Dec. 31. remittance from its Iloilo branch.
6. Calculate the adjusted balance of the reciprocal g. Insurance premium of P1,675 charged by the
accounts at December 31, 2009. home office was taken up twice by the branch.
a. P49,680 c. P46,980 h. A P14,500 branch remittance to the home office
b. P57,480 d. P54,870 initiated on December 28, 2008, was recorded
Excel Corporation operates a branch in Calamba City. on the home office books on January 2, 2009.
The Home Office ships merchandise to the branch at i. A home office inventory shipment to Ilocos
20% of the billed price. Selected information from the branch on December 29, 2008, was recorded by
December 31, 2009 trial balance are as follows: the branch on January 3, 2009; the billing of
Home Office Branch P47,000 was at cost,
Books Books j. A branch customer remitted a P19,000 to the
Sales P600,000 P300,000 home office, The home office recorded this cash
Shipments to branch 200,000 collection on December 22, 2008. Meanwhile,
Purchases 350,000 back at the branch, no entry has been made
Shipments from home yet.
office 250,000 Determine the balance of the Investment in Branch
Inventory, January 1 100,000 40,000 account before adjustments:
Unrealized inter-company a. P364,545 c. P319,545
inventory profit 58,000 b. P307,515 d. P366,545
  - end of P2.701 - 

- now do the classroom drill -