P2 Branch Accounting M2020
P2 Branch Accounting M2020
P2 Branch Accounting M2020
A branch is a business unit located at some distance from the home office. Initial funds
and assets of the branch normally come from home office. A branch carries merchandise
obtained from home office and from outsiders. It generates its own sales, approve
customer’s credit orders, and makes collections from its customers. Cash receipts of the
branch may either be remitted to home office or deposited in a bank account. Its expenses
are normally paid by the branch, although there are some instances where its expenses are
paid by the home office.
For transactions involving the home office and the branch, reciprocal accounts are
used. At home office books, INVESTMENT IN BRANCH or BRANCH CURRENT
account, is maintained, it is usually debited for asset transfers to branch, shouldering
branch expenses, and to recognize branch profit. It is credited for asset transfers from the
branch, payments for home office expenses, and to recognize branch loss. In the branch
books, HOME OFFICE account, is debited for asset transfers to home office, payments
for home office expense, and reports branch loss to home office. It is credited for assets
transferred/ received from office, branch expenses paid by home office, and reports
branch profit to home office.
For transactions involving merchandise transfers from home office to branch where
the home office billed the branch above cost, a temporary account, ALLOWANCE FOR
OVERVALUATION, is recognized at home office books. It is credited for the excess of
billings above cost and is debited to recognize the realized profit from merchandise
received from office and already sold. To determine the realized profit from merchandise
sold, the following alternative solutions may be followed:
ALTERNATIVE 1
ALTERNATIVE 2
1. Demure Corporation had an agency in Quezon Province. During the year, the
transactions of the agency are as follows:
Sales P1,400,000
Disbursements:
Purchases 1,600,000
Salaries 280,000
Rent 80,000
Supplies 40,000
Miscellaneous expense 20,000
The agency had P400,000 receivables andP200,000 payables at the end of the
period. Also, there are inventories on hand of P360,000 and unused supplies of
P24,000. The agency was set up as an experiment for one year and would be
closed if losses were incurred.
The unadjusted and adjusted balances of the Home Office account, are
A. 52,000 & 32,000 C. 88,000 & 156,000
B. 88,000 & 150,000 D. 128,000 & 190,000
In the consolidated 2020 profit and loss statement of Immaculate, the amount of
cost of sales to be reflected is
A. 1,560,000 B. 1,600,000 C. 1,740,000 D. 1,780,000
The following balances are from the books of Lovable Company’s branch as of
December 31, 2020:
DR CR
Sales P540,000
Shipments from HO P302,400
Inventory, January 1 56,700
Expenses 180,000
The branch purchases all of its merchandise from HO. Its December 31, 2020
inventory was P50,400. The HO bills the branch at 40% above its cost.
7. Before closing entries, the balance of Shipments to Branch account in HO books is:
A. 181,440 B. 199,800 C. 216,000 D. 256,500
The following information is available from the records of Petite Corporation and its
branch as of December 31, 2020:
HO Books Branch Books
Sales P 400,000
Shipments to branch P 120,000
Shipments from HO 160,000
Purchases 60,000
Expenses 120,000
Inventory, January 1, 2020 40,000
Allowance for Overvaluation of
Branch Inventory 48,000
There are no shipments in transit between HO and the branch. Both shipments
accounts are properly recorded. The ending inventory at billed price includes
merchandise acquired from HO in the amount of P40,000 and P12,000 acquired from
outside vendors for a total of P52,000.
9. The amount of goods acquired by the branch from outsiders in its beginning
inventory is
A. 8,000 B. 16,000 C. 20,000 D. 24,000
The following transactions took place between the Home Office of Weather Company
and its two branches, Sunny and Cloudy.
* Upon the instruction of HO, Cloudy Branch affected a fund transfer of P50,000 to
Sunny Branch.
* Sunny Branch collected a Cloudy Branch’s account receivable of P70,000 less 2%
discount.
* Cloudy Branch paid P500,000 representing the traveling expenses of Mr. Kim, the
senior VP, when the latter attended the regional conference in Baguio. Of the amount
paid, 60% was charged to the HO, 25% to Sunny Branch, and the balance to Cloudy
Branch.
* HO shipped merchandise costing P400,000 to Cloudy Branch. Freight of P6,000 was
paid by the HO. It is the policy of the company to bill its branches at 25% above cost.
* Upon the instruction of the HO, Cloudy Branch reshipped the above merchandise to
Sunny Branch. Freight of P3,000 was paid by Sunny Branch. Had the goods been
shipped directly to Sunny Branch, the freight would have been only P8,400. .
11. The balance of the Investment in Cloudy Branch account in HO books is:
A. 543,600 B. 1,040,000 C. 1,049,600 D. 1,055,600
12. The balance of the Home Office account in the books of Sunny Branch is:
A. 624,000 B. 740,600 C. 749,000 D. 757,400
13. The following balances are from the books of Bicol Company and its Naga City
branch location as of December 31, 2020: Sales, P270,000; Shipments from HO,
P151,200; Inventory, January 1, P28,350; Expenses, P90,000. The Naga City branch
purchases all of its merchandise from the HO. Its December 31, 2020 inventory was
P25,200. The HO bills the branch at 40% above its cost.
What is the branch profit as far as the HO is concerned?
A. 28,800 B. 39,500 C. 69,750 D. 76,950
14. The following items are taken from the unadjusted trial balance of Progressive
Company and its branch on December 31, 2020: Shipment to branch, P300,000;
Allowance for Overvaluation, P99,900; Shipments from HO, P390,000; Branch
purchases from outsiders, P144,600; Merchandise inventory, January 1, P54,600;
Merchandise inventory, December 31, P48,750; Branch sales, P540,000; branch
expenses, P51,000.
It is the company’s policy to bill all its branches for merchandise shipments at 30%
above cost.
How much of the branch inventory on January 1 represents purchases from outsiders?
A. 11,000 B. 11,700 C. 42,000 D. 42,900
15. Remar Trading Company operates a branch in Mindoro. At the close of business on
December 31, 2020, Mindoro branch account in the home office books showed a
debit balance of P241,700. The inter-office accounts were in agreement at the
beginning of the year. For purposes of reconciling the inter-office accounts, the
following facts were ascertained:
* An equipment costing P2,800 at home office was picked-up by the branch
and recorded at P280.
* The branch wrote-off uncollectible accounts of P600. The allowance for
doubtful accounts is maintained at home office books. The home
office was not yet notified of this.
* Freight-charge on the merchandise by the home office for P1,315 was
recorded in the branch’s books as P1,135.
* Home office credit memo representing a discount on merchandise for P650
was not recorded by the branch.
* Mindoro branch failed to take up a P550 debit memo from the home office.
* The home office inadvertently recorded a remittance of P4,000
from its Mindoro branch as a remittance from its Batangas branch.
What is the balance in the branch books of Home Office Current account before
adjustment?
A. 234,500 B. 242,500 C. 243,700 D. 239,700
16. Baron Corporation has one branch office named Travel Branch. Baron is performing
the end-of-period reconciliation of its Travel Branch account. The following items are
unsettled at the end of the accounting period:
Baron has agreed to remove P750 of excess freight charged to Travel when Baron
shipped twice as much inventory as requested
Travel Branch mailed a check for P11,000 to Baron as payment for merchandise
shipped from baron to Travel. Baron has not yet received the check.
Travel returned defective merchandise to Baron. The merchandise was billed to
Travel at P4,000, when its actual cost was P3,000.
Advertising expense attributable to the branch were paid for by home office in the
amount of P5,000.
If the adjusted balances for Travel Branch account and the Baron Home Office
account is P500,000, what are the unadjusted balances for Travel Branch and Baron
Home Office accounts, respectively?
A. 510,250 & 505,000 C. 514,000 & 516,000
B. 515,000 & 495,750 D. 504,000 & 500,750
17. Home Office Inc. established a branch in Abra to distribute part of the goods
purchased by the home office. The home office priced inventory shipped to the
branch at 20% above cost. The following account balances were taken from the
ledgers maintained by the home office and the branch:
Home Office Inc. Abra Branch
Sales P 600,000 P 210,000
Beginning inventory 120,000 60,000
Purchases 500,000 -
Shipment to branch 130,000 -
Shipment from home office - 156,000
Operating expenses 72,000 36,000
Ending inventory 98,000 48,000
All of the branch inventory is acquired from the home office.
The combined net income of the home office and the branch is:
A. 70,000 B. 132,000 C. 170,000 D. 278,000
18. The Quezon City branch of Hilltop Corporation is billed for merchandise by the home
office at 20% above cost. The branch, in turn, prices merchandise for sales purposes
at 25% above billed price. On March 31, all of the branch inventory is destroyed by
fire. No insurance was maintained . Branch accounts show the following information:
Merchandise inventory, January 1 ( billed price ) P26,400
Shipments from home office ( January 1 to March 31 ) 20,000
Sales 15,000
Sales returns 2,000
Sales allowances 1,000
The cost of merchandise destroyed by fire is:
A. 30,000 B. 30,667 C. 36,000 D. 36,800
Bongbong Company’s branch in Vigan City began operations on January 2, 2020. During
the first year of operations, the home office shipped merchandise to Vigan branch that
cost P250,000, at a billed price of P300,000. One-fourth of the merchandise remained
unsold at the end of 2020. The home office records the shipments to the branch at
P300,000 billed price at the time shipments are made.
20. Freight of P2,000 on the shipment was paid by the branch. The home office should
make:
A. A year-end adjusting entry crediting the branch account for P500.
B. A year-end adjusting entry debiting the branch account for P500.
C. A year-end adjusting entry debiting the branch account for P2,000.
D. No year-end adjusting entry for the freight charge.