HOME OFFICE,

BRANCH AND
AGENCY
ACCOUNTING
Acctg 8d 8:30-9:30
1. The national Home Company ships and bills merchandise to its provincial branch at cost. The branch
carries its own accounts receivable and makes its own collections. The branch also pays its expenses.
 
The transaction for 2018 are reflected in the branch trial balance that follows:
Debit Credit
Cash 11,900
National Home Co. Current 90,000
Shipments from National Home Co. 120,000
Accounts receivable 62,500
Expenses 8,100
Sales 112,500
Total 202,500 202,500
 
December 31 inventory 30,000
Compute the (1) net profit of the branch and (2) the Branch Current account in the home office books:
a. (1) 22,500;(2) 90,000 c. (1) 14,400; (2) 104,400
b. (1) 21, 300; (2) 134,400 d. (1) 14,400; (2) 90,000
Answer: C

(1) Net profit of the branch:

Sales 112,500
Less: Cost of goods sold
Shipments from home office 120,000
Less: Inventory, December 31 30,000 90,000
Gross profit 22,500
Less: Expenses 8,100
Net income 14,400
Answer: C

(2) Branch Current account 12/31/18

National Home Company current before
Net Income of the branch 90,000
Add: Net income of the branch as reported 14,400
National Home Company Current/Branch Current 104,400
2. A branch store in Davao City was established by Cadiz Company on March 1.
Merchandise was billed to the branch at 125% of cost. Shipments of merchandise were as
follows:

March 5 120,000 at billed price

March 10 50,000 at billed price
March 20 35,000 at billed price

On March 22, the branch returned defective merchandise worth P3,050. On March 31, the
branch reported a net loss of (P6,200) and merchandise inventory of P85,000.

In the home office books, the cost of merchandise sold by branch was:

a. 161,560 c. 116,950
b. 93,560 d. 161,950
Answer: B

Shipments from home office (120,000 + 50,000 + 35,000) 205,000

Less: Returns 3,050
Shipments from home office (net of returns) 201,950
Less: Inventory 3/31 85,000
Cost of goods sold at billed price 116,950
Less: Allowance or mark up included in the cost of goods sold
or realized profit from branch sales (P116,950 X 25/125) 23,390
Cost of goods sold made by branch 93,560
3. Kaycee Inc. Toril branch submitted the following data for 2018, its first year of
operation:

Sales 203,500 Cr.

Shipments from home office 186,120 Dr.
Operating expenses 18,755 Dr.
Home office – current 48,125 Cr.

Shipments to the branch are billed at cost. The December 31 inventory of the branch
was P25,245. What is the correct balance on December 31, 2018 of the Branch
Account – current as per home office books?

a. 46,750 c. 65,505
b. 48,125 d. 71,995
Answer: D

Home office current account before branch net income 48,125

Add: Net income of the branch as reported:
Sales 203,500
Less: Cost of goods sold
Shipments from home office 186,120
Less: Inventory, December 31 30,000 160,875
Gross profit 42,625
Less: Expenses 18,755 23,870
Home office current account/Branch current 12/31 71,995
4. The following information pertains to shipments of merchandise from Home
Office to Branch during 2018:

Home office’s cost of merchandise 160,000

Intracompany billing 200,000
Sales by branch 250,000
Unsold merchandise at Branch on December 31, 2018 20,000

In the combined income statement of Home Office and Branch for the year ended
December 31, 2018 what amount of the above transactions should be included in
sales?

a. 250,000 c. 200,000
b. 230,000 d. 180,000
Answer: A

In the preparation of combined income statement of

home office and branch, all intercompany transactions
should be eliminated as if it had never occurred.
Therefore, the only transaction that should remain are
transactions to unrelated customers, i.e. P250,000 sales
by branch to outsider.
5. Barri Corporation’s shipments to and from its Brazil branch are
billed at 120% of cost. On December 31, Brazil branch reported The
following data, at billed prices: Inventory, January 1, of P33,600;
shipments received from home office of P840,000; shipments
returned of P48,000; and inventory, December 31, of P36,000. What
is the balance of the allowance for over-valuation of branch
inventory on December 31 before adjustments?

a. 5,600 c. 6,000
b. 137,600 d. 145,600
Answer: B

Inventory, January 1 33,600

Add: Shipments from office, net of returns
(840,000 – 48,000) 792,000
Cost of goods available for sale 825,600
Multiplied by: Mark-up 20/120
Allowance for overvaluation before adjustments 137,600
6. Mampondo Company opened its Pampanga Branch on January 1.
Merchandise shipments from home office during the month, billed
at 120% of cost, is P125,000. Branch returned damaged merchandise
worth P15,620. On January 31, the branch reported a net loss of
P2,270 and an inventory of P84,000. What is the net income (loss) of
the branch to be taken in the books of the Home Office?

a. (1,690) c. (2,270)
b. 6,500 d. 1,960
Answer: D
Net income (loss) per branch books (2,270)
Add: Realized profit from sales made by branch
Overvaluation of cost of goods sold
Beginning inventory -
Add: Shipments 125,000
Less: Returns 15,620
Cost of goods available for sale at billed price 109,380
Less: Ending inventory at billed price 84,000
Cost of goods sold at billed price 25,380
Multiplied by Mark up 20/120 4,230
Adjusted branch net income P1,960
7. The Jessel Corporation established its Bulacan branch in January
2017. During its first year of operations, home office shipped to
its Bulacan branch merchandise worth P130,000 which included a
markup of 15% on cost. Sales on account totaled P250,000 while
cash sales amounted to P80,000. Bulacan reported operating
expenses of P38,000 and ending inventory of P15,000 at billed
price. In so far as the home office is concerned the real net
income of Bulacan is:

a. 177,000 c. 147,000
b. 82,000 d. 192,000
Answer: D
Sales (250,000 + 80,000) 330,000
Less: Cost of goods sold, at cost:
Shipments from home office 130,000
Less: Ending Inventory 15,000
Cost of goods sold at billed price 115,000
Multiplied by: Cost ratio 100/115 100,000
Gross profit: 230,000
Less: Operating expenses 38,000
Net income of the branch in so far as the
home office in concerned P192,000
8. The home office of Buday Company, which uses the perpetual
inventory system bills shipments of merchandise to the Sasa Branch
at a mark up of 25% on the billed price. On August 31, 2018, the
credit balance of the home office’s allowance for overvaluation of
inventories – Sasa Branch ledger account was P60,000. On
September 17, 2018, the home office shipped merchandise to the
branch at a billed price of P400,000. The branch reported an ending
inventory, at billed price, at P160,000 on September 30, 2018.
Compute the realized gross profit?
a. 108,000 c. 120,000
b. 20,000 d. 28,000
Answer: C
Merchandise inventory, 8/31/18 60,000
Add: Shipments (P400,000 X 25% - note: Markup is based on
billed price) 100,000
Cost of goods available for sale 160,000
Less: Merchandise inventory, 9/30/2018
(160,000 X 25%) 40,000
Overvaluation of CGS/Realized the gross profit on branch sales P120,000
9. Tillman Textile Company has a single branch in Cebu. On March 1,
2018 the home office accounting records included an allowance for
overvaluation of inventories – Cebu Branch ledger account with a
credit balance of P32,000. During March, merchandise costing
P36,000 was shipped to the Cebu branch and billed at a price
representing a 40% markup on the billed price. On March 31, 2018
the branch prepared an income statement indicating a net loss of
P11,500 for March and ending inventories at billed prices of P25,000.
What is the amount of adjustment for allowance for overvaluation of
inventories to reflect the true branch net income?
_______________
Merchandise inventory, 3/1/18 32,000
Add: Shipments (36,000/60%) = 60,000 X 40%
note: markup is based on billed price 24,000
Cost of goods available for sale 56,000
Less: Merchandise inventory 3/31/18
(25,000 X 40%) 10,000
Overvaluation of CGS/ Realized the gross profit on
branch sales 46,000
10. The Adel Co. has a branch in Davao City. During 2018, the home office
shipped to the branch merchandise billed at P150,000 including a markup
of 20% on cost. The branch reports opening and closing inventories of
P90,000 and P120,000 respectively, while the home office has a closing
inventories of P210,000 which includes merchandise which are held on
consignment valued at P10,000. Both location use the periodic inventory
system. What closing inventory would be reported in the combined
statement of income for the year 2018?

a. 296,000 c. 320,000
b. 300,000 d. 330,000
Answer: B

Ending inventory:
Branch: (P120,000 X 100/120) P100,000
Home office: (P210,000 – 10,000) 200,000
300,000
11. Angel Corporation started operating a branch on May 1, 2018
with a shipment of merchandise billed at P250,000. Additional
shipments during the month were billed at P125,000. The branch
returned damaged merchandise worth P10,000. Inter-office
shipments are billed uniformly at 125% of cost. On May 31, 2018,
the branch reported a net loss of P52,000 and an inventory of
P150,000. What is the branch net income (loss) reflected in the
combined income statement for May, 2018?

a. (9,500) c. (52,500)
b. 43,000 d. 95,000
Answer: A

Branch reported net loss (52,500)

Add: Overvaluation of cost goods sold/realized
profit from sales made by branch:
Shipments, at cost (250,000 + 125,000
– 10,000) X 25/125 73,000
Less: Inventory 5/31
(150,000 X 25/125) 30,000 43,000
True branch net loss (9,500)
12. The Maa branch of the Gwapa Company 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 February 16 all of the branch merchandise is destroyed by fire. No
insurance was maintained. Branch accounts show the following information:

Merchandise inventory, January 1

(at billed price) 26,400
Shipments from home office (Jan 1 – Feb 16) 20,000
Sales 15,000
Sales return 2,000
Sales allowances 1,000

What was the cost of the merchandise destroyed by fire?

a. 36,000 c. 36,800
b. 30,667 d. 30,000
Answer: D

Merchandise inventory, 1/1 at billed price 26,400

Shipments from home office at billed price 20,000
Cost of goods sold available for sale, at billed price 46,400
Less: Cost of goods sold, at billed price
(15,000 – 2,000) x 100/125 10,400
Merchandise inventory Feb 16 at billed price 36,000
Multiply by: Cost ratio 100/120
Merchandise inventory destroyed by fire at cost 30,000
13. The best Co. bills merchandise shipments in its Cavite City branch at 125% of cost. The branch, in
turn, sells the merchandise it received from the home office at 25% above the billing price. On
August, 1, 2018, all of the branch’s merchandise stock was destroyed by fire. The branch records that
were recovered showed the following:

Inventory, January 1, 2018 (at billed price) 165,000

Shipments received from home office,
January to July (at billed price) 110,000
Purchases, at cost, from outside sources,
All re-sold at a 20% mark up 7,500
Sales 169,000
Sales return and allowances 3,750

The Best Co. will file an insurance claim. How much is the estimated cost the merchandise destroyed
by the fire?

a. 120,000 c. 140,000
b. 130,000 d. 150,000
Answer: A

Inventory, January 1 at billed price 165,000

Shipments received from home office at billed price 110,000
Cost of goods available for sale at billed price 275,000
Less: Cost of goods sold, from home office at billed price
Sales 169,000
Less: Sales return and allowances 3,750
Sales price of merchandise purchased
from outsiders (7,500 X 120%) 9,000
Net sales of merchandise acquired from home office 156,250
Multiplied by: intercompany cost ratio 100/125 125,000
Inventory August 1 at billed price 150,000
Multiplied by: Cost ratio 100/125
Merchandise inventory destroyed by fire at cost 120,000
14. On August 31,2018 a fire destroyed totally the rented bodega or stockroom of
Isabela Company. The following are some of the data of the company:

Merchandise inventory. Dec 31, 2017 110,000

For the period Jan 1 to Aug 31, 2018:
Purchases 560,500
Freight in 5,600
Purchases returns 10,200
Sales 695,000
Sales returns and allowances 7,500
Using an 20% gross profit rate, the cost of the merchandise lost in the fire was:

a. 90,700 c. 88,400
b. 115,900 d. 63,200
Answer: B

Merchandise inventory, December 31, 2018 110,000

Add: Net Purchases
Purchases 560,500
Add: Freight in 5,600
Total 566,100
Less: Purchase returns 10,200 555,900
Cost of goods available for sale 665,900
Less: Cost of goods sold:
Net Sales (695,000 – 7,500) 687,500
Multiplied by: Cost ratio 80% 550,000
Merchandise inventory destroyed by fire at cost 115,900
15. Sweet Corporation operates a number of branches in Manila. On June 30, 2018, its Padre Pio Branch showed a Home
Office Account balance of P27,350 and the Home Office books showed a Padre Pio 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 Padre Pio branch, was actually sent to and retained by Padre
Damaso branch.
2. A P15,0000 shipment, intended and charged to San Jose Branch was shipped to Padre Pio branch and retained by
the latter.
3. A P2,000 emergency cash transfer from Padre Damaso branch was not taken up in the Home Office books.
4. Home office collects a Padre Pio branch accounts receivable of P3,600 and fails to notify the branch.
5. Home office was charged for P1,200 for merchandise returned by Padre Pio branch on June 28. The merchandise is
in transit.

Home office erroneously recorded Padre Pio’s net income for May 2018 at P16,275. The branch reported a net income of
P12,675.

What is the reconciled amount of the Home Office and Padre Pio branch reciprocal accounts?

a. 21,750 c. 27,350
b. 23,750 d. 20, 150
Answer: B
Home office account Padre Pio Branch Account
Unadjusted balance, June 30 25,550 27,350
Add (deduct): Adjustments:
1. A P12,000 shipment, charged by Home
Office to Padre Pio branch, was actually sent to
and retained by Padre Damaso branch. (12,000)
2. A P15,0000 shipment, intended and charged
to San Jose Branch was shipped to Padre Pio
branch and retained by the latter. 15,000
3. A P2,000 emergency cash transfer from Padre
Damaso branch was not taken up in the Home Office books. -
4. Home office collects a Padre Pio branch accounts
receivable of P3,600 and fails to notify the branch. - (3,600)
5. Home office was charged for P1,200 for merchandise
returned by Padre Pio branch on June 28. (1,200)
The merchandise is in transit.
6. Overstatement of Padre Pio branch net income
(16,275-12,675) (3,600)
Adjusted Balances, June 30 23,750 23,750
16. Happy Co. has a sales agency in Cebu. Agency revenues and expenses are recorded in separate
agency accounts, with the operating results of both the agency and the home office generated at
each month-end. For the month of October 21018, the home office paid P10,000 for advertising
costs on behalf of the agency and recorded this as follows:

a. Cebu Agency 10,000

Cash 10,000

b. Advertising expense 10,000

Cash 10,000

c. Accounts receivable – cebu agency 10,000

Cash 10,000

d. Advertising expense – cebu agency 10,000

Cash 10,000
 Cash
D
Advertising expense – cebu agency 10,000
10,000
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