Prefinals Reviewers

Home Office Special Procedures CH14
Quiz
October 25, 2021
MULTIPLE CHOICE
1. RP Company started a branch office in Sorsogon on June 1, 2018. On this date, the company shipped to
its branch, merchandise billed at P90,00. On June 15, another shipment was made at billed prices of
P36,000. During the month the branch was credited for P2,520 for damaged goods returned by the
branch.
On June 30, 2018, the branch reported the following:
Inventory, June 30 P50,400

Net loss for the month (7,800)
Shipments to and from the Branch were uniformly billed at 120% of cost.
What is the Sorsogon Branch Cost of Goods Sold in the books of the Home Office?
a. P73,080
b. P60,900*
c. P123,480
d. P171,360
ANS B
2. Isarog Sales has a branch in Iriga. The Iriga branch buys merchandise from third parties and receives
merchandise from the Home Office for which it is billed at 20% above cost.
Below are excerpts from the trial balances and data on the Home Office and Iriga branch for the month
just ended:
Home Office
Cr Allowance for Overvaluation of Branch merchandise P 370,000
Cr Shipments to Branch 850,000
Branch
Dr Beginning inventory 1,440,000
Dr Shipments from Home Office 1,020,000
Dr Purchases 410,000
Month-end additional data:

Ending inventory of Branch 1,460,000
From Home Office (at billed price) P1,170,000
From outsiders (at cost) 290,000
The amount of allowance for overvaluation that was realized from the Branch sales for the month just
ended amounted to
a. P200,000
b. P370,000
c. P195,000
d. P175,000*
ANS D
1
3.
Trial balances for the home office and the branch of the Zenith Company show the following items,
before adjustment, on December 31. Differences in the shipments account balances result from the
home office policy of billing the branch for the merchandise at 20% above cost.
Home Office Books Branch Books

Unrealized intercompany inventory profit P360,000
Shipments to branch 800,000
Purchases (outsiders) P250,000
Shipments from Home Office 960,000
Merchandise Inventory, Dec. 1 1,500,000
How much is the branch inventory at cost?
a. P1,500,000
b. P1,000,000
c. P1,300,000*
d. P1,250,000
ANS C
4.
The Midas Company bills its branch for merchandise at 135% of cost. On December 31, the balance in
the unrealized profit account is to be calculated from the following information reported by the branch.
Merchandise from Merchandise Total

home office at purchased from
billed price outsiders at cost
Merchandise inventory, Dec. 1 P162,000 P40,000 P202,000
Merchandise inventory, Dec. 1-31 202,500 120,000 322,500
Merchandise inventory, Dec. 31 189,000 50,000 239,000
Assuming that the branch had returned to the home office merchandise originally acquired at a billed
price of P5,400, how much is the realized intercompany inventory profit for December?
a. 45,500
b. 44,100*
c. 49,000
d. 59,535
ANS B
2
5.
Profit and loss data for Apex Co. of Manila and its Naga branch for 2023 follow:
Manila Office Naga Office

Sales P1,060,000 P315,000
Inventory, Jan. 1 (at cost) 115,000
(at billed price) 44,500
Purchases 820,000
Shipments to Naga (at cost) 210,000
Shipments from Manila office (at billed price) 252,000
Inventory, December 31 (at cost) 142,500
(at billed price) 58,500
Operating expenses 382,000 101,500
Records show that Naga Branch was billed for merchandise shipments as follows:
2022, cost + 25%; 2023, cost + 20%
The correct branch profit (loss) for 2023 is:
a. (P24,500)
b. P41,150
c. P16,650*
d. P65,650
ANS C
END
3
ACCP303 Accounting for Special Transactions
Midterm Exam
October 06, 2021
1. The balances below are from the books of the Branch of M Company as of December 31, 2021:
Debit Credit
Sales P300,000
Shipments from Home Office P120,000
Inventory, January 1 22,500
Expenses 100,000
The branch purchases all of its merchandise from the home office. Its December 31 inventory is
P20,000. The branch profit must be:
a. P32,000 b. P35,500 c. P77,500 d. P85,500 ANS C
2. The Uragon Sporting Goods, Inc. located in Naga, established a branch in Daet on January 1,
2021. The home office transferred P30,000 of cash and P120,000 of merchandise to the branch
of which 15% were still in transit. During the year, the branch sold 65% of the merchandise received
from the home office on account for P90,000. The branch collected cash of P65,000 from accounts
receivable during the year and allowed P3,250 in sales discounts. The branch paid P12,000 of
operating expenses incurred for the year and remitted cash of P20,000 to the home office. Ending
inventory reported by the branch as of December 31, 2021, was P35,700.
The adjusted ending balance of Home Office account on branch books must be:
a. P174,150 b. P138,450* c. P130,000 d. P120,450 ANS B
3.
The BNB Sales Company established a branch in Sorsogon early last year. It shipped merchandise to
the branch for P250,000 prior to its opening. For the year, it made additional shipments of P100,000. Within
the year, the branch shipped back P6,250 inventory and got the credit memo for said returns. On the last
working day of the year, an inventory was made. Ending inventory of P157,500 was established consisting
of purchases from third parties at P20,000, with the balance coming from home office shipments. The total
purchases of the branch from outside suppliers amounted to P72,500. The total goods available for sale
by the branch amounted to
a. P485,000 b. P422,500 c. P416,250 d. P343,750 ANS C

Midterm Exam
October 06, 2021
4.
Selected information from the trial balances for the home office and the branch of Grand Company
at December 31, 2021 is provided. These trial balances cover the period from December1 to
December 31, 2021. The branch acquires some of its merchandise from the home office and some
of it from outsiders.
Home office Branch

Sales P60,000 P30,000
Purchases (outsiders) 35,000 5,500
Shipments from home office 8,000
Merchandise inventory, Dec. 1, 2021 20,000
Merchandise inventory, Dec. 1, 2021 (fr HO) 10,000
Merchandise inventory, Dec. 1, 2021 (fr outsiders) 3,000
Expenses 14,000 6,000
Other information: Merchandise inventory, December 31, 2021:
Home office, P20,000; Branch, P8,600
The ending inventory of the branch consists of merchandise from the home office of P7,000; and
from outsiders of P1,600.
How much is the net income of the branch?
a. P3,900 b. P6,100 c. P5,300 d. P5,500 ANS B
5.
Selected information from the trial balances for the home office and the branch of Grand Company
at December 31, 2021 is provided. These trial balances cover the period from December1 to
December 31, 2021. The branch acquires some of its merchandise from the home office and some
of it from outsiders.
Home office Branch

Sales P60,000 P30,000
Purchases (outsiders) 35,000 5,500
Merchandise inventory, Dec. 1, 2021 20,000
Merchandise inventory, Dec. 1, 2021 (from HO) 10,000
Merchandise inventory, Dec. 1, 2021 (from outsiders) 3,000
Expenses 14,000 6,000
Other information: Merchandise inventory, December 31, 2021:
Home office, P20,000; Branch, P8,600

Midterm Exam
October 06, 2021
The ending inventory of the branch consists of merchandise from the home office of P7,000; and from
outsiders of P1,600.
How much is the combined net income of the home office and branch?
a. P19,000 b. P22,900 c. P25,100 d. P24,300 ANS C
6.
The following were found in your examination of the interplant accounts between the Home Office
and the Albay branch:
a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by the
branch.
b. P10,000 covering marketing expense of another branch was charged by Home Office to Albay.
c. Albay recorded a debit note on inventory transfers from Home Office of P75,000 twice.
d. Home Office recorded cash transfer of P65,700 from Albay branch as coming from
Catanduanes branch.
e. Albay reversed a previous debit memo from Sorsogon branch amounting to P10,500. Home
Office decided that this charge is appropriately Catanduanes’ branch cost.
f. Albay recorded a debit memo from Home Office of P4,650 as P4,560.
The net adjustment in the home Office books related to the Albay Branch Current account is
a. P75,700 b. P65,700 c. P86,200 d. P94,820 Ans A
7. The following were found in your examination of the interplant accounts between the Home
Office and the Albay branch:
a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by the
branch.
b. P10,000 covering marketing expense of another branch was charged by Home Office to Albay.
c. Albay recorded a debit note on inventory transfers from Home Office of P75,000 twice.
d. Home Office recorded cash transfer of P65,700 from Albay branch as coming from
Catanduanes branch.
e. Albay reversed a previous debit memo from Sorsogon branch amounting to P10,500. Home
Office decided that this charge is appropriately Catanduanes’ branch cost.
f. Albay recorded a debit memo from Home Office of P4,650 as P4,560.
The net adjustment in Albay books related to the Home Office account is
a. P33,335 b. P31,450 c. P20,950 d. P10,450 ANS C

Midterm Exam
October 06, 2021
8.
The Maharlika Inc. opened an agency in Legazpi in 2020. The following is a summary of the
transactions of the agency:
Sales orders sent to home office P55,000

Sales orders filled by home office in 2020 46,500
Freight on shipment to agency 1,100
Collections, net of 2% discount 39,690
Selling expenses paid from the agency working fund 2,820
Administrative expenses charged to agency 5% of sales
Samples shipped to agency:
Cost 3,000
Inventory, Dec. 31, 2020 1,100
The company maintains its gross margin on agency sales at 30% excluding freight cost on
shipments to agency. The agency cost of sales including freight was:
a. P33,650*
b. P39,600
c. P47,430
d. P3,000
ANS A
9. The Maharlika Inc. opened an agency in Legazpi in 2020. The following is a summary of the transactions
of the agency:

Freight on shipment to agency 1,100
Administrative expenses charged to agency 5% of sales
Cost 3,000
Inventory, Dec. 31, 2020 1,100
The company maintains its gross margin on agency sales at 30% excluding freight cost on shipments to
agency. The agency’s net income must be:
Midterm Exam
October 06, 2021
a) P6,100
b) P6,390
c) P4,995*
d) P1,100
ANS C
10. The data below are taken from the records of Great Appliance Co. which sells appliances exclusively on the
installment basis:
2021 2022 2023

Installment sales P365,500 P417,800 P610,750
Gross profit rate 36% 39% 40%
The balance in the Installment Accounts Receivable controlling accounts at the beginning and end of 2023
were:
January 1 December 31
2021 P 17,400 -
2022 205,400 P 25,800
2023 - 306,520
There was one repossession recorded during 2023. It related to 2022 sales. Thereafter, the repossessed
appliance was sold for P200, which equaled the uncollected balance in the customer’s installment
account receivable.
The gross profit realized in 2023 on collections of 2021 and 2022 installment accounts receivable totaled
a. P69,966 b. P76,230* c. P122,092 d. P198,322 ANS B
11. The following data were taken from the books of Super Quality Company for 2015:
2014 2015
Installment sales P800,000 P900,000
Cost of installment sales 480,000 600,000
Collections on: 2014 installment contracts 250,000 300,000
2015 installment contracts 360,000
Defaults and repossessions:
Unpaid balance of prior year’s
installment contracts defaulted 12,000 15,000
Value assigned to repossessed
Merchandise 7,000 8,000
Assume perpetual inventory records were not maintained.
The gain/loss on repossession on the defaulted 2014 contracts was

a. P1,000 gain b. P1,000 loss* c. P3,000 loss d. no gain or loss
ANS B
Midterm Exam
October 06, 2021
12. AXL Enterprise uses the installment method of accounting and it has the following data at the year-end:
Gross margin on cost .............................................................. 66-2/3%

Deferred gross profit .............................................................. P192,000
Cash collections including down payments ............................ 360,000
What was the total amount of sales on installment basis?
a. P480,000 c. P648,000
b. 552,000 d. 840,000*
ANS D
13. The KJ Construction Company uses the percentage-of-completion method of recognizing income from long-
term construction contracts. In 2021 KJ entered into a fixed-price contract to construct a bridge for
P30,000,000. Estimated cost to complete the construction and contract cost incurred up to 2023 were as
follows:
Cumulative Estimated
Contract Costs Cost to
Incurred Complete
As of December 31, 2021 P 2,000,000 P16,000,000
As of December 31, 2022 11,000,000 11,000,000
As of December 31, 2023 20,000,000 4,000,000
How much income should KJ Construction Corporation recognize on the above contract for the year ended
Dec. 31, 2023
a. P1,000,000 *
b. P1,666,667
c. P2,700,000
d. P5,000,000
ANS A
14. A building project was awarded to MCI Construction Co. in 2023 based on a fixed price of P12,000,000. It
was completed in 2024. Pertinent records show the following:
2023 2024
Progress billings during the year P4,400,000 P7,600,000
Cost incurred during the year 3,600,000 7,200,000
Collections on billings during the year 2,800,000 9,200,000
Estimated cost to complete 7,200,000 -
The gross profit percentage for the project was
a. 12%
b. 10%*
c. 87%
d. 40%
ANS B
Midterm Exam
October 06, 2021
15. Panama Construction Company uses the percentage-of-completion method of accounting. In 2015 Pacific
began work under contract #143, which provided for a contract price of P20,000,000. Other details follow:
2015 2016
Cost incurred during the year P 3,000,000 P15,750,000
Estimated cost to complete, as of Dec. 31 12,000,000 -
Billing during the year 3,600,000 15,400,000
Collections during the year 2,500,000 15,500,000
The portion of the total contract price to be recognized as revenue in 2015 is
a. P3,200,000
b. P3,600,000
c. P2,500,000
d. P4,000,000*
ANS D
16. Which of the following is the only reason why a home office cannot report inventory shipments to a
branch as sales?
a. The inventory transfer is a transaction with a related party.

b. There is no practicable means of determining whether the transfer prices approximate
those that would occur in an arm’s length transaction between independent parties.
c. Only inventory transactions between the company and outside third parties can be
considered sales. *
d. The principle of conservatism. ANS C
17. Which of the following accounts would be shown on the combined financial statements of the home
office and branch?
a. Investment in Branch account

b. Shipments to Branch
c. Home office account
d. Purchases from outsiders* ANS D
18. If the home office of Green Corporation maintains the accounting records for the plant assets of its
branch, and the branch acquired equipment for P50,000, the appropriate journal entry for the branch is
a. Debit the Home Office and credit Plant Asset for P50,000.
b. Debit the Home Office and credit cash for P50,000.*
c. Debit Plant Asset and credit Home Office for P50,000.
d. Debit cash and credit home office for P50,000
ANS B
Midterm Exam
October 06, 2021
19. Which of the following sets of accounts must always be kept in agreement?
a. Investment in Branch and Home Office*
b. Shipments to Branch and Investment in Branch
c. Branch Income and Investment in Branch
d. None of the above ANS A
20. The home office account on the books of the branch is comparable to
a. an asset account
b. an ownership equity account*
c. a liability account
d. all of the above ANS B
21. B & B Company has a branch in Cebu City. In reconciling the reciprocal accounts, it was uncovered
that the branch collected home office accounts receivable of P25,000 but failed to notify the home office.
The home office should make the following entry.
a. Dr Cash P25,000
Cr Branch P25,000
b. Dr Branch P25,000
Cr Accounts Receivable P25,000*
c. Dr Cash P25,000
Cr Accounts Receivable P25,000
d. No entry
ANS B
22. The home office maintains the accounting records for the plant assets of its branch. The appropriate
journal entry to be taken in the books of the branch to record the P15,000 depreciation of equipment used
by the branch is
a. DR Depreciation Expense, P15,000

CR Accumulated Depreciation, P15,000
b. DR Home Office, P15,000

CR Accumulated Depreciation, P15,000
c. DR Depreciation Expense, P15,000*

CR Home Office, P15,000
d. No entry ANS C
Midterm Exam
October 06, 2021
23. Merchandise purchased by the branch from outsiders is added to Shipments from Home Office to get
the cost of goods available for sale by the branch.
a. True*
b. False
ANS A
24. The ending inventory of the branch which is purchased from outsiders is not shown in the combined
balance sheet of the home office and branch.
a. True
b. False*
ANS B
25 Barry Co. produces expensive equipment for sale on installment contracts. When there is doubt about
eventual collectibility, the income recognition method least likely to overstate income is:
a. At the time the equipment is completed.
b. The installment method.
c. The cost recovery method.*
d. At the time of delivery.
.
ANS C
26. The deferred gross profit at the end of each period represents the gross profit on Installment Sales.
a. True
b. False*
ANS B
27. A seller sells equipment on installment basis. When the seller receives merchandise as trade-in,
its market value is included as part of collection in computing realized gross profit.
a. True*
b. False
ANS A
Midterm Exam
October 06, 2021
28. In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross
profit recognized during the first year would be the estimated total gross profit from the contract multiplied by
the percentage of the cost incurred during the year to the
a. total cost incurred to date

b. total estimated cost *
c. unbilled portion of the contract price
d. total contract price
ANS B
29. In accounting for a long-term construction contract for which there is a projected profit, the balance in the
Construction in Progress asset account at the end of the first year of work using the percentage-of-completion
method would be
a. Zero
b. equal to the actual cost incurred during the year
c. the same as the balance of Progress Billings on Construction contracts
d. equal to the sum of the actual cost incurred and the recognized gross profit during the year*
ANS D
30. Dale Construction Company’s projects extend over several years and collection of receivables is reasonably
certain. Each project has a contract that specifies a price and the rights and obligations of all parties. Both
the contractor and the customer are expected to fulfill their contractual obligations on each project. Reliable
estimates can be made of the extent of progress and cost to complete each project. The method that the
company should use and to account for construction revenue is
a. installment sales c. completed-contract
b. percentage-of-completion d. cost recovery ANS B
END
ACCOUNTING FOR HOME OFFICE, BRANCH AND AGENCY BRANCH BILLING AT AN AMOUNT ABOVE COST
TRANSACTIONS When home office bills the branch for merchandise at a figure other than cost, billing
Introduction is usually made at an arbitrary rate above cost or at the retail sales price.
In order to withhold from branch complete information concerning the actual
As a means of achieving marketing objectives, selling units in form of agency or a camnings from branch operation, billing by the home office may be made at an amount
branch may be established. The distinction between an agency and a branch is based above cost. When billings to the branch exceed cost, the earnings determined by the
upon the functions assigned to the organization as well as the degree of independence branch will be less than actual earnings, and the inventories reported by the branch at
that it assumes in the exercise of such functions, an organization that merely takes the billed prices will exceed cost. The difference between the billed price recorded by
orders for goods, carries no stock other than samples, and that operates under the direct the branch and the cost of the goods shipped recorded by the home office IS credited
a
supervision of the home office is called an agency, while an organization that sells to Unrealized Intercompany Inventory Profit (Allowance for Overvaluation of Branch
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goods out of a stock that it maintains and that possesses the authority to engage in Inventory). And these factors must be recognized by the home office and given effect
transactions as an independent business unit is called a branch. upon its accounting records in summarizing branch operations.
d
ACCOUNTING FOR BRANCHES PREPARATION OF COMBINED STATEMENTS
Although a branch operates as a separate business unit, it is subject to control by the Although separate statements offer significant information to both home office and
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home office. A branch's cash, merchandise, and other assets, as may be needed, are branch, such statements must be combined in fully stating a company's financial
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supplied by the home office. The branch may purchase merchandise from outsiders to position and results of its operations. The financial position of the business unit as a
satisfy certain local needs for goods not available from the affiliated unit. whole is fully presented only when the individual asset and liability items of the branch
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are substituted for the branch investment balances and combined with the home office
Generally, the branch accounting system is maintained at the branch. Periodic financial items. Operating results for the businesses as a whole are fully presented only when
statements are prepared by the branch for submission to the home office. When the individual revenue and expenses of the branch are substituted for the branch net
complete self-balancing books are kept by the branch, an account called Home Office income or loss and combined with the home office items.
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Current takes the customary capital accounts (credit account). The home office, in
turns, keeps a reciprocal account, called Branch Current or Investment in Branch In combining branch data with home office, the elimination of certain reciprocal
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account (debit account). interoffice items is necessary. Since reciprocal accounts are without significance when
the related units are recognized as single entity, in preparing a combined balance sheet,
ADJUSTMENT OF RECIPROCAL ACCOUNT the home office account and the branch account, and other interbranch receivables and
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The balances in the Branch Current account in the home office books and Home Office payables, are eliminated. In preparing a combined income statement, the reciprocal
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Current account in the branch books may not show identical balances at any one time,
because of certain interoffice data that have been recorded by one office but not by the
accounts Shipments from Home Office and Shipments to Branch are eliminated, since
these balances summarize interoffice transfers that are of no significance when the
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other. The fact that the reciprocal account balances are not identical is of no concern related units are reported as a single entity. Other interoffice revenue and expense
during the fiscal period; however, at the end of the fiscal period, appropriate journal items are also eliminated so that the combined statement may report only the results
entries should be made to bring interoffice accounts into agreement for purposes of of transactions with outsiders.
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individual and combined financial statements.
The data to be considered in reconciling the two reciprocal accounts may be classified When goods are billed to a branch at an amount above cost, the ending inventory on
as follows: the branch balance sheet, reported at an amount above cost, must be restated in terms
1. Debits in the branch account without corresponding credits in the home office of cost in preparing the combined balance sheet. The beginning and ending inventories
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account. (e.g. shipment of merchandise in transit) on the branch income statement will require restatement to cost and the Unrealized
2. Credits in the branch account without corresponding debits in the home office Intercompany Inventory Profit (Allowance for Overvaluation of Branch Inventory)
account. (e.g. branch's accounts receivable collected by the home office) must be eliminated for purposes of preparing the combined income statement.
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3. Debits in the home office account without corresponding credits in the branch
account. (eg cash remittance of the branch to home office in transit)
4. Credits in the home office account without corresponding debits in the branch
s
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account. (e.g. correction of account for the understatement of net income for the
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preceding period)
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MULTIPLE CHOICE QUESTIONS 4. The following were found in your examination of the interplant accounts between
1. An enterprise uses a branch accounting system in which it establishes separate the Home Office and the Butuan Branch:
formal accounting systems for its home office operations and its branch office a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by
operations. Which of the following statements about this arrangement is false? the branch.
a. The home office account on the books of a branch office represents the equity b. P10,000 covering marketing expenses of another branch was charged by the Home
Office to Butuan.
interest of the home office in the net assets of the branch.
c. Butuan recorded a debit note on inventory transfers from the Home Office of P75,000
b. The branch office account on the books of the home office represents the twice.
equity interest of the branch office in the net assets of the home office. d. Home Office recorded cash transfer of P65,700 from Butuan Branch as coming from
c. The home office and branch office accounts are reciprocal accounts that must Davao Branch.
a
be eliminated in the preparation of the enterprise's financial statements that are e. Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to
vi
presented in accordance with GAAP. P10,500. Home Office decided that this charge appropriately Davao Branch's cost.
d. Unrealized profit from internal transfers between the home office and a branch f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560.
must be eliminated in the preparation of the enterprise's financial statements that The net adjustment in the home office books related to the Butuan Branch Current
account is:
d
are presented in accordance with GAAP. Dr. (Cr.)
a. 75,700 Erroneous charging of expense P (10,000)
e
2. Which of the following is the only reason why a home office cannot report b. 65,700
inventory shipments to a branch as sales? Erroneous cash transfer (remittance) (65,700)
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c. 86,200 Net adjustment to Butuan Branch Current account
a. The inventory transfer is a transaction with a related party. d. 94,820
b. There is no practicable means of determining whether the transfer prices in the home office books P (75,700)
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approximate those that would occur in an arms-length transaction between The net adjustment in Butuan's books related to the Home Office account is:
a. 33,335 Dr. (Cr.)
independent parties.
c. Only inventory transactions between the company and outside third parties b. 31,450 Transfer of Fixed Asset from Home Office not booked by
Butuan Branch P(53,960)
as
can be considered sales. c. 20,950 Double recording of inventory transfer from home office 75,000
d. The principles of conservatism. d. 10,450 Understatement of debit memo (90)
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Net adjustment to Home Office account in the Branch books P 20,950
3. On December 31, 2016, the Branch Current in the Home Office books shows a
balance of P50,000. The following facts are ascertained: Before the above discrepancies were given effect, the balance in the home office books
1) Merchandise billed at P12.500 is in transit on December 31 from home office to the branch.
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2) The branch collected a home office accounts receivable for P3,500. The branch did not
of its Butuan Branch Current account has a debit balance of P165,920. The unadjusted
balance in the Butuan Branch books of its Home Office Current account must be:
3)
notify the home office of such collection.
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On December 30, the home office sent cash of P7,500 to the branch, but this was charged
to general expense; the branch has not received the cash as of December 31.
a. 92,336
b. 98,230
Branch Current
Dr.(Cr.)
H.O. Current
Dr.(Cr.)
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Unadjusted balance, Debit P165,920 P 111,170
4) Branch profit for December was recorded by the home office at P2,400 instead of P2,040. c. 104,500 Net adjustment to Butuan Branch Current account "a" (75,700)
5) The branch returned supplies of P1.500 to the home office but the home office has not yet d. 111,170 Net adjustment to Home Office Current account "b" 20,950
recorded the receipt of the supplies. Adjusted balance P 90,220 P 90,220
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Assume all other transactions have been properly recorded. What is the unadjusted The adjusted balance of the reciprocal accounts is: Branch Current H.O. Current
balance of the Home Office Current account on the branch books on December 31, a. 84,807 Dr.(Cr.) Dr.(Cr.)
2016? b. 90,220 Unadjusted balance, Debit

Net adjustment to Butuan Branch Current account "a"
P165,920
(75,700)
P 111,170
a. 64,140 Branch Current HO Current c. 99,200 Net adjustment to Home Office Current account "b" 20,950
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b. 39,140 Unadjusted balance, 12/31/2016 (HO Books) (Branch Books) d. 109,120 Adjusted balance P 90,220 P 90,220
P 50,000 P 39,140
c. 14,000 1. Merchandise in transit 12,500
d. 13,000 2. Collection of home office receivable by the branch 3,500 5. The home office of Mang Do Co. ships goods to Iloilo branch billing the branch
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3. Cash sent to branch which was erroneously charged for the goods at P45,000, excluding freight of P6,000. Upon receipt of the goods,
to Gen. Exp. 7,500
3. Cash sent by home office still in transit 7,500
Iloilo branch was instructed by the home office to transfer these goods to Cagayan
s
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4. Erroneous recording of branch profit (2,400 - 2,040) (360) de Oro branch. Iloilo branch ships the goods and paid P4,500 for the transfer. If
5. Unrecorded supplies returned by the branch (1,500) the goods had been shipped by the home office directly to Cagayan de Oro branch,
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Adjusted balance, 12/31/2016 P 59,140 P 59,140

the freight would have been P6,500.
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What is the journal entry to record receipt of shipment in the book Cagayan de Oro d. Cagayan de Oro branch current 51,500
branch? Shipment to Iloilo 45,000
a. Shipment from home office 45,000 Excess freight on interbranch
Home office current 45,000 transfer of merchandise 4,000
b. Shipment from home office 45,000 Iloilo branch current 55,500
Freight in 6,000 Shipment to Cagayan de Oro 45,000
Home office current 51,000
6. Vivaldi & Co. has several branches located in key cities in the south namely,
c. Shipment from home office 45,000
Cebu, Mactan, Iloilo, Bacolod, Davao, and Cagayan de Oro. It authorizes transfers
Freight in 6,500
of cash and inventories among branches. The head office ships goods (P10,000
a
cost) to Cebu branch paying freight for P600. The home office authorizes the
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d. Shipment from home office 45,000
transfer of goods from Cebu branch to Davao branch where the latter is charged
Freight in 4,500
for the cost of the goods (P10,000) and freight charge (P200) for the transfer. If
the shipment had been made by the home office directly to the Davao branch, the
d
What is the adjusting journal entry to be recorded by Iloilo branch? freight charge would have been P900. The transfer resulted to difference in freight
e
a. Home office current 51,500 charge which should be disposed of as follows:
Shipment from home office 45,000 a. P100 savings.
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Freight in 6,000 b. P100 charge to Davao branch by Cebu branch.
b. Home office current 47,000 c. P100 charge to Davao branch by Head Office.
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Shipment from home office 45,000 d. P100 to be equally charge among head office, Cebu branch and Davao branch.
Freight in 2,000
7. Gershwin Inc. opens a sales agency in Cebu City and a working fund of P20,000
c. Home office current 55,500
is established on an imprest basis. The first payment from the fund is P3,000 for
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Shipment from home office 45,000
rent. The transaction should be recorded by the home office as follows:
Freight in 6,000
Debit Credit
Cash 4,500
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a. No entry
d. Shipment from home office 45,000
b. Rent P3,000
Freight in 6,000
Cash P3,000
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c. Cebu agency 3,000
What is the adjusting entry to be recorded by home office?
a. Shipment to Iloilo 45,000
co rc d.
Working fund
Cebu agency 3,000
3,000
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Excess freight on interbranch Cash 3,000
transfer of merchandise 2,000 An agency that operates solely as a local sales organization under the direction of a home office
Cagayan de Oro branch current 45,000 generally carries no stock other than samples of the lines that are offered for sale. Samples of the
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Freight in 4,000 merchandise, as well as advertising materials are provided by the home office. The agency is
Shipment to Cagayan de Oro 45,000 normally provided with a working fund that is to be used for the payment of expenses that can
be more conveniently settled through agency. The imprest system is often adopted for the control
Iloilo branch current 51,000
of agency cash. Operating expenses of the agency, other than those paid by the agency from its
b. Shipment to Iloilo 45,000 working fund, are met by the home office.
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Excess freight on interbranch

transfer of merchandise 6,000
8. The following information pertains to shipments of merchandise from Home
Office to Branch during 2016:
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c. Shipment to lloilo 45,000

Home office's cost of merchandise P 160,000
Excess freight on interbranch
Intracompany billings 200,000
transfer of merchandise 6,000
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Sales by branch 250,000

Cagayan de Oro branch current 45,000
Unsold merchandise at branch, 12/31/2016 20,000
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Shipment to Cagayan de Oro 45,000
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In the combined income statement of Home Office and Branch for the year ended The entry in Branch B records to update the reciprocal account Home Office Current
December 31, 2016, what amount of the above transactions should be included in on December 31, 2016 is:
sales? a. Dr. - Home Office/Cr. - Profit & Loss
a. 250,000 c. 200,000 b. Dr. - Profit & Loss/Cr. - Branch Current
b. 230,000 d. 180,000 c. Dr. - Branch Current/ Cr. -Profit & Loss
d. Dr. - Profit & Loss/Cr. - Home Office Current
9. Selected balances from the Amorsolo Company's Branches A and B are as
follows: Sales 80,000
Less Cost of Sales:
Branch A Branch B Inventory, 1/1/2016 19,000
Inventory, Jan. 1, 2016 P21,000 P19,000
a
Mdse from home office 47,000
Imprest branch fund 2,000 1,500 TGAS 66,000
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Inventory, Dec. 31, 2016 19,000 12,000 Inventory, 12/31/2016 12,000 54,000
Accts. Rec., Jan. 1. 2016 55,000 43,500 Gross Profit 26,000
Accts. Rec., Dec. 31, 2016 70,000 53,500 Less: Expenses 14,300
Net Profit, Branch B 11,700
d
Mdse, from home office 61,000 47,000
Cash collections 85,000 70,000 10. On December 31, 2016, the following data are in the records of the Angeles
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Sales 100,000 80,000 branch of the Big & Small Company:
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Cash expenses 21,000 14,300 Petty cash P 94,500
All sales, collections, and expenses are handled at the branch. All cash received from Accts. Rec. Dec. 31. 2015 85,200
sales and collections are sent directly to the home office. Expenses are paid by the
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Mdse. Inventory, Dec. 31, 2015 75,500
branch from the imprest fund and immediately reimbursed by the home office and Accts. Rec. Dec. 31, 2016 88,800
credited to the Home Office account. All expenses paid by the branch are recorded in Mdse. Inventory, Dec. 31, 2016 81,000
the branch books. Sales 272,700
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The net profit of branch A is: Sales returns 4,800
a. 16,000 Sales 100,000
Accts receivable written off 2,000
Less Cost of Sales:
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b. 21,000 Shipment from Home Office 220,600
Inventory, 1/1/2016 21,000
c. 15,000 Mdse, from Home Office 61,000 Expenses (paid by home office) 22,500
d. 18,000 TGAS 82,000 If all cash collections in 2016 were remitted to home office, the total remittance
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Inventory. 12/31/2016 19,000 63,000 amount to: Accts. Receivable, Dec. 31, 2015 85,200
Gross Profit
Less: Expenses
Net Profit, Branch A co rc 37,000
21,000
16,000
a. 262,300 Net Sales (272,700 - 4,800)
b. 266,800 Accts. Receivable Written Off
267,900
(2,000)
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c. 264,300 Accts. Receivable, Dec 31, 2016 (88,800)
The balance of the Home Office account of Branch A on January 1, 2016 is: d. 267,100 Total Collections, 2016 262,300
a. 80,000 Inventory, Jan. 1, 2016 21,000
b. 64,000 Imprest Branch Fund 11. The National Home Company ships and bills merchandise to its provincial branch
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2,000
c. 78,000 Accounts Receivable. Jan. 1, 2016 55,000 at cost. The branch carries its own accounts receivable and makes its own
d. 75,000 Home Office Account, 1/1/2016 78,000 collections. The branch also pays its expenses. The transactions for 2016 i
reflected in the branch trial balance that follows:
The balance of the Home Office account of Branch B on January 1, 2016 is: Debit Credit
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a. 80,000 Inventory. Jan. 1. 2016 19,000 Cash P 11,900

b. 64,000 Imprest Branch Fund 1,500 National Home Co. Current P 90,000
c. 78,000 Accts. Rec. Jan. 1, 2016 43,500 Shipments from National Home Co. 120,000
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d. 95,000 Home Office account, 1/1/2016 64,000 Accounts receivable 62,500

The balance of the Branch Current account of Branch B on December 31, 2016 is: Expenses 8,100
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a. 70,000 Inventory, Dec 31, 2016 12,000 Sales 112,500

b. 64,000 Imprest Branch Fund Total P202,500 P202,500
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1,500
c. 67,000 Accts. Rec. Dec. 31, 2016 53,500
d. 65,000 Home Office Account, 12/31/2016 December 31 inventory P30,000
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67,000
The net profit of the branch was: 14. In Home Office and Branch merchandise transfers, the use of a Shipments to
a. 22,500 Sales 112,500 Branch account by the Home Office and the use of a Shipments from Home office
b. 14,400 Cost of Sales: account by the branch indicate that the inventory system employed
c. 21,900 Shipments from H.O. 120,000 a. Is a perpetual inventory system.
Inventory, Dec. 31 30,000 90,000
d. Answer Gross Profit b. Is a periodic inventory system.
22,500
not given Expenses 8,100 c. Is neither perpetual nor periodic inventory system.
Net Profit 14,400 d. Cannot be determined from the information provided.
15. The home office bills its branch for merchandise transfers at a price in excess of
In the home office books, the Branch Current account should be:
cost. In the home office separate financial statements, the allowance for unrealized
a
a. 134,400 Cost of Sale 90,000 profit in branch inventory account would appear in the financial statements of the
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b. 90,000 Net Profit 14,400 home office as
c. 104,400 Branch Current Account 104,400
a. An operating expense of the current period.
d. Answer not given
b. Deduction from the cost of goods sold.
d
c. Addition to the cost of goods sold.
12. Which represents the proper journal entry for a periodic inventory system that
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d. Deduction from the investment in branch account.
should be made on the books of the branch when goods that cost the home office
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P100,000 to manufacture are shipped to the branch at a price of P125,000? 16. Teicher Co, bills its branch for merchandise shipments at 125% of cost. As of out
a. Shipments from home office 100,000 off date, 31 December 2016, the following data were available:
Home office 100,000
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b. Shipments from home office 125,000 Mdse. From Home Mdse. Purchased Total
Home office 125,000 Office (at billed price) (from outsider)
c. Shipments from home office 125,000 Merchandise, 1. Dec. P300,000 P120,000 P420,000
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Home office 100,000 Addition to stock, Dec. 450,000 360,000 810,000
Unrealized profit 25,000 Merchandise, 31 Dec. 420,000 150,000 570,000
d. Shipments from home office 100,000
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Unrealized profit 25,000 The branch returned P15,000 merchandise to the home office acquired at billed price.
Home office 125,000 The amount of the allowance for overvaluation account that was realized as income in
In a periodic inventory system, when merchandise is received by a branch from home office, the view of branch sales for the month of December was
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merchandise should be reflected as a debit to shipment from the home office in the amount of the a. 63,000
office in the net assets of the branch.
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transfer price, with a corresponding credit to home office account to indicate the equity of the home b. 66,000
c. 87,500
Billed Price Cost Allow. For
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13. Which represents the proper journal entry for a periodic inventory system that d. 84,000
Over valuation
should be made on the books of the home office when goods that cost the home
Inventory, 12/1 300,000 125% 240,000 60,000
office P100,000 to manufacture are shipped to a branch at a transfer price of Shipments 435,000 125% 348,000 87,000
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P125,000 and the billed price is not recorded in the shipments to branch account? TGAS 735,000 588,000 147,000
a. Shipments from home office 100,000 Inventory, 12/31 420,000 125% 336,000 84,000
Home office 100,000 Cost of Sales 315,000 252,000 63,000
b. Shipments from home office 125,000
Home office 125,000
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17. Early last year, a Manila-based company established a branch in Iloilo City. It
c. Shipments from home office 125,000
Home office 100,000
shipped merchandise and billed the branch for P300,000 prior to opening. For the
Unrealized profit 25,000 year, it made additional shipments at a billed price of P120,000. Within the year,
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d. Shipments from home office 100,000 the branch shipped back P7,500 inventory and got credit memo for the said return.
Unrealized profit 25,000 On the last working day of the year, an inventory count was made. Ending
inventory of P185,000 was established consisting of purchases from outsiders at
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Home office 125,000

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When goods are shipped from a home office to a branch at a transfer price that reflects original P20,000, with the balance coming from the home office shipments at billed price
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cost plus markup, the branch must record the shipment at the transfer price; while the home of 20% above cost. The total purchases of the branch from outsiders amounted to
office reflects the shipment to branch at original cost. To maintain a reciprocal relationship
between home office and the branch office accounts, an unrealized profit in branch inventory
P72,500. What is the total goods available for sale by the branch at cost?
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account (allowance for overvaluation) reflects the markup.
a. 416,250 Net Shipment from Home Office at Cost 19. The following is the income statement of XYZ Branch in Cebu City for the six-
b. 422,500 [(300,000+ 120,000 - 7,500)/120%] 343,750 month period ending June 30, 2016:
c. 435,250 Add: Purchases from Outsiders at Cost 72,500 Sales P620,000
d. 485,000 Total Goods Available for Sale at Cost 416,250 Cost of Sales:
Shipments from H.O. P550,000
Purchases 50,000
18. JCPENNY, Philippines has two merchandise outlets, its main store in Manila and
Total 600,000
its Cebu City branch. For control purposes, all purchases are made by the main Inventory, June 30
store and shipped to the Cebu City branch at cost plus 10%. On January 1, 2016, From H.O. 75,000
the inventories of the main store in Manila and the Cebu City branch are P13,600 Fr. Outsider 10,000 85,000 515,000
a
and P3,960, respectively. During 2016, the main store purchased merchandise Gross Profit 105,000
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costing P40,000 and shipped 40% of its merchandise to the Cebu City branch. At Expenses 85,000
December 31, 2016, the following journal entry to prepare the books for the new Net Profit P 20,000
accounting period was prepared: The home office ships merchandise to, and bills, the Branch office at 125% of cost.
The rent of the branch office for six months, at a monthly rate of P1,000 was paid by
d
Sales 32,000
Inventory 4,840 the home office.
e
Inventory 3,960
The home office net profit from its Branch Office in Cebu City, for the six months
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Shipments from Main store 17,600
Expenses 10,480 ending June 30, 2016 is:
Main store 4,800 a. 125,000
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What was the actual branch income for 2016 on a cost basis, assuming the use of the b. 124,000
provisions of the statement of financial accounting standards c. 139,000
a. 4,800 d. 109,000 Billed Price Cost Allow. for
Overvaluation
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b. 6,320
TGAS 550,000 125% 440,000 110,000
c. 6,480 Inventory, end 75,000 125% 60,000 15,000
Billed Price Cost Allow. for
d. 6,840
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Overvaluation Cost of Sales 475,000 380,000 95,000
Inventory, 12/ 1 3,960 110% 3,600 360
Shipments 17,600 110% 16,000 1,600 Branch reported Net Profit 20,000
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TGAS 21,560 110% 19,600 1,960 Less: Rent paid by Home Office (1,000 x 6) 6,000
Inventory, 12/31 (4,840) 110% (4,400) 440 Adjusted reported Net Profit 14,000
Cost of Sales
Sales
16,720
32,000 co rc
15,200 1,520 Add: Realized Profit on Branch Inventory
Home Office Profit from Branch Office
95,000
109,000
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Less: Cost of Sales at Cost 15,200 The inventory of the Branch office in Cebu City, at cost, as of June 30, 2016 is:
Gross Profit 16,800 a. 85,000 Merchandise purchased from outsiders 10,000
Expenses (10,480) b. 70,000 Merchandise acquired from home office 60,000
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Actual Branch Income 6,320 c. 60,000 Total branch inventory at cost, 6/30/2016 70,000
d. 75,000
If the main store has P11,200 worth of inventory unsold at the end of 2016, the
inventory of the main store and the branch should appear on the combined balance
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sheet as at December 31, 2016 is:

a. 15,160 Inventory, 12/31/2016 Main Store 11,200
b. 15,600 Inventory, 12/31/2016 Branch 4,400
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c. 16,040 Combined inventory at cost 15,600

d. 17,200
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20. The Manila Corp. has its main office in Cebu City and established a branch in 22. New Era Corp. bills its newly established branch for merchandise at 140% of cost.
Manila. During 2016, its first year of operations, the home office in Cebu City At the end of its first month, the branch reported, among other things, the
shipped goods to the branch in Manila at a total billing price of P303,050 which following:
was 10% above cost. At December 31, 2016, the branch reported a net loss from Merchandise from home office (at billed price) P28,000
its own operations of P5,500, and an ending inventory of P61,050. How much is Merchandise purchased locally by branch 10,000
the branch net income (loss) in so far as the home office is concerned? Inventory, September 30, of which P2,000 are of local purchases 9,000
a. (5,500) Net sales for month 43,500
b. 16,500 The branch inventory at cost should be recorded at
c. 22,000 a. 38,000 From Home Office [(9,000 – 2,000)/140%] 5,000
Billed Price Cost Allow. for
a
d. 27,500 Overvaluation
b. 7,000 From Outsiders 2,000
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Shipments/TGAS 303,050 110% 275,550 27,550 c. 9,000 Branch Inventory at Cost 7,000
Inventory, end 61,050 110% 55,550 5,550 d. None of the above
Cost of Sales 242,000 110% 220,000 22,000
d
The gross profit of the branch in so far as the home office is concerned was
Branch reported net loss (5,500) a. 22,500 Branch's Sales 43,500
e
Realized profit in inventory sold 22,000 b. 14,500 Less: Cost of Sales @ cost:
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Branch net income in so far as the home office is concerned 16,500 c. 22,790 Shipment from Home Office (28,000/ 140%) 20,000
d. None of the Local Purchases by Branch 10,000
21. At the end of 2016, the branch reported an inventory of P15,625. The home office TGAS 30,000
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above
bills this branch at 125% of cost. During 2017, goods costing P300,000 were Less: Inventory, End "a" 7,000 23,000
shipped to the branch. The account "allowance for overvaluation of branch Gross Profit 20,500
inventory" after adjustment, shows a balance of P16,250 at the end of the year.
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What was the amount of inventory at January 1, 2017 at cost? 23. Makati Co, bills its Valenzuela branch for merchandise at 140% of cost. At the
a. 12,500 end of January 2016, the branch reported the following information:
b. 15,625 Merchandise from
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c. 19,531 Billed Price Cost Allow. For Home Office (At billed price)
d. 28,125 OverValuation Inventory, January 1 P 7,560
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Inventory, Beg. 15,625 125% [1] 12,500 3,125 Shipments received 28,280
Shipments 375,000 125% 300,000 75,000 Inventory, January 31 8,400
TGAS
Inventory, End
390,625
[2] 81,250
125%
125%
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312,500
65,000
78,125
16,250
What should be the balance of the allowance account for overvaluation of the branch
inventory at January 31?
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Cost of Sales 309,375 125% 247,500 [3] 61,875
a. 2,400 Branch Inventory, January 31 @ Billed Price 8,400
b. 2,160 Less: Branch Inventory, January 31 @ Cost (8,400/ 140%) 6,000
What was the amount of ending inventory at billed price?
c. 8,080 Allowance for Overvaluation, Inventory January 31 2,400
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a. 309,375 The amount of P16,250 representing the balance of allowance for overvaluation of
d. None of the above
b. 247,500 branch inventory after adjustment is the realized profit of home office from the sold
c. 81,250 merchandise of the branch (allowance for overvaluation of branch ending
24. Trial balances for the home office and for the branch of Toby Co. show the
d. 65,000 inventory), which is 25% above cost. Therefore, the branch ending inventory at
billed price was P81,250 (16,250/25% x 125%). following accounts before adjustment as of December 31, 2016. The home office
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bills merchandise to the branch at 20% above cost.

What was the amount of allowance for overvaluation before adjustment?
H.O. Branch
a. 61,875 The allowance for overvaluation before adjustment represents the allowance for
Unrealized intercompany inventory profit 10,800
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b. 78,125 overvaluation of total goods available for sale. And to determine the profit realized
c. 20,312 by the home office through markups in the merchandise shipped to the branch, this
item (allowance for overvaluation before adjustment) will be adjusted by deducting Purchases from outsiders 7,500
d. 20,000 the allowance for overvaluation of unsold merchandise at the end of the period. (See
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computations in "a")
Merchandise inventory, December 1, 2016 45,000
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What part of the December 1, 2016 branch inventory represents acquisition from On March 20, the branch returned defective merchandise worth P3,050 and on March
outsider purchases, and what part represents acquisition from home office? 31, it reported a net loss of P6,200, and merchandise inventory of P85,000.
Outsiders Home Office
In the home office books, the cost of merchandise sold by the branch was
a. P9,000 P36,000
a. 93,560
b. 10,000 35,000
b. 116,950
c. 12,000 33,000
c. 161,560
d. 15,000 30,000 Billed Price Cost Allow. for
d. 161,950
Billed Price Cost Allow. for Overvaluation
Overvaluation Shipments (205,000 - 3,050) 201,950 125% 161,560 40,390
a
Inventory Beg. 36,000 120% 30,000 6,000 Inventory, end 85,000 125% 68,000 17,000
Cost of Sales 116,950 93,560 23,390
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Shipments 28,800 120% 24,000 4,800
TGAS 10,800 In the home office books, the branch operations resulted in a net income
(loss) of
Total Inventory Beginning 45,000
d
a. (6,200) Branch reported Net Loss (6,200)
Less: Inventory Beginning from Home Office @ billed price 36,000
b. 17,190 Realized Profit in Branch Inventory (a) 23,390
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Inventory Beginning from Outsiders 9,000
c. 20,240 Branch Net Income in the Home Office Books 17,190
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25. The Neneng Corp. established its San Pedro branch in March 2016. During the d. 23,390
first year of operations, the home office shipped to the branch merchandise which
28. A home office has a branch in Metro Manila. The branch buys merchandise from
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had cost of P120,000. Three-fourths of these merchandise was sold by the branch
outside parties and also receives merchandise from the home office for which it is
for P141,000. Operating expenses of the branch amounted to P27,000. How much
billed at 20% above cost. Below are excerpts from the trial balances and other
net income will the branch report if merchandise is billed by the home office to
data of the home office and its branch for the month just ended:
the branch at 25% above cost?
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Home Office:
a. 800 Sales 141,000
Cr: Allowance for overvaluation 370,000
b. 1,200 Cost of Goods Sold @ Billed Price (120,000 x 125% x ¾) (112,500)
Cr: Shipments to branch 850,000
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c. 1,500 Gross Profit 28,500
Metro Manila Branch:
Less: Expenses 27,000
d. 8,000 Dr: Beginning inventory 1,440,000
Branch Reported Net Income 1,500
Dr: Shipments from home office 1,020,000
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26. The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao Dr: Purchases 410,000
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City. During 2016, the home office shipped to the branch supplies costing
P120,000 at a billed price of 20% above cost. The inventories of supplies at the
Month-end branch inventory:
From home office, at billed price
From outside parties, at cost
1,170,000
290,000
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branch were as follows: January 1 - P90,000; December 31 - P108,000. On
What is the amount of allowance for overvaluation that was realized because of branch
December 31, 2016, the home office holds inventories of P160,500, which
sales for the month just ended?
includes P10,500 held on consignment. Both locations use the periodic inventory
a. 175,000 Allowance for Overvaluation 370,000
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method. How much inventories should be reported in the combined balance sheet
b. 195,000 Less: Overvaluation in Branch Ending Inventory
as of December 31, 2016?
c. 200,000 (1,170,000/120% x 20%) 195,000
a. 210,000
d. 370,000 Realized Amount of Allowance for Overvaluation
b. 240,000 Branch Inventory, Dec. 31, 2016 @ cost (108,000/120%) 90,000 175,000
Home Office Inventory, Dec. 31, 2016 (160,500 - 10,500) 150,000
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c. 270,000 Combined Inventory, December 31, 2016 @ cost 240,000 29. The combined statements may be used to present the results of operations of
d. 300,000
Entities under Common Management Commonly Controlled Entities
27. A branch store in Marikina was established by Marco Co. on March 1. a. No Yes
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Merchandise was billed to this branch at 125% of cost. Shipments of merchandise b. Yes No
were as follows: c. No No
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March 5 P120,000 (at billed price) d. Yes Yes

March 10 P 50,000 (at billed price)
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March 20 P 35,000 (at billed price)

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30. Mr. Cord owns four corporations. Combined financial statements are being and it is the intention of management to close it if its operations prove to be
prepared for these corporations, which have inter-entity loans of P200,000 and unprofitable.
inter-entity profits of P500,000. What amount of these loans and profits should be
What is the result of operations of the Baguio City agency?
included in the combined financial statements?
a. No profit, no loss.
Inter-entity Inter-entity
Combined financial statements are appropriately b. P25,000 profit
Loans Profits
issued when two or more entities have a common c. P9,000 loss
a. 200,000 0
relationship, such as common ownership interest d. P 155,000 loss
b. 200,000 500,000 or common management. When combined
c. 0 0 financial statements are issued inter-entity loans Accounts Receivable, End 100,000
a
d. 0 500,000 and profits should be eliminated in their entirety. Add: Receipts from Sales 350,000
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Sales on Account 450,000
31. The Baguio branch of a home office in Manila is billed for merchandise it receives
d
at 125% of cost. The branch turns around and sells them at 25% of billed price.
On March 15, all branch's merchandise was destroyed by fire. The branch's
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records recovered shows the following:
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Inventory, January 1 (at billed price) 165,000
Shipments, January 1 to the date of fire (at billed price) 110,000
Purchases (at cost) from outsiders all resold at markup of 20% 7,500
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Sales 169,000
Sales returns and allowances 3,750
What is the cost of merchandise destroyed by fire?
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a. 120,000 c. 130,000
b. 120,240 d. 140,000
w
Total Net Sales (169,000 - 3,750) 165,250
Less: Total Sales of Merchandise Acquired from Outsiders (7,500/80%) 9,375
Total Net Sales of Merchandise Acquired from Home Office 155,875
m e
co rc
Total Goods Available for Sale from Home Office at Billed Price
(165,000 + 110,000)
Less: Cost of Goods Sold (at billed price) (155,875 x 80%)
275,000
124,700
o. ou
Inventory End (at billed price) 150,300
Inventory End (at cost) destroyed by fire (150,300/125%) 120,240

er res
32. Zeta Corp. established an agency in Baguio City. For the first month of operation,
the agency transactions were summarized as follows:
Receipts from sales 350,000
se dy
Disbursements for:
Purchases 400,000
Rent 20,000
ur tu
Advertising supplies 10,000

Salaries and commissions 70,000
Other expenses 5,000
s
H
At the end of that month, the agency had P100,000 of receivables and P50,000 of
is
payables. Also, there were P90,000 of unsold merchandise and P6,000 of unused
advertising supplies on hand. The Baguio City agency was conceived as an experiment
Th
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Questions 1 & 2 are based on the following information.
On February 14, 2012, Therese Company established a sales agency in Tagbilaran.
Upon establishment of the sales agency, the home office sent samples costing
P8,000 and a working fund of P3,000 to be maintained on the imprest basis. During
the six-month period, the sales agency reported to the home office sales orders.
These were billed at P70,000 of which of P40,000 was collected) the sales agency
paid expenses of P5,800 but was reimbursed by the home office.
On August 15, 2012, the sales agency samples were valued at P2,000. It was
estimated that the gross profit on goods shipped to fill sales order averaged 40% of
cost.
1. The cost of sales of the sales agency for the six-month period is
a. P42,000 c. P48,000
b. P44,000 d. P50,000
2. The net income of the sales agency for the six-month period is
a. P16,200 c. P10,200
b. P14,200 d. P8,200
3. A branch’s ending inventory of merchandise shipped by the home office and

purchased from outside vendors amounts to P 50,000. The post-closing trial
balance in the Unrealized Gross Profit in Branch Inventory account is P 6,000 due
to the home office practice of shipping merchandise at 20% above cost. The
merchandise purchased from outside vendors contained in the ending inventory
of the branch amounts to:
a. P 38,000 c. P 30,000
b. P 18,000 d. P 14,000
Questions 4 and 5 are based on the following information.

The income statement submitted by Loon Branch to the Home Office for the month
of December 31, 2013 follows:
Sales P600,000
Cost of Sales:
Inventory, December 31, 2013 P80,000
Shipments from Home office 350,000
Purchased locally by branch 30,000
Total P460,000
Inventory, December 31, 2013 (100,000) 360,000
Gross Margin P240,000
Operating Expenses (180,000)
Net Income for the month P 60,000
The Branch inventories consisted of:

12/1/2013 12/31/2013
Merchandise purchased from home P70,000 P84,000
Local purchases P10,000 P16,000
Total P80,000 P100,000
After effecting the necessary adjustments, the Home Office ascertained the true net
income of the Branch to be P156,000.
4. At what percentage of cost did the home office bill the branch for merchandise
shipped to it?
a. 100% c. 120%
b. 140% d. 150%
5. What is the balance of the Allowance for Overvaluation in the branch inventory
at December 31, 2013?
a. P10,000 c. P16,000
b. P24,000 d. P34,000
The following information is extracted from the books and records of Elaine
Company and its branch. The balances are at December 31, 2012 of the company’s
operations.
Home Office Branch
Sales P260,000
Shipments to branch P 78,000
Purchases 39,000
Expenses 78,000
Inventory, January 1, 2012 26,000
Allowance for overvaluation of branch 31,200
inventory
However, no shipments in transit between home office and the branch were
made. Both shipments accounts are properly recorded. The ending inventory
includes merchandise acquired from the home office in the amount of P26,000
and P7,800 acquired from outsiders acquired from the home office in the amount
of P26,000 and P7,800 acquired from outsiders for a total of P33,800.
6. What is the realized profit in branch inventory?

a. P21,000 c. P22,533
b. P31,200 d. P24,700
7. What is the amount of branch merchandise beginning inventory that was

acquired from the home office?
a. P14,000 c. P15,600
b. P19,000 d. P20,800

Auto Supply Company is engaged in merchandising both at its home office in Cebu
City and its branch in Toledo City. Selected accounts taken from the trial balances of
the home office and the branch as of December 31, 2012 follow:
Debits Cebu City Toledo

Branch
Inventory, January 1, 2012 P 23,000 P 11,550
Toledo Branch 58,300
Purchases 190,000 105,000
Freight in from home office 5,500
Sundry Expenses 52,000 28,000
Credits
Home Office P 53,300
Sales P155,000 140,000
Sales to branch 110,000
Allowance for Overvaluation of branch
inventory at January 1, 2012. 1,000
Additional information:
 The Toledo City branch gets all of its merchandise from the home office.
The home office bills the goods at cost plus a 10% mark-up. At December
31, 2012, a shipment with a billed value of P5,000 was still in transit.
Freight on this shipment was P250 and is to be treated as part of the
inventory.
 Inventories on December 31, 2012, excluding the shipment in transit,
follow:
Home office, at cost………………………………….……….. P30,000
Branch, at billed price (excluding freight of P520…… 10,000
8. What is the net income of the home office from own operations?
a. P30,470 c. P21,000
b. P20,000 d. P30,470
9. What is the net income of the branch in so far as the home office is concerned?
a. P870 c. P1,500
b. P10,470 d. P12,000
10. Durable Textile Company has a single branch in Bohol. On March 1, 2012, the
home office accounting records included an Allowance for Overvaluation of
Inventories – Bohol Branch ledger account with a credit balance of P32,000.
During March, merchandise costing P36,000 was shipped to the Bohol Branch
and billed at a price representing a 40% markup on the billed price. On March
31, 2012, 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?
a. P39,257 debit c. P39,333 debit
b. P46,000 credit d. P46,000 debit
Yul Trading Corp. operates a branch in Talisay City. At the close of business on
December 31, 2012, Talisay Branch account in the home office books showed a
debit balance of P225,770. The interoffice accounts were in agreement at the
beginning of the year. For purposes of reconciling the interoffice accounts, the
following facts were ascertained:
1. An office equipment costing the home office P3,5000 was picked up by the
branch as P350.
2. Insurance premium of P675 charged by the home office was taken up twice
by the branch.
3. Freight charges on merchandise made by the home office for P1,125 were
recorded in the branch book as P1,215.
4. Home office credit memo representing a discount on merchandise for P800
was not recorded by the branch.
5. The branch failed to take up a P700 debt memo from the home office
representing the share of the branch in the advertising.
6. The home office inadvertently recorded a remittance for P3,000 from the
Cebu branch as a remittance from its Talisay branch.
11.What is the balance of the Home Office account before adjustment as of

December 31, 2012?
a. P225,000 c. P228,485
b. 225,770 d. 226,485
12.What is the adjusted balance of the Home Office account as of December 31,
2012?
a. P225,000 c. P225,770
b. 226,485 d. 228,770

PTT Corporation retails merchandise through its home office store and through a
branch store in a distant city. Separate ledgers are maintained by the home office
and the branch. The branch store purchases merchandise from the home office (at
120% of home office cost), as well as from outside supplies. Selected information
from the December 31, 2012 trial balances of the home office and branch is as
follows:
Home Office Branch
Sales P120,000 P50,000
Shipments to branch 16,000 ----
Purchases 70,000 11,000
Inventory, January 1, 2012 40,000 30,000
Shipments from home office ----- 19,200
Expenses 28,000 2,000
Unrealized profit in branch inventory 7,200 -----
 The entire difference between the shipment accounts is due to the practice of
billing the branch at cost plus 20%.
 The December 31, 2012 inventories are P40,000 and P20,000 for the home
office and the branch, respectively. (The branch purchased 16% of its ending
inventory from outside supplies.)
 Branch beginning and ending inventories include merchandise acquired from
home office is inventoried at 120% of home office cost.
13.What is the realized profit in branch inventory?

a. P4,000 c. P2,800
b. 7,200 d. 4,400
14.What is the net income of the branch as far the home office is concern?
a. P50,200 c. P10,600
b. 15,000 d. 12,200

Kulas Corporation has one branch operation located 500 miles away from the home
office. The branch office sales merchandise which is shipped to it from the home
office. The merchandise is transferred at cost but the branch pays reasonable
freight charges. The branch office makes sales and incurs and pays operating
expenses. At the end of the current accounting period the true adjusted balance for
the home office account on the branch’s books and the branch office account on the
home office’s books is P500,000.
The following items may or may not be reconciling items. The current year is 2012.
1) The home office has shipped merchandise to the branch office which cost
P10,000 and which incurs P500 freight charges paid by the home office
but charged to the branch. This merchandise is received by the branch on
January 5, 2012.
2) The branch has transmitted P17,000 in cash back to the home office as a
partial payment on such purchased merchandise. This cash is received by
the home office on January 6, 2012.
3) The branch office returns some defective merchandise to the home office.
The cost of the returned merchandise is P750. The branch office pays P25
of freight costs which will be charged back to the home office.
4) On December 1, 2012, the home office sends a check for P25,000 to
replenish the branch’s charged back to the home office.
5) The branch pays an advertising expense of P800 that should have been
paid by the home office since it applied to advertising fees incurred by the
home office of its own benefit.
6) The home office allocated P12,000 of general and administrative expenses
to the branch. The branch had not entered the allocation as of the end of
the year.
7) The home office pays insurance premiums on the branch store. The
amount paid by the home office is P1,000 but the branch erroneously
records it as P776.00
15.What is the unadjusted balance of the Home Office account?

a. P481,425 c. P500,000
b. 452,276 d. 518,575
16.What is the unadjusted balance of the Branch account?
a. P433,701 c. P518,575
b. 500,000 d. 452,276
Questions 17 through 20 are based on the following information.

Selected information from the trial balances for the home office and the branch of
Lalay Company at December 31, 2012 is provided. The branch acquires
merchandise from the home office and outside suppliers.
Home Office Branch
Sales P60,000 P30,000
Allowance for overvaluation of branch inventory 3,600
Purchase (outsiders) 35,000 5,500
Merchandise inventory 12.01.12 20,000 15,000
Expenses 14,000 6,000
Merchandise inventory, December 31, 2012:
Home office P20,000
Branch (P7,500 from home office and P2,500 from outsiders) 10,000
17.The billing rate of home office to branch for merchandise shipments is

a. 120% of cost c. 130% of cost
b. 125% of cost d. 135% of cost
18.How much of the December 1 inventory of the branch represent purchases from
outsiders and goods shipped from home office?
a. Home office, P5,000 and Outsiders, P10,000
b. Home office, P8,000 and Outsiders, P7,000
c. Home office, P15,000 and Outsiders, P00,000
d. Home office, P12,000 and Outsiders, P3,000
19.The net income reported by the branch is

a. P4,500 c. P3,500
b. P5,600 d. P2,500
20.The combined net income for Home office and branch operations is
a. P22,500 c. P25,100
b. P24,600 d. P21,500
21.Clang-clang Corporation’s home office ships merchandise to its Toledo branch at

a billing price of 125% of cost. During 2012 the home office makes the following
entry:
Toledo Branch 75,000
Shipments to Toledo branch 75,000
At year-end 2012, P12,000 of this merchandise remains at Toledo branch
inventory.
The entry to adjust the branch income in the books of the home office will
include
a. Debit to Allowance for overvaluation of branch inventory, P12,600
b. Credit to Toledo branch account, P2,400
c. Debit to Shipments to Toledo branch, P12,600
d. Credit to Toledo branch inventory, P2,400
22.May Corporation operate two stores: The Head Office store and Rose branch. On
December 31, 2012, the Rose Branch account in the home office books has a
balance of P340,000. Both stores use a standard 120% markup on cost.
However, May’s home office ships merchandise to the branches at cost. Rose’s
ending inventory includes P20,000 of merchandise received from home office
Rose branch remitted P15,000 to home office on December 30, 2012. The Home
office will not receive the remittance until January 4, 2013. The Home office
allocated P5,000 general expenses to each of the branches but Rose branch
have not yet recorded the expenses at year-end)
Rose branch paid P2,000 for advertising “after Christmas” sales that were to be
allocated equally between the two stores. The Home office has not recorded its
share in the expenses.
The unadjusted balance of the Home office account in the books of Rose branch
is
a. P324,000 c. P323,000
b. P319,000 d. P318,000
Questions 23 & 24 are based on the following information.

On December 31, 2012, the home office account on the branch books shows a
balance of P9,735. The following reconciling data are determined in accounting for
the difference.
a. Merchandise billed at P615 shipped by the home office to the branch on
December 28 is still in transit.
b. The branch collected a home office accounts receivable of P2,500, but failed
to notify the home office of this collection.
c. The home office recorded the branch net income for November at P1,125.
This was in error, as the branch reported net income was P1,215.
d. The home office was charged P640 when the branch returned merchandise
to the home office on December 31. The merchandise is in transit.
23.The unadjusted balance of Branch account is

a. P9,735 c. P10,990
b. P10,350 d. P8,400
24.The adjusting entry to correct branch net income for November is

a. Debit, Branch profit and loss P90 and Credit, Branch account P90
b. Debit, Home office account P90 and Credit, Branch profit and loss P90
c. Debit, Branch account P90 and Credit, Branch profit and loss P90
d. Debit, Branch profit and loss P90 and Credit, Home office account P90
25.VERDI, Inc. has several branches. Goods costing P10,000 were transferred by
the head office to Cebu Branch with the latter paying P600 for freight cost.
Subsequently, the head office authorized Cebu Branch to transfer the goods to
Davao Branch for which the latter was billed for the P10,000 cost of the goods
and freight charge of P200 for the transfer. If the head office had shipped the
goods directly to Davao Branch, the freight charge would have been P700. The
P100 difference in freight cost would be disposed of as follows:
a. Considered as savings. c. Charged to Davao Branch.
b. Charged to Cebu Branch. d. Charged to the Head Office.
26. During the year 2012 goods billed at P840,000 were shipped to the branch at
125% of cost. The account Allowance in Branch Inventory has a balance of
P242,000 before adjustment. The beginning inventory of the branch from home
office at cost is P370,000; the beginning inventory of the branch from outsider is
P35,000; purchases from outsider is P220,000. Determine the “cost of goods
available for sale” of the branch per branch record.
a. P1, 297, 000 c. P1, 465, 000
b. P1, 539, 000 d. P1, 757, 000
Use the following information for the next two items:

Trial balance for the home office and the branch of Terry Company show the
following accounts before adjustments on December 31, 2012. The home office
policy of billing the branch for merchandise is 20% above cost.
Home Office Branch
Allowance for overvaluation 60,000
Purchases (outsiders) 75,000
Merchandise Inventory, 12/01/12 100,000
The branch Merchandise Inventory on December 31, 2012 of P 50,000 includes

purchases from outsiders of P 20,000.
27. The working paper entry to eliminate profit in the beginning inventory includes
debit to
a. Allowance for overvaluation, P 48,000
b. Allowance for overvaluation, P 46,500
c. Allowance for overvaluation, P 48,500

d. Allowance for overvaluation, P 12,000
28. The entry on the books of the home office to recognize mark-up includes credit
to
a. Branch income summary, P 52,000
b. Branch income summary, P 52,400
c. Branch income summary, P 52,500
d. Branch income summary, P 5,000
29. The Home office in Mandaluyong shipped merchandise costing P 80,000 to

Makati branch and paid for the freight charges of P 600. The home office bills the
branch at 125% of cost. Makati branch was subsequently instructed to transfer
one-half of the merchandise to Bulacan branch wherein Bulacan paid for P 200
freight. If shipment was made directly from Mandaluyong to Bulacan, the freight
cost would have been P 400. By how much will the Makati branch charge the
Home Office account?
a. P50,300 c. P51,300
b. P0 d. P56,000
30. The Manila branch of the Great 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) P26,400

Shipments from home office ( Jan.1 – Feb.16) 20,000
Sales 15,000
Sales Returns 2,000
Sales Allowances 1,000
What was the cost of the merchandise destroyed by fire?
a. P36,000 b. P30,667 c. P36,800 d. P30,000
31. Fischer Company opened its Tuguegarao 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 up in the books of the Home
Office?
a. (1690) b. 6,500 c. (2,270) d. 1,960
32. Barros Corporation’s shipments to and from its Brazil City 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 21,
of P36,000. What is the balance of the allowance for over – valuation of branch
inventory on December 31 before adjustments?
a. P5,600 c. P6,000
b. P137,000 d. P145,000
33. The Robert Corporation established its Bulacan branch in January 2016. During
its first year of operations, home office shipped to its Bulacan branch
merchandise worth P130,000 which included of 15% markup 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. P82,000
b. P47,000
c. P177,000
d. P192,000
34. The Quezon City sales company established a branch in Dumaguete City early
last year. It shipped merchandise and billed the branch for P300,000 prior to its
opening. For the year, it made additional shipments at billed price of P120,000.
Within the year the branch shipped back P7500 inventory and got the credit
memo for said returns. On the last working day of the year, an inventory count
was made. Ending inventory of P185,000 was established, consisting of
purchases from third parties at P20,000, with the balance coming from the home
office shipments at billed price. The home office billed the branch 20% above
cost. The total purchases from outside suppliers amounted to P72,500. The total
cost of goods available for sale by the branch at cost (net of over valuation and
returns) amounted to
a. P416,250
b. P422,500
c. P435,200
d. P485,000
35.The home office of Glendale Company, which uses the perpetual inventory
system, bills shipment of merchandise to the Montrose Branch at a markup of
25% on the billed price. On August 21, 2016, the credit balance of the home
office’s Allowance for Overvaluation of Inventories – Montrose Branch ledger
account was P60,000. On September 17, 2016, the home office shipped
merchandise to the branch at a billed price of P400,000. The branch reported an
ending inventory, at billed price, of P160,000 on September 30, 2016. Compute
the realized gross profit.
a. P20,000
b. P28,000
c. P120,000
d. P160,000
36.Tillman Textile Company has a single branch in Bulacan. On March 1, 2016, the
home office accounting records included an Allowance of Overvaluation of
Inventories – Bulacan Branch ledger account with a credit balance of P32,000.
During March, merchandise costing P36,000 was shipped to the Bulacan branch
and billed at a price representing 40% markup on the billed price. On March 31,
2016, 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?
a. P39,257 debit
b. P46,000 credit
c. P39,333 debit
d. P46,000 debit
37. Charity Inc. established its first branch on May 1, 2016. During the first month of
operation, the home office shipped merchandise to the branch worth P138,000
which included a markup of 15% on cost. Sales for cash were P80,000 while
sales on account were P250,000. At month’s end, the branch reported an
operating expense of P38,000 and a closing inventory of P23,000 at billed price.
As far as the home office is concerned, the true branch net income for May 2016
is
a. P82,000
b. 147,000
c. P177,000
d. P192,000
38. The Gift Co. has a branch in Bacolod City. During 2016, 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 used the periodic inventory system. What closing
inventory would be reported in the combined statement of income for the year
2016?
a. P296,000
b. P3000,000
c. P320,000
d. P330,000
39. Hope Co. started operating a branch on May 1, 2016 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 re billed uniformly at 120% of cost on May 31,2016, the
branch reported a net loss of P52,500 and an inventory of P150,000. What is the
branch net income(loss) reflected in the combined income statement for May
2016?
a. P(9,500)
b. P43,000
c. P(52,500)
d. P95,000
40. Lobster Trading bills its Iloilo City Branch for shipments of goods at 25% above
cost. At the close of business on October 21, 2016, a fire gutted the branch
warehouse and destroyed 60% of the merchandise stock stored therein.
Thereafter, the following data were gathered:
January 1 Inventory, at billed price - P50,000
Shipments from Home Office to Oct. 31 - P 130,000
Not sales to Oct.31 - P225,000
If undamaged merchandise recovered are marked to sell for P30,000, the

estimated cost of merchandise destroyed by the fire is
a. P14,400
b. P21,600
c. P24,000
d. P27,500
41. The Bicol Corporation operates a branch in Naga City. The information from the
December 31, 2016 trial balance as follows:
Home Office Naga Branch
Sales P840,000 P420,000
Purchases 490,000
Inventory, Jan. 1, 2016 140,000 56,000
Inventory at December 31, Home Office P42,000; Branch P84,000
Compute the realized inventory profit of home office from sales made by the
branch (the overvaluation of cost of goods sold)?
a. P56,000
b. P120,000
c. P64,400
d. P80,000
42. Jaimee Marketing Co. opened a branch in San Fernando City at the beginning of
2016. The Branch extends credit, makes collections, pays expenses from cash
receipts, and acquires goods exclusively from the home office. During 2016,
goods shipped by the home office to the branch, at a billing price of 125% of
cost, amounted to P104,000, of which P12,500 remained in the branch’s year
end inventory. Other branch transactions in 2016 were as follows: sales, all on
credit, P117,430: expenses, of which P1,500 are unpaid at year – end, P20,000;
collections on account, after deducting discounts of P1,480, P84,000; and, total
remittances to the home office, P62,500. As far as the home office is concerned,
the operations of the branch in 2016.
a. P4,450 net income
b. P9,550 net loss
c. P18,300 net income
d. P22,750 net income
43. Leila Co. ‘s Clark branch submitted the following data for 2016, its first year of
operation:
Sales - P203,500 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, 2016 of the
Branch Account – current as per home office books?
a. P46,750
b. P48,125
c. P65,505
d. P71,995
44. The Aparri Branch of Cagayan Products, Inc. buys merchandise from third
parties and receives merchandise from the home office for which it is billed at 20%
above cot. Below are excerpts from the trial balances and data on the home office
and Aparri branch for the month just ended:
Home Office Books:

Cr. Allowance for overvaluation of branch
Merchandise ………………………………………………………… P 740,000
Dr. Shipment to Branch ……………………………………………. 1,700,000
Branch Books:
Dr. Beginning Inventory …………………………………………… P2,880,000
Shipments from home office ……………………………… 2, 040,000
Purchases ……………………………………………………………. 820,000
Month – end additional data:

Ending inventory of branch …………………………………………… P2,920,000
From home office at BP ………………………………………. 2,340,000
From outsiders, at cost ……………………………………….. 580,000
For the month just ended:
The total cost of goods sold The amount of allowance

of Aparri Branch at cost for overvaluation that was
(net of overvaluation) realized from branch sales
a. P2,820,000 P400,000
b. 2,470,000 350,000
c. 2,770,000 740,000
d. 2,470,000 390,000
45. The Clark branch of Freeport Corporation submitted the following trial balance
as of 30 June 2016:
Debit Credit
Cash ……………………………………………………. P 28,600
Accounts Receivable ………………………….. P173,800
Shipments from Home Office …………….. 462,000
Home office – Current…………………………. 324,000
Sales ……………………………………………………. 369,600
Expenses …………………………………………….. 29,700
Total ……………………………………………………. P694,100
P694,100
Clark reported an ending inventory of P138,000. Shipments are billed at a

mark – up of 40% on cost. What is the real net income of Clark branch?
a.P70,600
b. P92,400
c. P100,000
d. P108,900
46. The account balances shown below were taken from the trial balances
submitted to Bon – Apetit Corporation by its Alabang branch:
2015 2016
Petty cash fund P1,500 P1,500
Accounts Receivable 43,800 49,140
Inventory - 37,170
Sales 173,180 195,120
Shipments from home(140% of cost) 107,450 136,080
Expenses 51,260 57,930
Accounts written off 1,120 1,920
All branch collections are remitted to the home office. All branch expenses are paid
out of the petty cash fund. When the petty cash fund is replenished, the branch
debits appropriate expense accounts and credits Home Office Current. The petty
cash is counted every December 31, and its composition was as follows:
12/31/15 12/31/16
Currency and coins P580 P860
Expense vouchers 920 640
The branch inventory on December 31, 2016 was P41,370. The correct branch net
income for 2016 was:
a.P3,390
b. P3,670
c. P41,070
d. P41,350
47. The Manila branch of the Great 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 merchandise is destroyed by
fire. No insurance was maintained. Branch accounts show the following information:
Merchandise inventory, January 1 (at billed price) P26,400

Shipments from home office (Jan.1 – Feb. 16) 20,000
Sales 15,000
Sales returns 2,000
Sales Allowances 1,000
What was the cost of the merchandise destroyed by fire?

a.P36,000
b. P30,667
c. P36,800
d. 30,000
48. The Best Co. bills merchandise shipments in its Cavite City branch at 125% of
cost. The branch, in turn, sells the merchandise it receives from the home office at
25% above the selling price. On August 1, 2016, all the branch’s merchandise stock
was destroyed by fire. The branch records that were recovered showed the
following:
Inventory, January 1, 2016 (at billed price) P165,000

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 returns and allowances 3,750
The Best Co. will file an insurance claim. How much is the estimated cost of the
merchandise destroyed by fire?
a.P120,000
b. P130,000
c. P140,000
d. P150,000
49. The following information are extracted from the books and records of Rona
Company and its branch. The balances are at December 31, 2016 of the company’s
operations.
Home Office Branch

Sales P260,000
Shipments to branch P78,000
Purchases 39,000
Expenses 78,000
Inventory, January 1,2016 26,000
Allowance for overvaluation of branch
Inventory 31,200
However, no shipments in transit between the home office and the branch were
made. Both shipments accounts are properly recorded. The ending inventory
includes merchandise acquired from the home office in the amount of P26,000 and
P7,800 acquired from outsiders for a total of P33,800.
Compute the (1) realized inventory profit of home office from sales made by the
branch, and (2) the amount of branch merchandise beginning inventory that was
acquired from the home office.
a. (1) P24,700; (2) P15,600

b. (1) P31,200; (2) P20,800
c. (1) P22,533; (2) P15,600
d. (1) P24,700; (2) P20,800
51. The Dumaguete City branch of Silliman Enterprises, Negros, was billed for
merchandise shipments from home office at cost plus 25% in 2015 and cost plus
20% in 2016. Other pertinent data for 2012 show:
Dumaguete branch Home Office

Sales P63,000 P212,000
Inventory, beginning
at cost 23,000
at billed price 8,900
Purchases 164,000
Inventory transfers
To Dumaguete,at cost 42,000
From Negros, at billed price 50,400
Inventory, end
at cost 28,500
Expenses 20,300 76,400
Compute the (1)net income(loss) of Dumaguete City per branch books and (2) The
combined net income(loss) of Silliman Enterprises.
a.(1) P(4,900); (2) P18,740
b. (1) P(4,900); (2) P22,430
c. (1) P3,330; (2) P22,430
d. (1) P8,230; (2) P25,270
52. The Quezon City branch of Asser Enterprises, Manila, was billed for merchandise
shipments from home office at cost plus 25% in 2015 and cost plus 20% in 2016.
Other pertinent data for 2016 show:
Quezon City branch Home Office

Sales P63,000 P212,000
Inventory, beginning
at cost 23,000
Purchases 164,000
Inventory transfers
To Dumaguete,at cost 42,000
From Negros, at billed price 50,400
Inventory, end
at cost 28,500
Expenses 20,300 76,400
Compute the (1) realized inventory profit from branch sales (or overvaluation of cost
of goods sold, and (2) the ending inventory that should be presented in the
combined income statement.
a. (1) P8,230; (2) P40,200
b. (1) P8,230; (2) P38,250
c. (1) P7,993; (2) P38,250
d. (1) P9,520; (2) P37,860
53. Selected accounts from the December 31, 2016 trial balances of Betty Star Co.
and its branch follow:
5-star Branch
Inventory, Jan. 1 P46,000 P23,100
Branch Current 116,000 -
Purchases 380,000 -
Shipments from Home Office - 209,000
Freight In - 10,450
Expenses 104,000 58,100
Home Office Current - (106,000)
Sales (310,000) (280,000)
Shipments to branch (200,000) -
Branch merchandise markup (22,000) -
As of December 31, 2016, a shipment with a billing price of P11,000 was in transit
to the branch. Freight cost, typically 5% of the billing price, is inventoriable.
Merchandise on hand at year – end were: at home office, P64,000 at cost; at branch,
P33,000 at billing price.
Compute the (1) branch net income in so far as home office is concerned, and (2)
the combined net income for 2016:
a.(1) P40,900; (2) P84,900
b. (1) P32,100; (2) P76,100
c. (1) P32,000; (2) P76,000
d. (1) P33,000; (2) P77,000
54. Swift Corporation, operates a number of branches in Metro Manila. On June 30,
2016, its Sn. Lorenzo branch showed a Home Office Account balance of P27,350 and
the home Office books showed a Sn. Lorenzo branch account balance of P25,550.
The following information may help in reconciling both accounts:
 A P12,000 shipment, charged by Home Office to Sn. Lorenzo branch, was
actually sent to and retained by Sto. Tomas branch.
 A P15,000 shipment, intended and charged to San Jose branch was
shipped to Sn. Lorenzo branch and retained by the latter.
 A P2,000 emergency cash transfer from Sto. Tomas branch was not taken
up in the Home Office books
 Home office collects a Sn. Lorenzo branch accounts receivable of P3,600
and fails to notify the branch.
 Home office was charged for P1,200 for merchandise returned by Sn.
Lorenzo branch on June 28. The merchandise is in transit.
Home office erroneously recorded Sn. Lorenzo’s net income for May, 2016 at
P16,275. The branch reported a net income of P12,675.
55. What is the reconciled amount of the Home Office and Sn. Lorenzo branch
reciprocal amounts?
a.P21,750
b. P23,750
c. P27,350
d. P20,150
56. On December 31, 2016, the investment in Branch account on the home office’s
books has a balance of P102,000. In analyzing the activity in each of these accounts
for De cember you find the following differences:
 A P12,000 branch remittance to the home office initiated on December
27,2016, was recorded on the home office books on January 3,2017.
 A home office inventory shipment to the branch on December 28, 2016, was
recorded by the branch on January 4, 2012; the billing of P24,000 was at
cost.
 The home office incurred P14,400 of advertising expenses and allocated
P6,000 of this amount to the branch on December 15, 2016. The branch has
not recorded this transaction.
 A branch customer erroneously remitted P3,600 to the home office. The home
office recorded this cash collection on December 23,2016. Meanwhile, back
at the branch, no entry has been made yet.
 Inventory costing P51,600 was sent to the branch by the home office on
December 10, 2016. The billing was at cost, but the branch recorded the
transaction at P40,800.
Compute the (1) Unadjusted Balance of the Home Office Account and (2) Adjusted
Balance of the Reciprocal Account as of December 31, 2016:
a.(1) P76,800; (2) P114,000
b. (1) P52,800; (2) P93,600
c. (1) P151,200; (2) P139,200
d. (1) P52,800; (2) P90,000
57. Aca. Inc. has several branches. Goods costing P10,000 were transferred by the
head office to Cebu Branch with the latter paying P600 for freight cost.
Subsequently, the head office authorized Cebu Branch to transfer the goods to
Davao Branch for which the latter was billed for the P10,000 cost of the goods and
freight charge of P200 for the transfer. If the head office had shipped the goods
directly to Davao Branch, the freight charge would have been P700. The P100
difference in freight cost would be disposed of as follows:
a. Considered as savings
b. Charged to Cebu Branch
c. Charged to Davao Branch
d. Charged to the Head Office
58. On December 3, 2016, the home office of Kathy Office Supply Company
recorded a shipment of merchandise to its Davao Branch as follows:
Davao Branch ----------------------------------- 30,000

Shipment to Branch ----------------------- 25,000
Unrealized Profit in Branch inventory ---- 4,000
Cash ( for freight charges) --------------- 1,000
The Davao branch sells 40% of the merchandise to outside entities during the rest
of December 2016. The books of the home office and Kathy Office Supply are closed
on December 31 of each year.
On January 5, 2017, the Davao branch transfer half of the original shipment to the
Baguio Branch, and the Davao Branch pays P500 as the shipment.
The entry on the books of the Davao Branch to record receipt of the shipment from
the home office on December 3, 2016 would be:
a. Shipments from Home Office -------------- 29,000

Freight-out ---------------------------------- 1,000
Home Office --------------------------- 30,000
b. Shipments from Home Office -------------- 25,000

Accounts Receivable ------------------------ 4,000
Freight-in ---------------------------------- 1,000
Home Office --------------------------- 30,000
c. Shipments from Home Office -------------- 30,000

Home Office --------------------------- 30,000
d. Shipments from Home Office -------------- 29,000

Freight-in ---------------------------------- 1,000
Home Office --------------------------- 30,000
59. Using the same information in No. 58, at what amounts should the 60% of the
merchandise remaining unsold at December 31, 2016 be included in (1) the
inventory of the Davao Branch at December 31, 2016, and (2) the published
balance sheet of Kathy Office Supply Company at December 31, 2016 shows
inventory at:
a. (1) P15,600 ; (2) P18,000 c. (1) P18,000 ; (2) P15,600
b. (1) P17,400 ; (2) P15,000 d. (1) P18,400 ; (2) p16,000
60. Using the same information in No. 58, what is the entry on the books of Baguio
Branch for the January 5, 2017 transfer, assuming that the freight cost of the
merchandise from the home office to Baguio Branch would have been P600:
a. Shipments ------------------------------------ 15,100

Home Office ----------------------------- 15,100
b. Shipments ------------------------------------ 14,500

Freight-in ------------------------------------- 600
Home Office ----------------------------- 15,100
c. Shipments ------------------------------------ 15,100

Freight-in ------------------------------------- 600
Home Office ----------------------------- 15,600
d. Shipments ------------------------------------ 14,500

Freight-in ------------------------------------- 1,100
Home Office ----------------------------- 15,600
61. Using the same information on 58, 59, and 60, what is the entry on the books of
Davao Branch in respect to January 5, 2017 transfer:
a. Home Office ----------------------------------- 15,500

Inventory ------------------------------- 15,500
b. Home Office ----------------------------------- 15,100

Shipments inventory ------------------- 15,000
Cash (for freight charges) ------------- 100
c. Home Office ----------------------------------- 15,500

Cash (for freight charges) -------------- 500
Inventory -------------------------------- 15,000
d. Home Office ----------------------------------- 15,600

Cash (for freight charges) ------------- 500
Freight-in -------------------------------- 600
Inventory -------------------------------- 14,500
62. Using the same information in Nos. 58, 59 and 60, what is the entry on the
home office books in respect to January 5, 2017 transfer:
a. Home Office ----------------------------------- 15,500

Cash --------------------------------------- 500
Inventory ----------------------------------15,000
b. Shipments ------------------------------------- 14,500

Freight-in ------------------------------------- 600
Home Office Current --------------------- 15,100
c. Branch Current – Baguio --------------------- 15,100

Excess Freight -------------------------------- 400
Branch Current – Davao ----------------- 15,500
d. Branch Current – Baguio --------------------- 15,100

Excess Freight -------------------------------- 600
Branch Current – Davao ----------------- 15,700
63. Lipton Company had an agency in Antipolo. For the period just ended, the
agency transactions showed the following:
Receipts from sales ---------------------------------------------- P350,000

Disbursements:
Purchases --------------------------------------------------- 400,000
Salaries and commissions ---------------------------------- 70,000
Rent ---------------------------------------------------------- 20,000
Advertising supplies ---------------------------------------- 10,000
Other expenses --------------------------------------------- 5,000
The agency had P100,000 receivables and P50,000 payables as of the end of the
period. Also, they were inventories on hand of P90,000 and unused advertising
supplies of P6,000. The agency was set up as an experiment for one period and
would be closed if losses were incurred. The agency should:
a. Review again because it was a break even operation.

b. Close with the period’s operational loss of P155,000.
c. Close with the period’s operational loss of P9,000.
d. Continue with the period’s profit of P25,000.
64. The JJ Company, Inc. opened an agency in Makati in 2016. The following is a
summary of the transactions of the agency:
Sales orders sent to home office ------------------------------- P66,000

Sales orders filled by home office in 2016 --------------------- 55,800
Freight on shipment to agency --------------------------------- 1,320
Collections, net if 2% discount --------------------------------- 47,628
Selling expenses paid from the agency working fund--------- 3,384
Administrative expenses charged to agency ------------------ 5% of gross sales
Cost -------------------------------------------------------- P3,600
Inventory, December 31, 2016 --------------------------- 1,320
The company maintains its gross margin on agency gross sales at 30%
excluding the freight cost on shipments to agency.
The agency’s cost of sales including freight and agency’s net income would
amount to:
Cost of Sales Net Income

a. P39,000 P5,994
b. 47,520 7,668
c. 40,380 5,994
d. 40,380 7,320
65. Happy Inc. opens a sales agency in Davao City, and a working fund for P20,000
is established on the imprest basis. The first payment from the fund is P3,000 for
rent. This transaction should be recorded by the home office as follows:
a. No Entry
b. Rent ---------------------------- 3,000
Cash -------------------------- 3,000
c. Davao Agency ----------------- 3,000
Cash -------------------------- 3,000
d. Davao Agency ----------------- 3,000
Working Fund --------------- 3,000
66. Sad 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 2016,
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
67. The home office ships merchandise to the branch at 25% percent above cost. If
the balance before closing in the Intracompany Inventory Profit account is P66,000
and Shipments from Home Office amounted to P300,000, what was the cost of the
branch’s beginning inventory?
a. P30,000
b. P24,000
c. P80,000
d. P96,000
68. The home office ships merchandise to the branch at 50% above cost. On its
books the branch shows a beginning inventory of home office merchandise
amounting to P15,000 and shipments from home office of P110,000. Its ending
inventory of home office merchandise is P5,000. What amount should the home
office adjust the allowance for overvaluation of branch inventory account?
a. P40,000
b. P55,000
c. P60,000
d. P62,500
69. Power Corporation shipped inventory to its Bacolod branch, costing P375,000
plus freight. Power bills inventory to its branches at 120% of original cost, plus the
actual amount of shipping charges. At the end of the year, the Bacolod branch had
resold 50% of the inventory from the home office. Shipping cost paid by Power were
P2,000.
What amount should the inventory be reported in the branch’s statement of

financial position?
a. P187,500
b. P188,500
c. P226,000
d. P377,000
70. Using the question in No. 69, at what amount should the branch’s inventory
from the home office be reported in the statement of financial position of Power
Corporation as a whole?
a. P157,520
b. P188,500
c. P189,500
d. P377,000
71. Oro Corporation has a branch in Cebu. The branch reported income of P130,000
for 2013. The branch has a balance in its Home Office account at the end of the
year, after closing, P765,000. Branch income has not been recorded by Oro’s home
office. During the year, Oro shipped inventory to the branch at a price of P160,000;
oro’s original cost was P90,000. All but 45% of the inventory has been resold to
unrelated parties by year –end.
What is the balance in Oro’s Investment in Branch account?
a. P594,500
b. P603,500
c. P635,000
d. P765,000
72. A branch’s ending inventory of merchandise shipped by the home office and
purchased from outside vendors amounts to P50,000. The post – closing balance in
the Unrealized Gross Profit in Branch Inventory account is P6,000 due to the home
office practice of shipping merchandise at 20% above cost. The merchandise
purchased from outside vendors contained in the ending inventory of the branch
amounts to:
a. P38,000
b. P30,000
c. P18,000
d. P14,000
73. Merchandise shipped to a branch for P30,000, which includes a 20% markup on
cost, was returned by the branch. To record the receipt of the returned merchandise,
the home office should make the following entry:
a. Shipments to Branch 30,000
Investment in Branch 25,000
Allowance for overvaluation of Br. Inv. 5,000
b. Investment in Branch 30,000
Shipment in Branch 30,000
c. Shipments to Branch 25,000
Allow. for Overvaluation of Br. Inv. 5,000
d. Shipment to branch 24,000
Unrealized Profit in Br. Inv 6,000
74. During 2016, Jose Corporation transferred inventory from its home office to its
Laguna Branch at a billed price of P110,000. The inventory originally cost the
company P90,000. The home office reported sales and cost of goods sold of
P1,400,000 and P590,000, respectively. The Laguna branch reported sales and cost
of goods sold of P675,000 and P300,000, respectively. All of the inventory had been
sold by year – end. What is the cost of goods sold to be reported in the 2016
combined statement of comprehensive income?
a. P890,000
b. P870,000
c. P800,000
d. P780,000
75. The Simon Company always ships merchandise to a branch outlet at a 30%
mark –up above cost. During 2016, this branch received P182,000 in such
shipments while also acquiring goods from outside vendors at cost of P96,000. Half
of the branch’s December 31, 2016, inventory of P57,200 came from home office
acquisitions. At the beginning of 2013, the branch held merchandise with transfer
price of P49,400. All of this inventory had been purchased directly from the home
office. At the end of 2016, what is the adjusted balance in Simon’s Allowance for
Overvaluation in Branch Inventory account?
a. P4,250
b. P5,340
c. P6,000
d. P6,600
76. Lakas, Inc., starts a branch operation to sell more of its merchandise. Inventory
costing P60,000 is shipped to this branch at a billed price of P90,000. During the
initial year, the home office pays P17,000 in expenses for the branch. The branch
sells 80% of the inventory that it received for P110,000 and remits P70,000 in cash
to the home office. What is the correct Home Office account balance on the records
of the branch? Closing entries have not been made.
a. P7,000
b. P37,000
c. P75,000
d. P147,000
77. Lamp starts a branch operation on January 1, 2016.

Chapter 7
Home Office and Branch Accounting
Companies may increase their volume of sales by establishing sales outlets in various areas.
These sales outlets may be a branch or an agency.
When a company operates a branch, the branch must maintain accounting records to facilitate
its reporting responsibility to the home office.
Problems dealing with Home Office and Branch Accounting appear in almost every CPA
examination. Candidates should be familiar with the problems involving the following:
1. Uses of the reciprocal accounts.

2. Preparation of a Reconciliation Statement.
3. Billing of Merchandise by Home Office to Branch above cost.
4. Preparation of Combined Financial Statements.
Uses of the Reciprocal Accounts
In recording inter-office transactions, two reciprocal accounts are used, namely, the Investment
in Branch (Branch Current) account used by the home office which is classified as an asset; and
the Home Office (HO Current account) used by the branch which is classified as a liability.
The reciprocal nature of the Investment in Branch and the Home Office accounts and the way in
which they are affected by various inter-office transactions are shown below:
(Home Office Books) (Branch Books)

Investment in Branch Home Office
xx Assets transfer to branch xx
xx Assets transfer from branch xx
xx Branch profit xx
xx Branch loss xx
Preparation of Reconciliation Statement
The balances of the two reciprocal accounts should at all times equal. If the balances of the
reciprocal accounts are not equal before the preparation of separate statement of financial
position, a reconciliation statement is to be prepared. This is done to determine the causes of
the inequality between the two accounts. The accounts are then adjusted to determine their
adjusted balances. The following are the usual causes that the candidate should take note:
1. Transactions have been recorded by the branch but not by the home office.
2. Transactions have been recorded by the home office but not by the branch.
3. Errors in recording have occurred in one or both books.
4. Transactions have not yet been recorded on either set of books.
Billing of Merchandise by Home office to Branch above Cost
Merchandise shipped to branch by the home office may be billed at an amount above cost.
Under this method of billing, the profit recognized by the branch will be less that its actual
profit, because its cost of goods sold is overstated insofar as the home office is concerned.
The problems involving billing of merchandise to branch above cost are the following
1. Computation of branch at inventory at cost.

2. Computation of the actual or true branch profit insofar as the home office is
concerned.
Computation of Branch Inventory at Cost
Candidates should use the following formula:
a. If branch are all acquired from the home office, the formula is:
Branch inventory acquired from home office at billed price Pxx

Divide by billing percentage of cost %
Branch inventory at cost Pxx
b. If branch inventory includes merchandise acquired from outsiders, the formula is:
Branch inventory acquired from home office at cost:

Merchandise at billed price Pxx
Divide by billing percentage of cost % Pxx
Add: inventory acquired from outsiders xx
Branch inventory at cost xx
Computation of Actual Branch Profit insofar as Home Office is Concerned
The actual or true branch insofar as the home office is concerned is computed as follows:
Branch profit (loss) as reported Pxx

Add: Overvaluation of branch cost of goods sold (Schedule 1) xx
Actual branch profit insofar as home office is concerned Pxx
Schedule 1
Allowance
Billed Percent for Over-
Price ÷ of Cost = Cost valuation
Branch inventory, beg. (acquired from HO) Pxx Pxx Pxx Pxx
Add: Shipments during the period xx xx xx xx
Total before adjustment
Less: Branch inventory, end (acquired from HO) xx xx xx xx
Overvaluation of branch COGS (Realized Profit) Pxx
Preparation of Combined Financial Statements
The balance sheets and the income statements of the home office and the branch must be
combined for external reporting purposes. Working papers are usually prepared to eliminate
accounts affected in recording inter-office transactions before financial statements are
prepared.
Candidates should remember the following working paper elimination procedures:
1. Eliminate reciprocal accounts.

2. Eliminate inter-company transfer accounts.
a. Shipment to Branch and Shipment from Home Office accounts.
b. Allowance for Overvaluation of Branch Inventory.
3. Eliminate the overvaluation in branch beginning inventory.
4. Eliminate the overvaluation in branch ending inventory.
Combined Statement of Financial Position. The reciprocal accounts “Investment in Branch” and
“Home Office” accounts are not presented as well as the Allowance for Overvaluation account.
Combined Statement of Comprehensive Income. The merchandise inventories, beginning and

ending inventories are presented at cost. The Shipment to Branch and Shipment from Home
Office accounts are not presented.
Transactions between Branches
Occasionally, branch operations require that merchandise or other assets be transferred from
one branch to another. A branch does not maintain a reciprocal account with another branch
but records the transfer in the Home Office account. For example, if Bicol Branch ships
merchandise to Laguna Branch, Bicol Branch debits Home Office account and credits
Inventories (assuming that the perpetual inventory system is used). Upon receipt of the
merchandise, Laguna Branch debits Inventories and credits Home Office account. The home
office records the transfer between branches by a debit to Investment in Laguna Branch and a
credit to Investment in Bicol Branch.
The transfer of merchandise from one branch to another does not increase the cost of
inventories by the freight costs incurred because of the indirect routing. The amount of freight
costs properly included in inventories at a branch is limited to the cost of shipping the
merchandise directly from the home office to its present location. Excess freight costs are
recognized as expenses of the home office.
Accounting System for Sales Agencies
An agency is simply an extension of the sales territories in which orders are received from
customers and then transmitted to the home office for shipping and billing. They do not have
merchandise available for sale, but they keep samples inventory.
A sales agency neither keeps a complete set of books nor uses a double-entry system of
accounts. Usually, a record of sales to customers and a list of cash payments supported by
vouchers are sufficient.
An imprest system is usually adopted by the home office for the working fund of the sales
agency.
PROBLEMS
1. Cebu branch submitted the following data to its home office in Manila for 2013, its first year
of operation:
Sales P2,300,000
Shipments from home office 1,850,000
Operating expenses 235,000
Home office 480,000
2. The home office in Quezon City 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 transactions for 2013 are reflected in the branch trial balance that follows:
Cash P20,000
Accounts receivable 80,000
Home office P180,000
Sales 225,500
Expenses 55,500
Total P405,500 P405,500
December 31, inventory P65,000
Assuming all the transactions are properly recorded, what is the balance of the Investment in
Branch account in the home office books?
a. P180,000
b. P195,000
c. P165,000
d. P175,000
3. The following data pertains to the shipments of merchandise from Home Office to Branch
during 2013:
Home office’s cost of merchandise P350,000

Inter-office billings 420,000
Sales by branch to outsiders 520,000
Merchandise inventory on December 31, 2013 50,000
In the combined statement of comprehensive income of the Home Office and the Branch for
the year ended December 31, 2013, what amount of the above transactions should be
included as sales?
a. P570,000
b. P520,000
c. P470,000
d. P350,000
4. Nike Corporation operates a number of branches in the provinces. On December 31, 2013,
its Davao branch showed a Home Office account balance of P54,700 and the home office
books showed an Investment in Davao Branch account balance of P51,100. The following
information may help in reconciling both accounts:
1. A P24,000 shipment, charged by Home Office to Davao Branch, was actually sent to and
retained by Cebu Branch.
2. A P30,000 shipment, intended and charged to Aklan Branch was shipped to Davao
Branch and retained by the latter.
3. A P4,000 emergency cash transfer from Cebu Branch was not taken up in the Home
Office books.
4. Home office collects a Davao Branch accounts receivable of P7,200 and fails to notify
the branch.
5. Home office was charged for P2,400 for merchandise returned by Davao Branch on
December 30. The merchandise is in transit.
Home office erroneously recorded Davao Branch’s net income for 2013 at P32,550. The
branch reported a net income of P25,350.
What is the adjusted balances of the Home Office and Davao Branch reciprocal accounts on
December 31, 2013?
a. P40,300
b. P54,700
c. P47,500
d. 43,500
5. The branch manager of Tower Cosmetics in Cebu submitted a report as of May 31, 2013
containing the following information:
Petty Cash Fund P1,500

Sales 198,720
Sales Returns 3,600
Accounts Written Off 1,920
Accounts Receivable – May 31, 2012 43,800
Accounts Receivable – May 31, 2013 49,140
Inventory – May 31, 2012 37,170
Inventory – May 31, 2013 41,370
Expenses (reimbursed by H.O.) 57,930
Assuming all cash collected by the branch is remitted to Tower Cosmetics home office, the
remittances for the period amounted to:
a. P187,860
b. P189,780
c. P195,120
d. P198,720
6. On December 31, the Investment in Branch account in the home office books shows a
balance of P50,000. The following facts are ascertained:
1. Merchandise billed at P12,500 is in transit on December 31 from the home
office to the branch.
2. The branch collected a home office accounts receivable for P3,500. The
branch did not notify the home office of such collection.
3. On December 30, the home office sent cash of P7,500 to the branch, but
this was charged to General Expense; the branch has not received the cash
as of December 31.
4. Branch profit for December was recorded by the home office at P2,400
instead of P2,040.
5. The branch returned supplies of P1,500 to the home office but the home
office has not yet recorded the receipt of the supplies.
Assume all other transactions have been properly recorded.
What is the unadjusted balance of the Home Office account on the branch books on December
31?
a. P64,140
b. P39,140
c. P14,000
d. P13,000
7. A reconciliation of the Dagupan Branch account of Mandaluyong Company and the Home
Office account carried in the branch’s books shows the following discrepancies at December 31,
2013:
1. A credit for merchandise allowance for P300 was taken by the branch as
P360.
2. A charge by the branch of P550 for an advance taken by the president when
he visited the branch has not yet been recorded by the home office.
3. The branch has not taken up P900 covered by a debit memo from the home
office as share in advertising expenses.
The investment in Dagupan Branch account in the home office books had a debit balance
of P43,000 at December 31, 2013. The reciprocal accounts were in agreement at the
beginning of the year.
The unadjusted balance of the Home Office account in the branch’s books at December
31, 2013 was:
a. P43,500
b. P42,950
c. P41,990
d. P41,490
8. The following were found in your examination of the interplant accounts between the Home
Office and the Butuan Branch:
a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by
the branch.
b. P10,000 covering marketing expense of another branch was charged by Home Office
to Butuan.
c. Butuan recorded a debit note on inventory transfers from Home Office of P75,000
twice.
d. Home Office recorded cash transfer of P65,700 from Butuan Branch as coming from
Davao Branch.
e. Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to
P10,500. Home Office decided that this charge is appropriately Davao Branch’s cost.
f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560.
The net adjustments DR (CR) to the Investment in Butuan Branch account and to the Home
Office account are:
Investment in Butuan Home Office

a. P(75,700) P20,950
b. 75,700 (20,950)
c. (55,700) 75,000
d. (65,700) (74,000)
9. After examining on a comparative basis the inter-office account of the Bulacan Company
with its suburban branch and the similar account carried on the latter’s books, the following
discrepancies at the close of the business on June 30, 2013 were seen:
a. A charge for labor by the Home Office, P500 was recorded twice by the branch.
b. A charge of P895 was made by the Home Office for freight on merchandise, but the
amount was recorded by the Branch as P89.50.
c. A charge of P980 (furniture and fixture) on the Home Office books was taken up by the
Branch as P890.
d. A credit by the Home Office for P350 (merchandise allowances) was taken up by the
Branch as P400.
e. The Home Office charged the Branch P425 for interest on open account which the
Branch failed to take up in full; instead, the Branch sent to the Home Office a wrong
memo, reducing the charge by P100 and set up a liability for the net amount.
f. The Home Office received P5,000, from the sale of a truck which it erroneously
credited to the Branch; the Branch did not charge the Home Office therewith.
g. The Branch by mistake sent the Home Office a debit note for P370 representing its
proportion of a bill for repairs of truck; the Home Office did not record it.
h. The Branch inadvertently received a copy of the Home Office entry dated July 19, 2011
correcting item (f) and entered a credit in favour of the Home Office as of June 30,
2013.
At June 30, 2013, the unadjusted balance of the Investment in Branch account on the Home
Office books showed P175,520. At the beginning of the year, the inter-office accounts were in
balance.
What is the unadjusted balance of the Home Office account on the branch books on June 30,
2013?
a. P184,279.50
b. P160,725.50
c. P184,729.00
d. P165,279.50
10. Rustans, Philippines has two merchandise outlets, its Home Office in Manila and its Cebu
City branch. For control purposes, all purchases are made by the Home Office and shipped to
the Cebu City branch at cost plus 10%. On January 1, 2013 the inventories of the Home Office in
Manila and the Cebu City branch are P13,600 and P3,960 respectively. During 2013 the Home
Office purchased merchandise costing P40,000 and shipped 40% of it to the Cebu City branch.
At December 31, 2013, the following journal entry to prepare the books for the next accounting
period was prepared by the branch:
Sales 32,000
Inventory, December 31 4,840
Shipments from main store 17,600
Expenses 10,480
Home Office 4,800
What was the actual branch income for 2011 on a cost basis assuming the use of the provisions
of the Statement of Financial Accounting Standards?
a. P4,800
b. P6,320
c. P6,480
d. P6,840
11. On September 1, Star Company opened a branch in Dagupan City, shipping to it

merchandise billed at P60,000. During the month, additional shipments were made at a billed
price of P24,000. Returns by the branch of bad-order goods were credited for P1,680. At the
end of the month, the branch reported its inventory P33,600 and its net loss for the month at
P5,200. Shipments to and from the branch were consistently billed at 120% of cost.
On September 30, the branch inventory at cost and the branch net income (loss) as far as the
Home Office is concerned are:
a. P28,000 and P2,920, respectively

b. P28,000 and (P5,200), respectively
c. P33,600 and P2,920, respectively
d. P33,600 and P5,200, respectively
12. Makati Company bills its Valenzuela Branch for merchandise at 140% of cost. At the end of
January, 2013, the branch reported the following information:
Merchandise from
Home Office
(At Billed Price)
Inventory, January 1 P7,560
Shipments received 28,280
What should be the balance of the allowance account for overvaluation of the branch inventory
at January 31 before adjustment?
a. P2,400
b. P2,160
c. P9,080
d. P10,240
13. The Binondo branch of China Products Inc. buys merchandise from third parties and
receives merchandise from the home office for which it is billed at 20% above cost. Below are
excerpts from the trial balances and data on the home office and Binondo branch for the month
just ended:
Home office
Allowance for overvaluation of branch merchandise P370,000
Shipments to Branch 850,000
Branch
Beginning inventory 1,440,000
Shipments from home office 1,020,000
Purchases 410,000
Month end additional data
Ending inventory of Branch 1,460,000
From Home Office at Billed Price P1,170,000
From Outsiders (at cost) 290,000
The total cost of goods sold of the Binondo branch at cost (net of overvaluation) for the month just
ended amounted to:
a. P1,410,000
b. P1,385,000
c. P1,235,000
d. P1,850,000
14. Shopper Company started a branch office in Iloilo City on June 1,2013. On this date, the company
shipped to its branch merchandise billed at P90,000. On June 15, another shipment was made at billed
prices of P36,000. During the month, the branch was credited for P2,520 for the damaged goods
returned by the branch. On June 30,2013, the branch reported the following:
Inventory, June 30 P50,400

Net loss for the month (P7,800)
Shipments to and from the branch were uniformly billed at 120% of cost.
In the home office books, the Iloilo branch operations resulted in:
a. No net income or loss
b. Net income of P4,280
c. Net income of P12,180
d. Net loss of P7,800
15. Tarlac Branch of Quezon City Company, at the end of its first quarter of operations,
submitted the following statement of comprehensive income:
Sales P300,000
Cost of Sales:
Shipments from Home office P280,000
Local Purchases 30,000
Total 310,000
Inventory at end 50,000 260,000
Gross margin on sales 40,000
Expenses 35,000
Comprehensive income 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 Head Office amounted to P2,500.
On September 30, the branch inventory at cost and the net income realized by the home office from the
Tarlac branch operation are:
Branch Inventory at Cost Net income realized

a. P37,600 P72,600
b. P50,000 P55,000
c. P31,600 P5,000
d. P37,600 P70,100
16. Ayala branch was billed by Home Office for merchandise at 140% of cost. At the end of its first
month, Ayala branch submitted among other things, the following data:
Merchandise from Home Office (at billed price) P98,000

Merchandise purchase locally by branch 40,000
Inventory, December 31 of which P7,000 are of local purchase 28,000
Net sales for month 180,000
The branch inventory at cost and the gross profit of the branch as far as the home office is concerned
are:
Branch Inventory at Cost Gross Profit
a. P92,000 P22,000
b. P22,000 P92,000
c. P22,000 P70,000
d. P20,000 P90,000
17. The Coffee Blends Corporation decided to open a branch in Manila. Shipments of merchandise to
the branch totalled P54,000 which included a 20% mark-up on cost. All accounting records are to be
kept at the home office.
The branch submitted the following report summarizing its operations for the period ended December
31, 2013.
Sales on account P74,000

Sales on Cash basis 22,000
Collections of account 60,000
Expenses paid 38,000
Expenses unpaid 12,000
Purchase of merchandise for cash 26,000
Inventory on hand, December 31; 80% from home office 30,000
Remittance to home office 55,000
The branch 12/31 inventory at cost and the branch net income (loss) as far as the home office is
concerned are:
Branch Inventory at Cost Branch Net income (loss)

a. P26,000 (P1,000)
b. P25,000 (P4,000)
c. P26,000 P1,000
d. P20,000 P 800c
18. Trial balances before adjustments for the home office and the branch of the King Company show the
following items on December 31. The home office bills the branch at 20% above cost.
Home Office Branch

Allowance for overvaluation of branch merchandise P3,600
Shipment to branch 8,000
Purchases P2,500
Merchandise Inventory, December 1 15,000
What part of the branch inventory as of December 1 represented purchases from outsiders?
a. P3,000
b. P5,000
c. P2,000
d. P1,800
19. The Manila Sales Co. established a branch in San Pablo City early last year. It shipped merchandise
and billed the branch for P300,000 prior to its opening. For the year, it made additional shipments at
billed price of P120,000. Within the year, the branch shipped backP7,500 inventory and got the credit
memo for the said returns. On the last working day of the year, an inventory count was made. Ending
inventory of P185,000 was established consisting of purchases from third parties at P20,000 with the
balance coming from home office shipments at billed price.. The home office billed the branch at 20%
above cost. The total purchases of the branch from outside suppliers amounted to P72,500. The total
goods available for sale by the branch at cost (net of overvaluation and returns) amounted to:
a. P416,250
b. P485,000
c. P422,500
d. P435,250
20. The income statement submitted by the Bulacan Branch to the Home Office for the month of
December,2013 is shown below. After affecting the necessary adjustments the true net income of the
Bulacan Branch inventories were:
12/01/2011 12/31/2011
Merchandise from Home Office P70,000 P84,000
Local purchases 10,000 16,000
Total 80,000 100,000
Sales 600,000
Cost of Sales:
Inventory, December 1 80,000
Local purchases 30,000
Total available for sale 460,000
Inventory, December 31 100,000 360,000
Gross Margin 240,000
Total comprehensive for December 2011 P60,000
What is the balance of the “Allowance for Overvaluation in Branch Inventory” account at December 31,
2013?
a. P10,000
b. P16,000
c. P24,000
d. P34,000
21. Mahiyain Commercial Corporation operates a branch in Iloilo City. Selected accounts take from the
books of Mahiyain and its branch show balances as of December 31,2013 as follows:
Home office Branch
Merchandise inventory, January P12,000 P8,000
1
Purchase 150,000 30,000
Shipments from home office - 93,750
Shipments to branch 75,000 -
Branch inventory allowance 19,750 -
Sales 115,000 176,500
Merchandise inventory, 14,000 10,350
December 31
The ending inventory of the branch includes items costing P4,350 which were acquired from suppliers
other than the home office.
As far as the home office is concerned, the cost of sales of the Iloilo City branch was:
a. P97,120
b. P102,850
c. P121,400
d. P131,850
22. The Neneng Corporation established its San Pedro branch in March 201. During the first year of
operations, the home office shipped to the branch merchandise which had cost of P120,000. Three-
fourths of these merchandise was sold by the branch for P141,000. Operating expenses of the
branch amounted to P27,000.
How much total comprehensive income will the branch report if merchandise is billed by the home
office to the branch at 25% above cost?
a. P800
b. P1,200
c. P1,500
d. P8,000
23. A branch store in Marikina was established by Marco Co. on March 1. Shipments of merchandise,
billed to this branch at 125% of cost, were as follows:
March 5 P120,000
March 10 50,000
March 20 35,000
On March 24, the branch returned defective merchandise worth P3,050 and on March 31, it
reported a net loss of P6,200 and merchandise inventory of P85,000.
In the home office books, the branch total comprehensive income (loss) is:
a. (P6,200)
b. P17,190
c. P20,240
d. P23,390
24. The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao City. During 2013, the
home office shipped to the branch supplies costing P120,000 at a billed price of 20% above cost. The
inventories of supplies at the branch were as follows: January 1,2013, P90,000; December 31,2013,
P108,000. On December 31,2013, the home office holds inventories of P160,500 which includes
P10,500 held in consignment.
How much is the inventories in a combined statement of financial position as of December 31,2013?
a. P210,000
b. P240,000
c. P270,000
d. P300,000
25. The Iloilo Company operate a branch in Davao, and the profit and loss data for the home office and
the branch for 2013 follows:
Home office Branch
Sales P250,000 P75,000
Purchases from outsiders 200,000 15,000
Shipments to branch:
Cost to home office 30,000
Billing price to branch 37,500
Expenses 40,000 10,000
Inventories, Jan. 1,2013:
Home office, at cost 80,000
Branch:
From outsiders, at cost 7,500
From home office, at 20% above cost 24,000
Inventories, December 31,2013:
Home office, at cost 55,000
Branch:
From outsiders, at cost 5,500
From home office at 2013 billing 26,000
The combined total comprehensive income (loss) of the home office and the branch on
December 31,2013 is:
a. P30,800
b. P(30,800)
c. P33,800
d. P27,000
26. Manila Inc. established a branch in Cebu to distribute part of the goods purchased by the home
office. The home office process 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:
Manila Inc. Cebu branch
Sales P600,000 P210,000
Beginning inventory 120,000 60,000
Purchases 500,000 -
Shipment to branch 130,000 -
Shipment from home office - 156,000
Ending inventory 98,000 48,000
All of the branch inventory is acquired from the home office –
The combined total comprehensive income of the home office and the branch is:
a. P170,000
b. P70,000
c. P278,000
d. P132,000
27. Selected accounts from the December 31,2013 trial balances of Heart Co. and its branch follows:
Heart Branch
Inventory, Jan.1 P46,000 P23,100
Investment in Branch 116,600 -
Purchases 380,000 -
Shipments from home office - 209,000
Freight in - 10,450
Expenses 104,000 58,100
Home office - (106,600)
Sales (310,000) (280,000)
Shipments to branch (200,000) -
Branch merchandise markup (22,000) -
As of December 31,2013, a shipment with a billing price of P11,000 was in transit to the branch.
Freight cost, typically 5% of the billing price, is inventoriable. Merchandise on hand at a year-end
were: at home office P64,000 at cost; at branch P33,000 at billing price.
What is the combined total comprehensive income of Heart Company and its branch for 2013?
a. P77,000
b. P84,900
c. P76,000
d. P76,100
28. Apo Supply Company is engaged in merchandising both at its Home office in Makati and as its
Branch in Davao City. Selected accounts taken from the trial balances of the Home office and the
branch as of December 31,2013 follows:
Makati Branch
Debits
Inventory, Jan. 1,2013 P23,000 P11,550

Davao branch 58,300 -
Purchases 190,000 105,000
Freight in from home office - 5,500
Sundry expenses 52,000 28,000
Credits
Home office P- P53,300

Sales 155,000 140,000
Sales to branch 110,000 -
Allowances for overvaluation of
Branch inventory at Jan. 1,2013 1,000 -
- The Davao City branch gets all of its merchandise from the home office. The home office bills the
goods at cost plus a 10% mark-up. At December 31,2013, a shipment with a billed value of P5,000
was still in transit. Freight on this shipment was P250 and is to be treated as part of the inventory.
- Inventories on December 31,2013, excluding the shipment in transit, follow:
Home office, at cost P30,000
Branch, at billed price (excluding freight of P520) 10,400
What is the combined total comprehensive income (loss) of the home office and the branch on
December 31,2013?
a. P30,470
b. P20,870
c. P(10,000)
d. P(30,470)
29. On November 2,2013, the home office of Toby Sports Company recorded a shipment of
merchandise to its Bulacan as follows:
Investment in branch – Bulacan 60,000
Allowance for overvaluation of branch inventory 8,000
Cash (for freight charges) 2,000
The Bulacan branch sells 40% of the merchandise to outside customers during the rest of the period.
The books of the home office are closed on December 31 of each year.
On January 10,2014, the Bulacan branch transfer half of the original shipment to the Baguio branch,
and the Bulacan branch pays P1,000 freight for the shipment. If the shipment had been made by the
home office to Baguio branch, the freight charges would have been P1,500.
What is the entry of the Bulacan brancg to record the receipt of the shipment from the home office on
November 2,2013?
a. Shipments from home office 50,000
Accounts receivable 8,000
Freight in 2,000
Home office 60,000
b. Shipments from home office 60,000
Home office 60,000
c. Shipments from home office 58,000
Freight in 2,000
Home office 60,000
d. Shipments from home office 50,000
Freight out 2,000
Home office 52,000
30. using the same data in No. 29, at what amount should the 60% of the merchandise remaining
unsold at December 31,2013 be included in the inventory of the Bulacan Branch?
a. P31,200
b. P36,000
c. P36,800
d. P34,800
39. Using the same data in No. 29, what is the entry in the books of Bulacan Branch to record the
transfer of January 10,2014?
a. Baguio branch 31,000
shipment from home office 31,000
b. home office 31,000
inventory 31,000
c. home office 31,000
inventory 30,000
cash 1,000
d. home office 32,000
cash 1,000
freight in 2,000
inventory 29,000
32. Using the same data in No. 29, what is the entry in the books of Baguio branch to recorf the
transfer on January 10,2014?
a. shipments from Bulacan Branch 30,200
Bulacan branch 30,200
b. shipments from home office 29,000
freight in 1,500
home office 30,500
cash 1,000
c. shipments from home office 29,000
freight in 1,500
home office 30,500
d. shipment from home office 30,000
freight in 1,000
home office 31,000
33. Using the same data in No. 29 what is the entry in the home office books to record the inter-
branch transfer on January 10,2014?
a. investment in branch – Baguio 30,500
excess freight 1,500
investment in branch – Bulacan 32,000
b. investment in branch – Baguio 30,500
c. investment in branch – Bulacan 32,500
investment in branch – Baguio 32,500
d. investment in branch – Baguio 30,500
excess freight 500
34. Papa, Inc. of Makati opens a sales agency in Pasig City and a working funn of P100,000 is
established on imprest basis. The first payment from the fund is P5,000 for rent of the store space.
What is the entry in the books of the home office to record the payment of rent by the agency?
a. Rent expense – Pasig agency 5,000
cash 5,000
b. Pasig agency 5,000
cash 5,000
c. Rent expense – Pasig agency 5,000
working fund 5,000
d. No entry
35. Mama, Inc. opened a sales agency in San Pedro Laguna in 2013. The following is a summary of the
transactions of the sales agency:

Freight on shipment of agency 2,000
Administrative expenses charged to agency 5% gross sales
Cost 8,200
Inventory, December 31,2013 4,550
The company’s gross profit rate on agency sales is 30% excluding the freight cost on shipments to
agency.
What is the total comprehensive income of the agency for 2013?
a.P3,600
b.P5,600
c. P1,600
d.P6,300
36. A Makati home office transfers inventory to its Pasig branch at 140% of cost. During 2013, the
reciprocal account in the statement of comprehensive income of the home office amounts to P328,125.
On December 31,2013, the home office adjusted the branch income summary by debiting the Allowance
for Overvaluation of Branch Inventory account in the amount of P81,250. The branch’s statement of
financial position at the beginning of the year shows P105,000 of inventory acquired from the home
office.
How much is the ending inventory of the branch per books?

a. P200,000
b. P161,250
c. P280,000
d. P80,000
37. On July 31,2013, the home office in Manila establishes a sales agency in Bulacan. The following
assets are sent to the agency:
Cash(working fund to be operated under the imprest system) P22,000
Samples of merchandise 36,000
During the month of August, the following transactions occurred:
 The sales agency submits sales order of P272,000, sales per invoice was billed at P268,000. Cost
of sales to customers is P124,000.
 Collections during the month amount to P58,200 net of 3% discount.
 Home office disbursements chargeable to the agency are as follows:
Furniture P40,000
Salaries for the month 21,600
Annual rent of office space 36,000
 On August 31, the sales agency working fund is replenished. Paid vouchers submitted by the
sales agency amounting to P17,925. Samples were useful until December 31,2013 which at this
time are believed to have a salvage value of 15% of cost. Furniture is depreciated at 18% per
annum.
What is the total comprehensive income of the sales agency for the month of August?
a. P91,425
b. P93,225
c. P92,955
d. P58,425
38. The home office in Makati shipped merchandise costing P55,500 to Pasig branch, prepaid the
freight amounting to P4,200. The home office transfers inventory to the branch at a 20% markup
above cost. Pasig branch was subsequently instructed by the home office to transfer the
merchandise to Alabang branch wherein the latter paid freight of P2,800. If the shipment was
made directly from Makati to Alabang, the freight cost would have been P6,200.
Which of the following is true as a result of the interbranch transfer of merchandise?

a. The home office debits Alabang Branch Current for P73,600
b. Alabang branch debits the Home Office for P70,000
c. Pasig branch credits freight in for P6,200
d. The home office will credit Pasig Branch Current for P70,800
39. The following are some of the account balances on the books of the home office and its branch on
December 31,2013.
Home office books Branch books
Inventory, January 1,2013 P20,000 P58,000
Purchases 900,000 200,000
Allow. For overvaluation of 52,500
branch inventory
Sales 1,200,000 720,000
Per physical count, the ending inventory of the branch is P42,000 including goods purchased from
outsiders of P27,700 while the ending inventory of the home office is P120,000. Home office bills its
branch for merchandise shipments at 30% above cost.
What is the amount of the unrealized inventory profit in the books of the home office on December
31,2013?
a. P9,000
b. P7,260
c. P12,000
d. P3,300
40. using the data in No. 39, how much is the combined total comprehensive income on December
31,2013?
a. P538,700
b. P547,400
c. P541,700
d. P498,200
e. ANSWERS
1. A 6. B 11. A 16. B 21. B 26. A 31. D 36. C

2. C 7. D 12. D 17. C 22. C 27. C 32. C 37. C
3. B 8. A 13. C 18. A 23. B 28. A 33. A 38. D
4. C 9. A 14. B 19. A 24. B 29. C 34. D 39. C
5. A 10. B 15. A 20. C 25. C 30. B 35. A 40. A
SOLUTIONS AND EXPLANATIONS

1. Since the balances of the reciprocal accounts “Home Office” account and “Investment in
Branch” account are equal, then the balance of the Home Office account after closing
the branch profit is to be computed. The computation is:
Home office account balance before branch profit P480,000
Add: Profit (loss)
Sales P2,300,000
Cost of sales
Shipments from HO P1,850,000
Inventory, dec. 31 255,500 1,594,500
Gross profit P705,500
Home office account balance, December 31,2011 P950,500
2.
Home office account balance before branch profit P180,000
Add: Profit (loss)
Sales P225,500
Cost of sales
Shipments from HO P250,000
Inventory, dec. 31 65,000 185,000
Expenses 55,500 (15,000)
Home office account balance, December 31,2011 P165,000
Therefore the balance of the Investment in Branch a account is also P165,000.
3. In preparation of combined statements of the home office and the branch, all inter-
office transactions are eliminated as if it had never occurred. Therefore, the only
transaction that should be presented are transactions to outsiders, which is in this
problem, the P520,000 sales by branch to outsiders.
4. To compute the adjusted balances of the reciprocal accounts a reconciliation statement
is to be prepared as follows:
(branch books) home office (HO books) Investment in
account Davao Branch Account
Unadjusted balances, Dec. P54,700 P51,1100
31,2013
Add(deduct) the following adjustments:
1. shipment charged Davao (24,000)
branch but actually sent to
Cebu branch
2. shipment charged to 30,000
Aklan branch but actually
sent to Davao branch
3. no effect
4. Merchandise returned by (7,200)
Davao branch accounts
receivable
5. merchandise returned by
Davao branch still in transit (2,400)
to home office
6. overstatement of Davao _______ (7,200)
branch net income
(P32,550-P25,350)
Adjusted balances, dec. P47,500 P47,500
31,2013
5. The P187,860 is computed as follows:

Accounts receivable, 5/31/12 P43,800
Net sales (P198,720 – P3,600) 195,120
Total 238,920
Less: Accounts receivable, 5/31/13 P49,140
Accounts written off 1,920 51,060
Remittance P187,860
6. P39,140 is computed as follows:
Investment in branch account balance, P50,000
12/31 (HO books)
Add(deduct):
Merchandise in transit (12,500)
Collection of HO accounts receivable 3,500
by branch
Erroneous recording of Branch profit (360)
Supplies returned by Branch (1,500)
HO account balance, 12/31 (Branch P39,140
books)
7. The P41,490 unadjusted balance of Home office is computed as follows:

Unadjusted balance, Investment in Branch account, 12/31 P43,000
Less: Merchandise allowance (error) P60
Branch advances to President 550
Advertising expense charged to branch 900 1,510
Unadjusted balance, home office account, 12/31 P41,490
8. Dr. (Cr.) Adjustment to investment in Butuan Branch account

Marketing expense of another branch charged to Butuan (b) P(10,000)
Butuan’s remittance credited to Davao branch (d) (65,700)
Dr. (Cr.) adjustment to Butuan branch
Account in the home office books P(75,700)
Dr. (Cr.) Adjustment to Home office account:

Fixed assets transfer not booked by Butuan (a) P(53,960)
Inventory transfer recorded twice by Butuan (c) 75,000
Error in recording DM for P4,650 as P4,560 (f) (90)
Dr. (Cr.) adjustment to Butuan branch
Account in the home office books P20,950
9. unadjusted balance of investment in branch account, 6/30 P175,520

(a) Charge for labor 500
(b) charge for freight (805.5)
(c) purchase of furniture & fixture (90)
(d) merchandise allowance (50)
(e) charge for interest (425)
(f) proceeds from sale of truck 5,000
(g) charge for truck repairs (370)
(h) proceeds from sale of truck 5,000
Unadjusted balance of Home office account, 6/30 P184,279.5
10.
Sales P32,000
Cost of sales
Inventory, jan.1 3,960
Inventory, dec. 31 (4,840) 16,720
Gross profit 15,280
Expenses 10,480
Net income per branch books 4,800
Add: overvaluation of COS
Billed price (above) 16,720
Cost to HO (16,720/110%) 15,200 1,520
Actual branch income at cost basis P6,320
11. Branch Inventory at Cost:

Branch inventory at billed price P33,600
Divided by the billing percentage cots ÷120%
Branch inventory of cost P28,000
Branch net income as far as the HO is concerned:

Branch net loss, as reported (P5,200)
Add: overvaluation of COS of the
Branch:
Total shipment to Branch
Billed price (P60,000+24,000) P84,000
Cost (P84,000/120%) 70,000 P14,000
Less: branch returns -
Billed price P1,680
Cost (P1,680/120%) 1,400 280
Net shipment P13,720
Less: Inventory, 9/30
Billed price P33,600
Cost 28,000 5,600 8,120
Branch net income P2,920
12. The balance of the Allowance for Overvaluation of Branch Inventory account
represents the overvaluation of branch inventory on January 1 and overvaluation of the
shipment received. Computation is as follows:
Billed price Billing Cost Over valuation
÷ percentage =
Inventory, Jan. 1 P7,560 140% P5,400 P2,160
Add: shipment 28,280 140% 20,200 8,080
Balance of allowance before adjustment P10,240
13.
Beginning inventory P1,440,000
Purchase 410,000
Shipment from HO 1,020,000
Good available for sale 2,870,000
Ending inventory 1,460,000
Cost of sales 1,41,000
Less: Overvaluation
Beginning inventory & shipments 370,000
Less: ending inventory
Billed price P1,170,000
Cost (P1,170,000/120%) 975,000 195,000 175,000
Cost of goods sold (net) P1,235,000
14. According to the HO books, Iloilo branch will have a P4,380 net income as computed
below:
Branch net loss (P7,800)
Add: Overvaluation of Cost of sales of Branch -
Total shipment to Branch:
Billed price (90,000+36,000) P126,000
Cost (P126,000/120%) 105,000 P21,000
Less: Branch returns
Billed price P2,520
Cost(2,520,/120%) 2,100 420
Net shipment to Branch P20,580
Less: inventory, 6/30
Cost(P50,400/120%) 42,000 8,400 12,180
Branch net income P4,380
15. P37,600 is computed as follows:

Acquired from HO:
Billed price (P50,000-P6,600) P43,400
Divide by billing percentage of cost 140% P31,000
Branch inventory at cost, 9/30 P37,600
Below is the computation of Home office income from branch operation of P70,100.
Branch net income (5,000-2,500 P2,500
expense)
Add: overvaluation of branch cost
of sales:
Shipment from Home Office:
Cost(P28,000/140%) 200,000 P80,000
Less: inventory, end -
Billed price (50,000-6,600) P43,400
Cost(P43,400/140%) 31,000 12,400 67,600
Branch net income realized by HO P70,100
16. branch inventory, at cost, 12/31:

Acquired from HO (P21,000/140%) P15,000
Total P22,000
Branch gross profit:

Net sales P180,000
Cost of sales insofar as Home office is concerned
Shipment from HO, at cost P70,000
(P98,000/140%)
Purchases 40,000
Cost of goods available for sale 110,000
Inventory, at cost 12/31:
Acquired from HO (P21,000/140%) P15,000
Local purchases 7,000 22,000 88,000
Gross profit insofar as HO is concerned P92,000
17. below is the computation of Branch ending inventory at cost:
Acquired from HO (80% x P30,000 ) / 120% P20,000

Add: Acquired from outsiders (20% x P30,000) 6,000
Branch inventory at cost, 12/31 P26,000
The P1,000 net income is derived as follows:
Sales (P74,000 + P22,000) P96,000

Cost of sales insofar as Home office is concerned
Shipment from HO, at cost P45,000
(P54,000/120%)
Purchases 26,000
Cost of goods available for 71,000
sale
Inventory, at cost 12/31: 26,000 45,000
Expenses (P38,000+P12,000) 50,000
Branch net income insofar as Home office is concerned P1,000
18. Merchandise inventory, December 1 P15,000

Less: Merchandise acquired from HO at billed price
Overvaluation (3,600 – P1,600) P2,000
Cost (P2,000/20%) 10,000 12,000
Merchandise acquired from outsiders P3,000
19.
Total shipment from office P420,000
Returns (7,500)
Purchases 72,500
Goods available for sale, at billed price 485,000
Less: overvaluation of shipment:
Cost (420,000/120%) 350,000 70,000
Returns:
Billed price P7,500
Cost (7,500/120%) 6,250 (1,250) 68,750
Goods available for sale, at cost P416,250
20. before computing the balance of the allowance account, the percent of billing price to
cost should be computed first as follows:
Branch net income, per HO P156,000

Branch net income, per branch 60,000
Realized mark-up on merchandise from the
Home office already sold by the branch P96,000
Shipment from home office P350,000

Less: increase in portion of Branch inventory
Acquired from home office 14,000
Portion already sold by branch P336,000
Less: Mark-up thereon (above) 96,000
Cost of portion already sold by branch P240,000
Per cent of billing price to cost: P336,000/240,000 140%
The balance of the “Allowance for Overvaluation in Branch inventory” account as

December 31,2013 after adjustment represent the overvaluation of the branch ending
inventory acquired from the home office computed as follows:

Cost (P84,000/140%) 60,000
Balance of the allowance account P24,000
21. branch inventory, January 1 P8,000

Purchases 30,000
Merchandise available for sale P131,750
Less: branch inventory, Dec. 31 10,350
Branch cost of sales, per branch books P121,400
Less: Mark- up on merchandise from the HO
Already sold by the branch: P19,750
Branch inventory allowance
Less: mark-up on portion of Dec. 31 inventory
Acquired from home office:
(P10,350-P4,350) x 25/125 1,200 18,550
Branch cost of sales, as far as the home office is concerned P102,850
Note: shipments of merchandise from the home office to the branch are billed at 125%
of cost, determined as follows:
Shipments from Home Office = P93,750 =125%

Shipments to Branch = P75,000
22.
Sales P141,000
Less: cost of sales at Billed price (Sch. 1) 112,500
Gross profit 28,500
Expenses 27,000
Total comprehensive income to be reported by the Branch P1,500
Schedule 1
Cost of shipment to branch P120,000
Add: 25% mark-up 30,000
Billed price of shipment to branch 150,000
Portion sold x¾
cost of sales at billed price P112,500
23. reported branch loss P(6,200)

Add: overvaluation in branch cost of sales
Shipment to branch P205,000
Less: returns 3,050
Ending inventory 85,000 88,050
Cost of sales, at billed price 116,950
Cost of sales, at cost to HO
(116,950/125%) 93,560 23,390
Branch total comprehensive income, per HO books P17,190
24. The combined inventories on dec. 31, 2013 statement of financial position computed as
follows:
Home office (P160,500 – P10,500) P150,000

Branch, at cost (108,000/120%) 90,000
Combined inventories, 12/31 P240,000
25.
Sales P325,000
Less: cost of sakes
Jan. 1 inventories, at cost (sch 1 ) 107,500
Purchases 215,000
Merchandise available for sale P322,500
Less: dec. 31 inventories, at cost (sch 1 ) 81,300 241,200
Gross profit on sales P83,800
Less: expenses 50,000
Total comprehensive income P33,800
Schedule 1:
Inventories
Jan.1 Dec. 31
Home office P80,000 55,000
Branch, at cost
Acquired from outsiders 7,500 5,500
Acquired from HO:
Jan. 1 (P24,000/120%) 20,000
Dec. 31 (P26,000/125%) _______ 20,800
Combined P107,500 P81,300
2013 billing (7,500/30,000) = 125%
26.
Sales P810,000
Cost of sales
Beg. Inventory
HO P120,000
Branch, at cost 50,000 P170,000
(P60,000/120%)
Purchases 500,000
Total 670,000
Ending inventory:
HO 98,000
Branch, at cost 40,000 138,000 532,000
(P48,000/120%)
Gross profit 278,000
Combined net income P170,000
27.
Sales (P310,000 + P280,000) P590,000
Cost of sales:
Inventory, 1/1 (sch1) P67,100
Purchases 380,000
Freight in (P220,000x5%) 11,000 391,000
Goods available for sale 458,100
Inventory, 12/31 (sch1) 104,000
Freight in (P220,000x5%) 2,200 106,200 351,900
Expenses (P104,000+P58,100) 162,100
Combined total P76,000
Comprehensive income
Schedule 1 : Combined inventories – at cost

Inventories
Home office, at cost P46,000 P64,000
Branch at cost
Inventory, Jan. 1:
Mark-up (sch2) 2,000 21,00
Inventory, Dec. 31:
At cost 40,000
[(P33,000+P11,000)/110%*]
*Billing %: (209,000 + 11,000)/200,000 = 110%
Schedule 2: mark-up on Branch beginning inventory

Branch merchandise markup before adjustment P22,000
Less: overvaluation of shipments [(P209,000 + P11,000)-P200,000] 20,000
Mark up of branch beginning inventory P2,000
28.
Sales P295,000
Cost of sales:
Inventory, 1/1
Home office P23,000
Branch, at cost (11,550-1,000) 10,550
Freight in (5,500-1,000) 5,750 39,300
Purchases, Home office 190,000
Total 229,300
Inventory, 12/31
Home office P30,000
Branch, at cost 14,000
[(10,400+5,000/110%]
Freight in(P520+250) 770 44,770 184,530
Sundry expneses 80,000
Combined total comprehensive P30,470
income
29. Choice (c) is correct, because the branch should record the shipment from the office at
billed price (P50,000 + P8,000), and should treat the freight charged by the office as
inventoriable cost.
30.
Shipments from home office at billed price P58,000
Unsold 60%
Ending inventory P34,800
Freight in (P2,000 x 60%) 1,200
Total P36,000
31. In the books of Bulacan branch (sending branch) the inter-branch transfer should be treated
as if it was returned to the home office. Inventory account should be credited in place of
the Shipment from Home office account which was already closes at the end of 2010.
Therefore entry (d) is correct.
32. In the books of Baguio branch (receiving branch) the inter-branch transfer should be treated
as if it was received from the home office. And the freight to be recognized should be the
freight from the office. Therefore choice (c) is correct.
33. In the books of the home office the inter-branch transfer can be cleared by debiting the
receiving branch (Baguio) and crediting the sending branch (Bulacan). Excess freight
account should be charged for the difference which is treated as an expense of the home
office. Therefore choice (a) is correct.
Alternative entry: If the allowance for overvaluation of branch inventory account is classified by
branch:
Investment in Branch – Baguio 30,500

Allowance for overvaluation of Branch Inventory-Bulacan
(P8,000 x 50%) 4,000
Excess freight 1,500
Investment in Branch – Bulacan 32,000
Allowance for overvaluation Branch inventory- Baguio 4,000
34. The expenses paid by the branch are not recorded in the home office books. It is only
recognized upon replenishment of the working fund (petty cash fund).
35. Sales P95,000

Sales discount (P81,000 / 90%)x 10% 9,000
Net sales 86,000
Cost of sales (P95,000 x 70%)+ 200 68,500
Gross profit 17,500
Expenses:
Selling expenses P5,500
Administrative expenses (P95,000 x 5%) 4,750
Samples expenses (P8,200 – P4,550) 3,650 13,900
Net income P3,600
36. Branch beginning inventory – acquired from home office P105,000

Shipment from home office – at billed price (P328,125 x 140%) 459,375
Goods available for sale at billed price 564,375
Branch ending inventory per books P280,000
37. Sales P268,000

Sales discount (P58,200 ÷ 97%)x 3% 1,800
Net sales
Cost and expenses:
Cost sales P124,000
Salaries 21,600
Rent expense (P36,000 x 1/12) 3,000
Expenses 17,925
Samples (P36,000 x 85%)x 1/5 6,120
Depreciation (P40,000 x 18% x 1/12) 600 173,245
Net income P92,955
38. Choice (d) is correct due to the following entries to record the interbranch transfer of
merchandise:
Pasig Branch Books:

Home office 70,800
Freight in 4,200
To record transfer of merchandise to Alabang.
Alabang Branch Books:

Freight in 6,200
Cash 2,800
Home office 70,000
To record receipt of merchandise from Pasig.
Home Office Books:

Alabang branch current 70,000
Excess freight 800
Pasig branch current 70,800
To record interbranch transfer of merchandise.
39. The unrealized inventory profit balance on December 31 is the difference between the
branch ending inventory at billed price and cost. Computed as follows:
Branch ending invty per physical count – from HO (42,000 – 27,000) P14,300
Shipment in transit:
Shipment from HO at BP (145,000 ÷ 130%) P188,500
Shipment from HO per books 150,800 37,700
Correct branch ending inventory at billed price P52,000
Branch ending at cost (52,000 ÷ 130%) 40,000
Unrealized inventory profit, December 31, 2008 P12,000
40. The combine net income is computed by preparing a combined income statement as
follows:
Sales P1,920,000
Cost of sales:
Inventory, January 1 (Sch. 1) P69,000
Purchases 1,100,000
Goods available for sale 1,169,000
Inventory, December 31 (Sch. 1) 187,700 981,300
Expenses 400,000
Combined net income P538,700
Schedule 1:
Inventory at cost
Home office P20,000 P120,000
Branch: Acquired from HO (Sch. 2) 30,000 40,000
Acquired from outsiders (58,000 – 39,000) 19,000 27,700
Total 49,000 67,700
Schedule 2:
Allow for overvaluation before adjustment P52,800
Overvaluation in the Shipments:
Shipment from HO at BP (P145,000 x 130%) P188,500
Shipment to branch at cost 145,000 43,500
Overvaluation in the branch beginning inventory P 9,000
Branch beginning inventory at cost (P9,000 / 30%) P30,000
Branch ending inventory at cost (per No. 39) P40,000

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Home Office Special Procedures CH14

On June 30, 2018, the branch reported the following:

Inventory, June 30 P50,400

Month-end additional data:

Home Office Books Branch Books

How much is the branch inventory at cost?

Merchandise from Merchandise Total

Manila Office Naga Office

The correct branch profit (loss) for 2023 is:

a. P32,000 b. P35,500 c. P77,500 d. P85,500 ANS C

a. P174,150 b. P138,450* c. P130,000 d. P120,450 ANS B

a. P485,000 b. P422,500 c. P416,250 d. P343,750 ANS C

Home office Branch

Other information: Merchandise inventory, December 31, 2021:

Home office, P20,000; Branch, P8,600

How much is the net income of the branch?

a. P3,900 b. P6,100 c. P5,300 d. P5,500 ANS B

Home office Branch

Other information: Merchandise inventory, December 31, 2021:

Home office, P20,000; Branch, P8,600

a. P75,700 b. P65,700 c. P86,200 d. P94,820 Ans A

a. P33,335 b. P31,450 c. P20,950 d. P10,450 ANS C

Sales orders sent to home office P55,000

Sales orders sent to home office P55,000

2021 2022 2023

Assume perpetual inventory records were not maintained.

The gain/loss on repossession on the defaulted 2014 contracts was

Gross margin on cost .............................................................. 66-2/3%

What was the total amount of sales on installment basis?

The gross profit percentage for the project was

The portion of the total contract price to be recognized as revenue in 2015 is

a. The inventory transfer is a transaction with a related party.

a. Investment in Branch account

b. Shipments to Branch and Investment in Branch

c. Branch Income and Investment in Branch

d. None of the above ANS A

a. DR Depreciation Expense, P15,000

b. DR Home Office, P15,000

c. DR Depreciation Expense, P15,000*

a. total cost incurred to date

2016? b. 90,220 Unadjusted balance, Debit

Adjusted balance, 12/31/2016 P 59,140 P 59,140

Excess freight on interbranch

c. Shipment to lloilo 45,000

Sales by branch 250,000

Iloilo branch current 51,000

a. 80,000 Inventory. Jan. 1. 2016 19,000 Cash P 11,900

d. 95,000 Home Office account, 1/1/2016 64,000 Accounts receivable 62,500

a. 70,000 Inventory, Dec 31, 2016 12,000 Sales 112,500

Home office 125,000

account (allowance for overvaluation) reflects the markup.

sheet as at December 31, 2016 is:

c. 16,040 Combined inventory at cost 15,600

bills merchandise to the branch at 20% above cost.

Shipments from Home Office 28,800

March 5 P120,000 (at billed price) d. Yes Yes

March 20 P 35,000 (at billed price)

Inventory End (at cost) destroyed by fire (150,300/125%) 120,240

Advertising supplies 10,000