Since 1977

AFAR DE LEON/DE LEON/DE LEON

2904 HOME OFFICE and BRANCHES BATCH OCTOBER 2020

LECTURE NOTES

Agencies and branches are established to decentralize flows are also not acceptable for general purposes.
operations or to expand into new markets. Agencies are These two different sets of financial statements are
simple extensions of the home office; branches, internal to each of the reporting entities, combined
generally, are with regulated autonomy to operate as financial statements must be prepared for the combined
an independent entity. entities (taken as one and the same) to meet the
requirements of general-purpose statements.
Because agencies do not maintain its own set of
accounting records, all its transactions are recorded in A branch and its home office represent two accounting
the books of the home office. If the home office would systems but just one accounting and reporting entity.
like to determine viabilities of the agencies, real and All entries in the accounting records of the branch are
nominal accounts for the agency are identified in the also entered, at least in summary form, in the
home office books to facilitate such determination. accounting records of the home office. The records of
Otherwise, the agency items are merged without the home office and the branch are linked by two
identification with those of the home office. reciprocal accounts; the Home Office Equity account in
the books of the Branch and the Investment in Branch
The branch has its own complete set of accounting account in the books of the Home Office. Because they
records, therefore all its transactions, including those are reciprocal, it means that the two accounts always
with the home office, are recorded in its books. It also have the same balance although the Investment in
presents its own set of financial statements: the income Branch is a debit account (as an asset in the books of
statement, the balance sheet, and the statement of the Home Office) and the Home Office is a credit
cash flows. But because the branch is but a part of the account (as an equity item in the books of the branch).
home office, therefore, these set of financial statements The two accounts frequently show different balances on
are not acceptable for general purposes. And since the a temporary basis due to errors and items in transit. A
home office is just also a part of the whole organization, very important aspect of the study of home office and
its own set of financial statements: the income branches is the reconciliation of the reciprocal balances.
statement, the balance sheet and the statement of cash

An illustration of journal entries recorded for interoffice transactions follow:

Transactions Home Office Books Branch Books

Transfer of cash from the home office Investment in branch x Cash x
Cash x Home office equity x
Transfer of cash from the branch Cash x Home Office Equity x
Investment in branch x Cash x
Transfer of mdse from HO at cost Investment in branch x Shipment from HO x
Shipment to branch x HO Equity x
Transfer of mdse from HO at above Investment in Branch x Shipment from HO x
cost Allowance for OV x HO Equity x
Shipment to branch x
Payment by HO of branch expenses Investment in branch x Expenses x
Cash x HO Equity x
Allocation of prev. paid branch exp Investment in branch x Expenses x
Expenses x HO Equity x
Transfer of Fixed asset from home Memo entry Memo entry
office to Branch
(Note: There will be no entry if all fixed assets are accounted in the books of
the home office); otherwise:
Investment in branch x Fixed Assets x
Accumulated depn x Acc Depn x
Fixed Assets x HO Equity x
To take-up branch Profit/(loss) Investment in branch x Income Summary x
Branch Income x HO Equity x
Branch loss x HO Equity x
Investment in branch x Income Summary x
To adjust the reported branch NI /NL) Allowance for Ovrvltn x No Entry
for realized allowance Branch Income x

Note: The adjusting entry to reflect the true net income or loss of the branch
from the standpoint of the home office is always favorable and only relevant
when billing policy is above cost:

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EXCEL PROFESSIONAL SERVICES, INC.

2. Adjust some items in the cost of sales section of the

branch income statement to their true costs (as a
Detailed computation of realized allowance for consequence of the billing policy not equal to cost).
overvaluation thru sales by the branch to outsiders during
the period: The working paper adjustment/elimination entries are as
Billed Cost Price Mark-up on follows:
Price Cost a. Billed at Cost b. Billed above cost
Branch Beg Invty xx xx xx HO Equity x HO Equity x
(from HO)) Investment in Branch x Investment in Branch x
Current shipments xx xx xx Accounts Payable x Accounts Payable x
(from HO Accounts Receivable x Accounts Receivable x
Branch End Invty (xx) (xx) (xx) Shipment to Branch x Shipment to Branch x
(from HO) Shipment from Allowance for Ovrvltn x
Cost of Goods Sold xx xx xx Home Office x Shipment from HO x
None Allownce for Ovrvltn x
Cost = Billed Price/100% + % mark-up on cost = Mark-up Branch Beg Invty x
on cost/% mark-up on cost. The amount of allowance None Br Ending Invty (I/S) x
considered realized will be the allowance carried by the Branch End Invty (B/S) x
cost of goods sold.
When a company is composed of a home office and more
There are two pricing methods generally used by the home than one branch, the home office records include a
office in billing the branch for merchandise transfers: separate investment in branch account and a separate
1. Billed at cost the merchandise is transferred at cost, allowance for overvaluation account for each branch.
thus when the branch sells the merchandise, the entire Separate worksheet adjustments are made for each
gross margin is included in the branch net income. branch.
2. Billed at cost plus markup the merchandise is
transferred at an amount between cost and the selling When assets are transferred from one branch to another
price. This intermediate pricing method allocates part
of the gross margin to the branch and the remainder are used to record the transfers. (Inter-branch receivables
to the home office. and payables are not created.) In essence, the transferring
branch reverses the entry to record the transfer from the
Working paper adjustments and eliminations must be home office and the receiving branch enters a transfer as if
determined in order to: it comes from the home office.
1. Eliminate inter-company balances from the combined
statements to avoid redundancy, and - done -

STRAIGHT PROBLEMS

Problem 1 (Branch was billed at cost) from the home office (there was no beginning
ROUNDHEAD CORPORATION, which prepares financial inventory).
reports at the end of the calendar year, established a
Requirements:
branch on March 1, 2020 in Malolos City. The following
1. Prepare journal entries in the books of the home office
transactions occurred during the formation of the branch
and in the books of the branch office for the above
and its operations through December 31, 2020.
transactions.
1. The Home Office sent P28,672 cash to the branch to
2. Prepare closing entries in the books of the branch
begin operations.
office to close its income statement accounts.
2. The Home Office shipped inventory to the branch.
3. Prepare adjusting entry in the books of the home
Billings totaled P61,440, which was the Home Office's
office to reflect the increase or decrease in the
cost. (Both the Home Office and the Branch use a
branch's net assets resulting from the branch
periodic inventory system.)
operations.
3. On July 1, 2020,the home office paid cash of P12,288
for merchandise display equipment to be used by the Problem 2 (Branch was billed at more than cost)
branch. (As a matter of company policy, branch fixed The following transactions pertain to an ALBANY COMPANY
assets are carried on the home office books). branch's second month's operations in June, 2020:
4. The branch purchased inventory costing P44,032 from 1. The HOME OFFICE sent P14,400 cash to the BRANCH.
outside vendors on account. 2. The HOME OFFICE shipped inventory costing P64,000
5. The branch had credit sales of P87,040 and cash sales to the BRANCH at a billed price of P80,000. (This
of P35,840. billing policy was also used in May of 2020.)
6. The branch collected P45,056 of its accounts 3. BRANCH inventory purchased from outside vendors
receivable. totalled P48,000.
7. The branch paid outside vendors P28,672.. 4. BRANCH sales on account were P169,600.
8. The branch incurred selling expenses of P15,360 and 5. The HOME OFFICE allocated P3,200 in advertising
general and administrative expenses of P12,288. expense to the BRANCH.
These expenses were paid in cash when they were 6. BRANCH collections on accounts receivable were
incurred and include the expense of leasing the P72,000.
branch's facilities. 7. BRANCH operating expenses of P28,000 were
9. The home office charged the branch P2,048 for its incurred, none of which were paid at month-end.
share of insurance. 8. The BRANCH remitted P22,400 to the HOME OFFICE.
10. Depreciation expense on the display equipment 9. The BRANCH's inventory balances follows:
acquired by the home office for the branch, thru 6/01/20 6/30/20
December 31, 2020, is P1,024. Acquired from other vendors P17,600 P19,200
11. The branch remitted P10,240 cash to the home office. Acquired from HOME OFFICE 24,000 32,000
12. The branch's physical inventory on December 31, Totals P41,600 P51,200
2020 is P 33,792, of which P 25,600 was acquired

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EXCEL PROFESSIONAL SERVICES, INC.

Requirements:
Requirements:
1. Prepare journal entries in the books of the home 1. Prepare the year-end adjusting entries to bring the
office and the branch office for these transactions, intracompany accounts into agreement.
assuming a periodic inventory system is used 2. Complete the following analysis of the BRANCH
2. Prepare the month-end closing entries for the branch inventory
3. Prepare the month-end adjusting entries for the home
office relating to the branch's operations for the Transfers Transfers
month: (a) to take-up the reported branch net income Above cost __at cost__ Mark-up
(RBNI) and (b) to adjust the RBNI to the true branch Beginning
net income (TBNI) inventory:
Acquired
from
Problem 3 vendors P P P
Acquired
The pre-closing trial balances of HATCH CORPORATION from home
and its TAYTAY BRANCH for the year ended December 31, office
2020, prior to adjusting and closing entries are as follows: Add:
Purchases
Home Office Branch Office (from vendors)
Accounts Debit Credit Debit Credit Shipments
Cash P 35,840 P P10,240 from office
Accounts
receivable, Total goods
net 81,920 51,200
available for
Inventory,
sale
January 1,
2019: Less: Ending
Acquired inventory
from Acquired
vendors 235,520 51,200 from
Acquired vendors
from 20,480 Acquired
home from home
office office
Deferred Cost of goods
profit 25,600 sold
Fixed
assets, net 890,880 92,160 3. Prepare the following year-end adjusting entries to:
Investment
in branch 158,720 a. Record the BRANCH income on the HOME OFFICE
Accounts books
payable 226,304 46,080 b. Adjust the DEFERRED PROFIT account to the
Long-term proper balance
debt 409,600 4. Prepare the year-end closing entries for the HOME
Common
stock 307,200 OFFICE and the BRANCH.
Retained 358,400 5. Prepare the following for 2020:
Earnings, a. An income statement and balance sheet for the
January 1, BRANCH.
2019 b. An income statement and balance sheet for the
Home
office HOME OFFICE.
equity 117,760 c. An income statement and balance sheet combined
Sales 983,040 327,680 for the HOME OFFICE and the BRANCH OFFICE.
Purchases 819,200 122,880
Shipments Problem 4
from home On December 31, 2020 the INVESTMENT in BRANCH
office 92,160 account on the HOME OFFICE books of LEMON COMPANY
Shipments
shows a balance of P192,000. The following facts are
to branch 86,016
Operating ascertained:
expenses 174,080 51,200 1. Merchandise billed at P6,400 is in transit on December
31, 2020 from the HOME OFFICE to the BRANCH.
2. The BRANCH collected a HOME OFFICE account
_______ _______
receivable for P2,560. The BRANCH did not notify the
Totals P2,396,160 P2,396,160 P 491,520 P491,520
HOME OFFICE of the cash collection.
Inventory per physical count on December 31, 2020: 3. On December 30, the HOME OFFICE mailed a check of
From vendors P184,320 P 20,480 P12,800 to the BRANCH but the bookkeeper charged
From home office - 30,720 the check to General Expenses; the BRANCH has not
received the check as of December 31, 2020.
Additional information: 4. BRANCH profit for December was recorded by the
1. Inventory transferred to the branch from the home HOME OFFICE at P11,392 instead of P12,544.
office is billed at 125% of cost. 5. BRANCH returned supplies of P1,280 to the HOME
2. The home office billed the branch P15,360 for OFFICE but the HOME OFFICE has not yet recorded
inventory it shipped to the branch on December 28, the receipt of the supplies.
2020; the branch received and recorded this shipment Required:
on January 2, 2020. a) Compute the balance of the HOME OFFICE account on
3. The branch remitted P25,600 cash to the home office the BRANCH book as of December 31 before its
on December 31, 2020; the home office received and adjustment.
recorded this remittance on January 4, 2021. b) Prepare a reconciliation statement to compute the
adjusted balances on December 3, 2020.
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EXCEL PROFESSIONAL SERVICES, INC.

Purchases 1,080,000 360,000

Problem 5 Shipments to branch 288,000
The interoffice accounts between the main office of BLACK Allowance for overvaluation
MELSIM COMPANY and its AYALA BRANCH in Makati were branch inventory 79,200
adjusted to P232,800 as of December 31, 2020. The Sales 1,440,000 864,000
transactions between the HOME OFFICE and the BRANCH Operating Expenses 348,000 132,000
for 2020 were:
a. Remittance by the BRANCH (P24,320 was still in The ending inventory of the BRANCH of P86,400 includes
transit as of December 31, 2020) P 227,520. goods from outside purchases of P19,200; the ending
b. Shipments to branch (includes goods worth P56,320 inventory of the HOME OFFICE is P 180,000. Calculate:
that are not yet received by the BRANCH as of 1. The amount of shipments in transit at cost at the end
December 31, 2020) are P601,600. of 2020.
c. The HOME OFFICE has not yet informed the BRANCH 2. The overstatement of BRANCH cost of sales during
of its share in the advertising expense amounting to P 2020.
19,200. 3. The combined net income for the year 2020.
d. Accounts receivable of the BRANCH amounting to
P38,400 was collected by HOME OFFICE, net ,of 4% Problem 7
discount. The BRANCH has not yet been notified. BRANCH A was authorized by its RUBBLE COMPANY Home
e. The HOME OFFICE incorrectly credited the BRANCH by Office to send cash of P1,920 that it can spare to BRANCH
P 12,800 for the remittance of its CUBAO BRANCH. B. How is this transfer best recorded on the books of
The AYALA BRANCH made no entry. (a) BRANCH A
f. The HOME OFFICE corrected the above entry on (b) BRANCH B and
January 5, 2021. However, the AYALA BRANCH (c) the HOMEOFICE
inadvertently received a copy of this memo and
entered a credit in favor of the HOME OFFICE as of Problem 8
December 31, 2020 The GOLDEN MONKEY CORPORATION has established
g. The BRANCH returned merchandise worth P 16,000 to several branches that sell the products that it
the HOME OFFICE and was duly acknowledged by the manufactures. Manufactured units are billed to the
latter during the year. branches at the manufacturing costs, the branches paying
the freight charges from the HOME OFFICE. On November
Required: 1, the HOME OFFICE ships goods to AMER BRANCH
1. The unadjusted balance of the HOME OFFICE charging the branch P12,800. AMER BRANCH pays freight
EQUITY account as of December 31, 2020. charges of P400. It is subsequently discovered that the
2. The adjusted balance of the interoffice accounts HOME OFFICE had shipped the goods to AMER BRANCH by
as of December 31, 2020. mistake and the HOME OFFICE directs AMER BRANCH to
forward all the goods to BALGAN BRANCH. Upon receiving
Problem 6
the goods, BALGAN BRANCH pays freight charges of
WHITE CLARET ENTEPRISES bills its BRANCH for
P192. If the shipment had been made directly from the
merchandise shipment at 25% above cost. The following
HOME OFFICE the freight BALGAN BRANCH would have
are some of the account balances appearing on the books
paid is P448.
of the HOME OFFICE and its BRANCH as of December 31,
2020. Give journal entries to record all of the foregoing
Home Office Branch's transactions on the books of (1) GOLDEN MONKEY
Books Books CORPORATION; (2) AMER BRANCH; and (3) BALGAN
Inventory, Jan I P 36,000 P57,600 BRANCH.
Shipments from Home Office 336,000

MULTIPLE CHOICE

HULSEY CORPORATION has one branch office, named

BULLSTAG Branch. HULSEY is performing the end-of-the- Office Account?
period reconciliation of its Branch account whose current a. (1) P326,560 and (2) P323,200.
Home Office account b. (1) P329,600 and (2) P317,280.
whose current balance is P?. The following items are c. (1) P328,960 and (2) P330,240.
unsettled at the end of the accounting period (you may d. (1) P322,560 and (2) P320,480.
assume that the item has been reflected in the accounts
of the underlined entity): The SOLITARY branch of MULTIPLEX Company, at the
A. HULSEY has agreed to remove P480 of excess freight end of its first quarter of operations, submitted the
charges charged to BULLSTAG when HULSEY shipped following income statement:
twice as much inventory as the branch office Sales P192,000
requested. Cost of sales:
B. BULLSTAG mailed a check for P7,040 to the Home Shipments from home office P179,200
Office as payment for merchandise shipments. The Local purchases 19,200
home office has not yet received the check. Total P198,400
C. BULLSTAG returned defective merchandise to Inventory at end 32,000 166,400
HULSEY. The merchandise was billed to the branch Gross margin on sales P 25,600
Expenses 22,400
at P2,560 when its actual cost was P1,920.
Net income P 3,200
D. Advertising expense attributable to the branch office
were paid for by HULSEY in the amount of P3,200. Shipments to the branch were billed at 140% of cost.
The branch inventory as at September 30 amounted to
1. If the adjusted balances for the BULLSTAG Home P32,000 of which P4,224 was locally purchased. Markup
Office Branch Account is on local purchases, 20% over cost. Branch expenses
P320,000, what unadjusted balance was listed in (1) incurred by home office amounting to P1,600 were

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 EXCEL PROFESSIONAL SERVICES, INC.

to the BRANCH. Freight on this shipment was P160

statement. which is to be treated as part of inventory.
2. On September 30, the branch inventory at cost and b. December 31, 2020 inventories, excluding the
net income realized by the home office from the shipment in transit was:
branch operations, respectively are: Head Office, at cost 19,200
Cebu Branch, at billed value
a. P24,064 and P46,464 (excluding freight of P332.80) 6,656
b. P20,224 and P 3,200 5. Net income of the HEAD OFFICE was
c. P32,000 and P35,200 a. P 6,400 c. P 12,800
d. P24,064 and P44,864 b. P 9,600 d. P 14,080

A HOME OFFICE transfers inventory to its BRANCH at a 6. True income of CEBU BRANCH was
20% markup on cost. During 2020, inventory costing a. P 6,701 c. P 7,981
the HOMEOFFICE P51,200 was transferred to the b. P 7,341 d. P 8,621
BRANCH. At year-end, the HOME OFFICE adjusted its
Unrealized Intercompany Inventory Profit account The following data were taken from the records of
downward by P11,648 r-end balance SWEATER CORPORATION and its BULACAN BRANCH for
sheet shows P3,072 of inventory acquired from the 2020:
HOME OFFICE. Home Office Bulacan branch
3. How much is the beginning inventory of the BRANCH Sales P 339,200 P100,800
at cost? Inventory, Jan. 1 36,800 14,240
a. P 9,600 c. P 1,920 Purchases 262,400
b. P 11,520 d. P 10,240 Shipment to branch 67,200
Shipment from
SULUAN. INC. established a BRANCH in JOLO to home office 80,640
distribute part of the goods purchased by the HOME Inventory, Dec. 31 45,600 18,720
OFFICE. The HOME OFFICE prices inventory shipped to Expenses 122,240 32,480
the BRANCH at 20% above cost. The following account In 2020, the HOME OFFICE billed the BRANCH at 120%
balances were taken from the ledger maintained by the
HOME OFFICE and the BRANCH: 7. The combined net income of the HOME OFFICE and
Suluan,Inc. Jolo, Branch the BRANCH for 2020 was:
Sales P384,000 P 134,400 a. P30,928 c. P31,904
Beginning inventory 76,800 38,400 b. P31,088 d. P35,888
Purchases 320,000 -
Shipment to branch 83,200 - BLUE MAGIC, INC. has a BRANCH in BORACAY
Shipment from home established on April 1, 2020. During the year 2020, the
office 99,840 BLUE MAGIC shipped merchandise to the BRANCH at
Operating expenses 46,080 23,040 billed value of P80,000 which was 25% above cost. At
Ending inventory 62,720 30,720 the end of the year, the BRANCH reported sales of
P128,000, operating expenses of P60,800, and a net
All of the branch inventory is acquired from the HOME income from operations of P9,600.
OFFICE. 8. The true income of the BRANCH was
4. On the basis of these account balances, the a. P 9,600 c. P 11,520
combined net income of the HOME OFICE and the b. P 16,000 d. P 21,120
BRANCH is:
a. P108,800 c. P177,920 SYSTEM CORPORATION operates a number of
b. P 44,800 d. P 84,480 BRANCHES in Metro Manila. On June 30, 2020, its STA.
CLARA BRANCH showed a HOME OFFICE account balance
BICOL COMPANY is engaged in merchandising both at its of P17,504 and the HOME OFFICE books showed a STA,
HEAD OFFICE in MAKATI and a BRANCH in CEBU. CLARA BRANCH account balance of P16,352. The
Selected accounts in the trial balances of the BICOL following information may help in reconciling both
COMPANY and the CEBU BRANCH at December 31, 2020 accounts:
follow: 1. A P7,680 shipment charged by HOME OFFICE to STA.
Debit Home Office Branch CLARA BRANCH was actually sent to and retained by
Inventory, January P 14,720 P 7,392 STA. INEZ BRANCH.
Branch 37,312 2. A P9,600 shipment, intended and charged to STO.
Purchases 121,600 DOMINGO BRANCH was shipped to STA. CLARA
Shipments from Home BRANCH and retained by the latter.
Office 67,200 3. A P1,280 emergency cash transfer from STA. INEZ
Freight in from Home Office 3,520 BRANCH was not taken up in the HOME OFICE
Sundry expenses 32,000 16,000 books.
Credit 4. HOME OFFICE collects a STA. CLARA BRANCH
Home Office 34,112 accounts receivable of P2,304 and fails to notify the
Sales 99,200 89,600 BRANCH.
Shipments to Branch 64,000 5. HOME OFFICE was charged for P768 for merchandise
Allow. for overvaluation of returned by STA. CLARA BRANCH on June 28. The
branch inventory Dec. 31 7,040 merchandise is in transit.
6. HOME OFFICE erroneously recorded STA. CLARA
Additional information: BRANCH's net income for May, 2020 at P10,416. The
a. CEBU BRANCH receives all its merchandise from the BRANCH reported a net income of P8,112.
HEAD OFFICE. The HEAD OFFICE bills the goods at
cost plus 10% mark-up. At December 31, 2020 a 9. What is the reconciled amount of the HOME OFFICE
shipment with a billing price of P3,200 was in transit and STA. CLARA BRANC
a. P13,920 c. P17,504
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 EXCEL PROFESSIONAL SERVICES, INC.

b. P15,200 d.P12,896 HOME OFFICE all sales proceeds. The allowance for
overvaluation of branch inventory account on the HOME
The LEGIT COMPANY established a BRANCH in MAKATI OFFICE books showed a balance of P4,800 after
CITY on June 1, 2020. The BRANCH is to receive adjustment.
substantially all merchandise from the HOME OFFICE. 10. Compute the: (1) BRANCH inventory on December
During the remainder of 2020, shipments to the branch 31, 2020 at cost, and (2) the BRANCH net income as
amounted to P115,200 which included a 20% mark-up far as the HOME OFFICE is concerned:
on cost. The BRANCH purchased P28,800 additional a. (1) P28,800; (2) P49,920
merchandise for cash and reported unsold merchandise b. (1) P33,600; (2) P49,920
of P38,400 at year-end. The BRANCH made sales of c. (1) P33,280; (2) P35,520
P187,200, paid expenses of P46,080 and remitted to the d. (1) P40,000; (2) P63,600

DO-IT-YOURSELF DRILL

The following were found in your examination of the allowance 71,875

interplant accounts between the Bulacan Home Office The branch obtains all its merchandise from the home
and its Laguna Branch. office. The home office ships the merchandise at 125%
a. Transfer of fixed assets from Home Office amounting of its cost. The ending inventory of the branch is
to P67,450 was not booked by the branch. P50,000 at the billed price.
b. P12,500 covering marketing expense of another
branch was charged by Home Office to Laguna. 3. The true income of the branch is:
c. Laguna recorded a debit note on inventory transfers a. P 68,281.25 c. P127,500
from Home Office of P93,750 twice. b. P140,000 d. P 52,500
d. Home Office recorded cash transfer of P82,125 from
Laguna Branch as coming from Tagum City Branch.
Presented below are items taken from the unadjusted
e. Laguna reversed a previous debit memo from
trial balances of NCR Company and its Manila Branch on
Cagayan de Oro Branch amounting to P13,125.
December 31, 2020:
Home Office decided that this charge is appropriately
Home Office Branch
Tagum City Branch's cost.
Books Books
f. Laguna recorded a debit memo from Home Office of
Shipment to branch P2,250,000
P5,812.50 as P5,700.
AFOVOBI 749,250
Shipment from HO P2,925,000
1. The net adjustment in the Home Office books related
Purchases (from OV) 1,084,500
to the Laguna Branch Current account is
MI, January 1 921,375
a. P 94,625 c. P 107,750
MI, December 31 365,625
b. P 82,125 d. P 118,525
Sales 4,800,000
The San Miguel Branch of Taiwan Products, Inc. buys Expenses 382,500
merchandise from outsiders and receive merchandise Assuming that the branch ending inventory acquired
from the home office for which it is billed at 20% above from other vendors (OV) is P73,125
cost. Below are excerpts from the trial balances and data 4. What is the net income (loss) of the branch insofar
on the home office and San Miguel Branch for the month as the home office is concerned?
of April, 2020: a. P534,000 c. P315,000
b. P681,750 d. (P147,750)
HOME OFFICE:
Cr. Allowance for overvaluation of 462,500 Teardrops Commercial Corp. maintains a branch in Iloilo
branch merchandise City. Selected balances taken from the books of
Cr. Shipment to Branch 1,062,500 Teardrops and its Bacolod City branch as of December
BRANCH: 31, 2020 are as follows:
Dr. Beginning inventory 1,800,000 Home Office Branch
Shipments from home office 1,275,000 Office
Purchases 512,500 Merchandise Inventory,
Month-end additional data: Jan 1 P 12,000 P 8,000
Ending inventory of branch 1,825,000 Purchases 150,000 30,000
From Home Office, billed price of 1,462,500 Shipments from Home
From outsiders, at cost 362,500 Office 93,750
Shipments to Branch 75,000
2. The total cost of goods sold of the San Miguel Branch Branch Inventory
at cost (net of overvaluation) for the month just Allowance 19,750
ended amounted to: Sales 115,000 176,500
a. P1,762,500 c. P1,543,750 Merchandise Inventory,
b. P1,731,250 d. P2,312,500 Dec 31 14,000 10,350

The following information are taken from the books and P4,350 of the branch's ending inventory came from
records of Cebu City Company and its branch. The purchases from suppliers other than the home office.
balances are at December 31, 2020, the second year of 5. As far as the home office is concerned, the cost of
the company's operations. sales of the branch was:
Home Office Branch Office a. P 97,120 c. P121,400
Books Books b. P102,850 d. P131,850
Sales P500,000
Expenses 125,000 During the year 2020 the Bacolod Corporation bills its
Shipment to Branch P250,000 Iloilo branch at 140% of cost. Goods billed at P346,500
Branch inventory were shipped to the branch. The account Allowance for
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 EXCEL PROFESSIONAL SERVICES, INC.

overvaluation has a balance of P122,400 before December 31 420,000 150,000 570,000

adjustment. The beginning inventory of the branch from
the home office at cost is P93,600; the beginning
inventory of the branch from outsiders is P15,200,
purchases from outsiders is P130,500. The branch returned P15,000 worth of merchandise to
6. Cost of goods available for sale of the Iloilo Branch in the Home Office acquired at billed price.
2020 is 9. The amount of the allowance for overvaluation
a. P486,800 c. P609,200 account that was realized as income in view of
b. P623,240 d. P463,500 branch sales for the month of December was:
a. P63,000 c. P87,500
The USJR Company bills its UC branch for merchandise b. b. P66,000 d. P84,000
at 135% of cost. On December 31 the following The Batangas Corporation operates a branch in Lipa City.
information were reported by the branch: The Home Office ships merchandise to the branch at
Merchandise 125% of its cost. Selected information from the
Merchandise Purchased December 31, 2020 trial balance are as follows:
from Home from Home Office Branch Office
Office (at Outsiders (at Books Books
Billed priced) cost) Sales P600,000 P300,000
Merchandise inventory, Shipments to branch 200,000
December 1 P16,200 P 4,000 Purchases 350,000
Merchandise into stock, Shipments from Home
December 1-31 20,250 12,000 Office 250,000
Merchandise inventory, Inventory, January 1 100.000 40,000
December 31 18,900 5,000 Allowance for Overvaluation
7. Assuming that the branch has a net income of of branch Inventory 58,000
P20,000 and had returned to the home office Expenses 120,000 50,000
merchandise originally acquired at a billed price of
P540. The true branch profit as far as the USJR Inventory at December 31, 2020:
Company is concerned is: Home Office P30,000
a. P24,690 c. P20,000 Branch Office 60,000
b. P24,130 d. P24, 410
10. The combined net income of the home office and the
branch after adjustment is:
A reconciliation of the Inv. In Branch account in the head a. P326,000 c. P500,000
office of PRTC Company and the Home Office account b. P496,000 d. P280,000
carried on the books of its CDO branch showed the
following discrepancies at December 31, 2020. Profit and loss data for Cotabato Sales Company and its
a) Collection of branch account receivable by the home General Santos Branch for 2020 follows:
office, P800. The branch was not notified. H.O. Branch
b) Shipment in transit to branch on December 31, Sales P1,060,000 P315,000
2020, P3,200. Inventory, January 1 (at 115,000
c) Acquisition of furniture by the branch, P1,200. The cost)
furniture account is to be maintained on the home Inventory, January 1:
office books. The home office had not been notified Acquired from Home
of the acquisition. Office (billed price - 50,000
d) Return of excess merchandise by the branch but not Acquired from
received yet by the home office, P1,500. Outsiders (at cost) - 35,000
e) Cash remittance by the branch on December 31, Purchases 820,000 120,000
2020, P500. This was still in transit. Shipments to Branch (at 110,000
cost)
The Home Office account on the branch books has a Shipments from Home
credit balance of P44,000 at December 31, 2020. Office (at billed price 132,000
8. COMPUTE: (1) the unadjusted balance of the Inv. in Inventory, December 31 (at
Branch account on the home office books at cost) 142,000
December 31, 2020; (2) the adjusted balance of the Inventory, December 31:
reciprocal accounts on December 31, 2020. Acquired from Home
a. (1)P49,600; (2) P47,200 Office (billed price 66,000
b. (1) 49,600; (2) 46,400 Acquired from
c. (1) 47,400; (2) 40,000 Outsiders ( at cost) 70,000
d. (1) 50,100; (2) 46,000 Operating Expenses 200,000 100,000

GHI Company bills its Bulacan Branch for merchandise Records show that the General Santos Branch was
shipments at 125% of cost. As of cut-off date, December billed for merchandise shipment as follows:
31, 2020, the following data were available: In 2019, cost + 25%;
Mdse. Fr Mdse. In 2020, cost + 20%.
Home Purchased
Office(at from 11. The combined net income of the home office and the
billed prices) Outsiders Total branch for the year ended December 31, 2020 is:
Merchandise, a. P212,000 c. P247,000
December 1 P300,000 P120,000 P420,000 b. 225,000 d. 269,000
Additions to
stock during
December 450,000 360,000 810,000
Merchandise,
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