ADVANCE ACCOUNTING PART 1 & 2 (ACCTG 10 & 11)

HOME OFFICE AND BRANCHES

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

-Transfer of mdse from HO at cost

-Transfer of mdse form HO at

above cost

-Payment
expenses

by

HO

of

branch

-Allocation of prev. paid branch

expenses
-Transfer of Fixed asset
home office to branch

from

Home Office Books

Inv. In Branch
x
Cash
Inv.
In
x
Inv. In Branch
Shipment to
x
Inv. In Branch
Shipment to
x
Allowance for OV
Inv. In Branch
x
Inv. In Branch
x
Memo entry

Branch Books
x
Cash
x
Branch
x
Branch
x
Branch
x
x
Cash

x
Expenses

Cash
Home

Office

x
Home Office Equity

x
Equity
x
Cash

x
Shipment form HO
Home Office
x
Shipment form HO
Home Office
x
Expenses

x
Equity
x
Equity

Home

Office

x
Equity

Home

Office

x
Equity

x
Expenses
x
Memo Entry

(Note: There will be no entry if all fixed assets are accounted in the
books of the home office); otherwise:
Inv. In Branch
x
Fixed Assets
x
Accumulated Depn
x
Home Office Equity
Fixed Assets
x x

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ADVANCE ACCOUNTING PART 1 & 2 (ACCTG 10 & 11)

-To take-up branch Profit/(loss)

Inv. In Branch
Branch

x
Income

x
Branch Loss
Inv.
-To adjust the reported branch NI/
(NL) for realized allowance

In

Branch

Accumulated Depn
x
Income summary
x
Home Office Equity
x
Home Office Equity
x
Income summary
x
No Entry

x
Allowance for OV
Branch
Income
x
Note: The adjusting entry to reflect the true net income or loss of the
branch form the standpoint of the home office is always favorable and
only necessary when billing is above cost.

Problem 1
YYY Corporation operates a number of branches in Metro Manila. On June 30 2014 its Makati branch
showed a home office account balance of P17,504 and the Home office books showed a branch account
balance of P16,352. The following information may help in reconciling both accounts:
1. A P7,680 shipment charged by home office to Makati branch was actually sent to Cubao branch and
retained by the latter.
2. A P9,600 shipment, intended and charged to Marikina branch was shipped to and retained by Makati
branch.
3. A P1,280 emergency cash transfer from Cubao branch was not taken up in the home office books.
4. Home office collects a Makati branch accounts receivable of P2,304 and fails to notify the branch.
5. Home office was charged for P768 for mdse returned by Makati branch on June 28 , but it is still in
transit.
6. Home office erroneously recorded Makati branch net income for may 2014 at P10,416. The branch
reported a net income of P8,112.
Required:
Compute for the reconciled amount of the Home office and Makati branch.
Problem 2
The following were found in your examination of the interplant accounts between Bulacan Home office and
Laguna branch.
1. Transfer of fixed assets from home office amounting to P67,450 was not booked by the branch.
2. P12,500 covering marketing expenses of another branch was charged by the Home office to Laguna.
3. Laguna recorded a debit note on inventory transfers from home office of P93,750 twice.
4. Home office recorded cash transfer of P82, 125 from Laguna branch as coming from Tagum City Branch.
5. Laguna reversed a previous debit memo from Cagayan de Oro branch amounting to P13,125. Home
Office decided that this charge is appropriately Tagum city branch cost.
6. Laguna recorded a debit memo from home office of P5,812.50 as P5,700.
Required:
How much is the net adjustment in the Home office books related to the Laguna branch account?
Problem 3
The pre-closing trial balances of DDF Corporation and its Tarlac Branch for the year ended 12-31-14, prior
to adjusting and closing entries are as follows:
HOME OFFICE
BRANCH
Accounts
CASH
A Receivable net.
Inventory beg., from vendors
Inventory
from Home Office
Deferred profit
Fixed Assets, net

Debit
P35,840
81,920
235,520

Credit

Debit
P10,240
51,200
51,200
20,840

Credit

25,600
890,880

92,160

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ADVANCE ACCOUNTING PART 1 & 2 (ACCTG 10 & 11)

Investment in branch
Accounts payable
Long-term Debt
Common stocks
Retained Earnings, beg
Home Office equity
Sales
Purchases
Shipment from Home Office
Shipment to branch
Operating Expenses
Totals

158,720
226,304
409,600
307,200
358,400

46,080

117,760
327,680

983040
819,200

122,880
92,160
86,016

174,080
P2,396,16
0

P2,396,160

51,200
P491,520

P491,520

Inventory per physical count on 12-31-14

From vendors
P184,320
P20, 480
From Home Office
30,720
Additional information:
1. Inventory transferred to the branch from the home office is billed at 125% of cost
2. The home office billed the branch P15,360 for inventory is shipped to the branch on 12-28-14; the
branch received and recorded this shipment on January 2, 2015.
3. The branch remitted P25,600 cash to the Home Office on 12-31-14; the home Office received and
recorded this remittance on January 4, 2015.
Requirements:
1. Prepare the year end adjusting entries to bring the intercompany accounts into agreement.
2. Complete the following analysis of the Branch Inventory
Transfer
Above Cost

Transfer at
Cost

Mark-up

Beg., Inventory:
Acquired from vendors
Acquired from Home Office
Add; Purchases
Shipment from Home Office
Total goods Available for sale
Less :Ending Inventory:
From vendors
SFHO
COST OF GOOD SOLD

3. Prepare the following year-end adjusting entries to:

a. Record the BRANCH income on the HOME OFFICE books.
b. Adjust the Deferred profit account to the proper balance.
4. Prepare the year-end closing entries for the HOME OFFICE and the BRANCH.
5. Prepare the following for 2014:
a. In come statement and Balance sheet for BRANCH AND HOME OFFICE
b. Combined FS.
Problem 4
On 12-31-14 the investment in branch account on the Home Office books of AAA Company shows a
balance of P192,000. The following facts are ascertained:
1. Merchandise billed at P6,400 is in transit on 12-31-14 from Home office to the branch.
2. The branch collected a Home Office account receivable for P2,560. The branch did not notify the
Home
office of the cash collection.
3. On December 30, the Home office mailed a check of P12,800 to the branch but the bookkeeper
charged
the check to General expenses; the branch has not received the check as of 12-31-14.
4. Branch profit for December was recorded by the Home office at P11,392 instead of P12,544
5. Branch returned supplies of P1,280 to the home office but the home office has not yet recorded
the receipts of supplies.

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ADVANCE ACCOUNTING PART 1 & 2 (ACCTG 10 & 11)

Required:
a. compute the balance of the Home office account on the Branch book as of 12-31 before its
adjustments.
b. Prepare a reconciliation statement to compute the adjusted balances on 12-31-14.
Problem 5
UKL Corporation bills its branch for merchandise shipment at 25% above cost. The following are some of
the account balances appearing on the books of the Home office and its branch as of 12-31-14.

Inventory, January 1
Shipment from Home Office
Purchases
Shipment to Branch
Allowance
for
overvaluation
inventory
Sales
Operating expenses

Home Office Books

P36,000

Branch

1,080,000
288,000
79,200
1,440,000
348,000

Branchs Books
P57,600
336,000
360,000

864,000
132,000

The ending inventory of the branch of P86,400 includes goods from outside purchases of P19,200; the
ending inventory of the Home office is P180,000.
Calculate:
1. The amount of shipments in transit at cost at the end of 2014.
2. The overstatement of branch cost of sales during 2014.
3. The combined net income for the year 2014.
Problem 6
HOO Corporation has one branch office, named BOO branch. HOO is performing the end-of-the-period
reconciliation of its BOO branch account whose current balance is P? and BOOs Home office account
whose current balance is P? the following items are unsettled at the end of the accounting period (you may
assume that the item has been reflected in the accounts of the underlined entity):
1. HOO has agreed to remove P480 of excess freight charges charged to BOO when HOO shipped twice as
much inventory as BOO requested.
2. BOO mailed a check for P7,040 to HOO as a payment for merchandise shipped from HOO to BOO. HOO
has not yet received the check.
3. BOO returned defective merchandise to HOO. The merchandise was billed to BOO at P2,560 when its
actual cost was P1,920.
4. Advertising expenses attributable to the BOO office were paid for by the HOO in the amount of P3,200.
Required:
What is the unadjusted balance of HOOs Branch account and BOOs home office account if, the
adjusted balances for the BOOs branch account and HOO home office account is P320,000?
Problem 7
DDD company is engaged in merchandising both at its Head Office in Makati and its Branch in Cebu.
Selected accounts in the trial balances of DDD company and its Cebu Branch at 12-31-14 follows:
Debit
Home Office
Branch
Inventory January
P14,720
P7,392
Branch
37,312
Purchases
121,600
Shipment from Home office
67,200
Freight in From Home Office
3,520
Sundry expenses
32,000
16,000
Credit
Home office
34,112
Sales
99,200
89,600
Shipment to branch
64,000
Allowance for overvaluation of branch inventory
7,040

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ADVANCE ACCOUNTING PART 1 & 2 (ACCTG 10 & 11)

Additional Info:
a. Cebu branch receives all its merchandise from head Office. The Head Office bills the goods at
cost plus 10% mark-up. At 12-31-14 a shipment with a billing price of P3,200 was in transit to the branch
Freight on this shipment was P160 which is to be treated as part of inventory.
b. December 31, 2014 inventories, excluding the shipment in transit was:
Head Office, at cost
P19,200
Cebu branch, at billed value (excluding freight of P333)
6,656
Required:

What is the net income of the Head office, and the True income of Cebu branch?

Problem 8
Home office transfers inventory to its branch at a 20% mark-up on cost. During 2014, inventory costing the
home office P51,200 was transferred to the branch. At year end, the home office adjusted its unrealized
intercompany inventory profit account downward by P11,648. The Branchs year-end balance sheet shows
P3,072 of inventory acquired from the Home office.
Required: How much is the beginning inventory of the branch at cost?

Problem 9
On 12-31-14, the branch current account on the home offices books has a balance of P405,000. In
analyzing the activity in each of these accounts for Dec., you find the following differences:

Inventory costing P14,500 was returned by the branch to the home office on 12-19-14. The billing
was at cost, but the home office recorded the transaction at P1,450.
A home office customer remitted P41,000 to the branch. The branch recorded this cash collection
on 12-23-14. Meanwhile, back at the home office, no entry has been made yet.
The home office accountant had recorded a branch remittance initiated on 12-28-14 for P64,000
twice.
Inventories costing P89,000 was received by the branch from home office on 01-02-13. However,
the home office accountant informed the branch accountant about the shipment on 12-19-14 and
the latter had recorded the inventory shipment at P98,000. The home office ships goods to its
branches at cost.
The Home office incurred P12,000 of advertising expenses and allocated 1/8 of this amount to the
branch on 12-21-14. The branch inadvertently recorded half of the advertising expenses incurred by
the home office during the year.

How much is the unadjusted balance of the Home Office Current account?
Problem 10
The trial balances of the Home office and the branch office ABC Company as follows:
The ABC Company
Trial Balance
December 31, 2013
Debits
Cash
Accounts Receivables
Inventory- 12-31-13
Plant Assets (net)
Branch
Cost of Goods Sold
Expenses
Total
Credits
Accounts Payable
Mortgage
Capital Stock
Retained Earnings-January 1,
2013
Sales
Accrued Expenses

Home
15,000
20,000
30,000
150,000
44,000
220,000
70,000
549,000

Branch
2,000
17,000
8,000
93,000
41,000
161,000

23,000
50,000
100,000
26,000
350,000

150,000
2,000

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ADVANCE ACCOUNTING PART 1 & 2 (ACCTG 10 & 11)

Home Office
Total

549,000

9,000
161,000

The following additional information is to be considered:

a. The branch receives all of its merchandise from home office. The home office bills goods to the branch
at 125% of cost. During 2013 the branch was billed for 105,000 on shipments from the home office.
b. the home office credit sales for the invoice price of goods shipped to the branch.
c. on January 1, 2013, the inventory of the home office was P25,000. The branch books showed a P6,000
inventory.
d. On December 30, 2013, the home office billed the branch for P12,000, representing the branchs share
of expenses paid at the home office. The branch has not yet recorded this billing.
e. All cash collections made by the branch are deposited in a local bank to the account of the home office.
Deposits of this nature included the following:
Amount

Date Deposited by branch

P5,000
3,000
7,000
2,000

December 28, 2013

December 29, 2013
December 30, 2013
January 2, 2014

Date Recorded by
office
December 30, 2013
January 2, 2014
January 3 2014
January 5 2014

Home

f. Expenses incurred locally by the branch are paid from an impress bank account that is reimbursed
periodically by the home office. Just prior to the end of the year, the home office forwarded a reimbursed
check in the amount of P3,000, which was not received by the branch office until January, 2014.
Required:
1. Prepare a reconciliation of the branch accounts and the Home Office account, showing the
corrected book balances.
2. Prepare combined income statement.
Problem 11
The following transactions were entered in the branch current account of Makati Head Office for the year
2014
Beg. Balance
Shipment to branch, 4/1/14
Cash forwarded, 6/1/14
Collection of AR, 9/1/14
Operating expenses charged to the
Branch12/31/14

DEBIT
459,258
212,400
15,000

CREDIT

33,300

2,880

Shipment to the branch during the year were made at 20% above cost
The balance of the allowance for overvaluation of branch inventory account was P21,300 at the
beginning, and the allowance was written down to P14,700 at year-end.
On 12-10-14, the home office purchased a piece of equipment amounting to P36,000 for its branch
in Ortigas. The said equipment has a useful life of the five years and will be carried in the books of
the branch, but the home office recorded the purchased by debiting Equipment
The branch recorded the depreciation of the equipment by debiting the Home Office current
account and crediting Accumulated Depreciation.
Debit memo regarding the allocation of operating expenses to the Ortigas branch was received by
the branch on January 2, 2015.
The Ortigas branch reported net income of P197,730
It also remitted cash to the home office on 12-31-14 amounting to P33,000, which the home office
received and recorded on January 1, 2015
The interoffice accounts were in agreement at the beginning of the year.

Compute for the following

1. How much is the unadjusted balance of the branch current account on 12-31-14 before
necessary closing entries were made?
2. What is the amount of adjustment in the allowance for overvaluation of Branch inventory
account?
3. How much is the net income of Ortigas branch that will be reported in the combined income
statement of The Makati Company.

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ADVANCE ACCOUNTING PART 1 & 2 (ACCTG 10 & 11)

4. What is the amount of the Home Office Current account that will be reported in the books of
Ortigas Branch after closing entries are made?
Problem 12
The Batangas Branch of M Corporation is billed for merchandise by the Home Office at 120% of cost. The
branch in turn bills its customers at 1255 of cost. On January 17 all of the branch merchandise were
destroyed by fire except some goods priced to sell for P6,000. No insurance was maintained. A branch
book shows the following information:
Merchandise Inventory, January 1 (at billed price)
Shipments from Home Office (January 1-17)
Sales
Sales Returns
Sales Allowances

P26,400

20,000

15,000

2,000

1,000

Required:
a. What was the cost of the merchandise destroyed by fire?
b. How much is fire loss in so far as the Home Office is concerned?
Problem 13
The income statement submitted by Tarlac Branch to the Home Office for the month of December 2014, is
shown below. After effecting the necessary adjustments the true net income of the branch was ascertained
to be P156,000.
Sales
Cost of sales:
Inventory, December 1
Shipments from Home Office
Local purchases
Total available for sale
Inventory, December 31
Gross Margin
Operating Expenses
Net Income for December, 2014
The branch inventories were:
Merchandise from home Office
Local purchases

P600,000
P80,000
350,000
30,000
P460,000
100,000
P360,000
P240,000
180,000
P60,000
12/01/14
12/31/14
P70,000
P84,000
10,000
16,000

Required:
a. The billing price based on cost imposed by the Home office to the branch,
b. The balance of allowance for overvaluation of branch December 31, 2014 after adjustment.
Problem 14
FINC opened an agency in Manila. The following are transactions for July 2015. Samples worth P10,000,
advertising materials of P5,000 and checks for P50,000 were sent to the agency. Agency sales amounted
to P220,000 (cost P150,000). The collection for agency amounted to P176,400 net of 2% discount. The
agencys working fund was replenished for the following expenses incurred: rent for 2 months P10,000;
delivery expenses P2,500 and miscellaneous expenses of P2,000. Home office charges the following to the
agency, after analysis of accounts recorded on the books; salaries and wages P15,000 and commission
which is 5% sales. The agency sample inventory at the end of December is 25% of the quantity shipped.
The agency has used 20% of the advertising materials sent by the Home office.
How much is the agency net income for the month of July 2015?
Problem 15
On 12-31-14 the home office current account on the books of the Manila branch has a balance of
P325,000. In analyzing the activity in each of these accounts for December, you find the following
differences:
a. A P12,000 branch remittance to the home office initiated on December 28, 2014 was recorded twice by
the home office on 12-29 and on 12-30.
b. The home office incurred P18,000 of advertising expenses and allocated 1/3 of this amount to the
branch on 12-17-14. The branch recorded this transaction on 12-19-14 amounting to P9,000.

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ADVANCE ACCOUNTING PART 1 & 2 (ACCTG 10 & 11)

c. A branch customer remitted P8,000 to the home office. The home office recorded this cash collection on
12-22-14. Upon notification on the same year, the branch debited the amount to Accounts Receivable and
credited to Home office Current.
d. Inventory costing P121,900 was sent to the branch by the Home office on 12-12-14. The billing was at
cost, but the branch recorded the transaction at P129,100.
e. A P32,000 shipment, charged by home office to Manila branch, was actually sent to and retained by
Alabang branch.
f. The branch collected a home office accounts receivable of P9,200 and fails to notify the home office
g. Home office erroneously recorded the branchs net income at P34,725. He branch reported a net income
of P37,425.
h. the branch writes off uncollectible accounts of P7,500. The allowance for doubtful accounts is
maintained on the books of the home office. The home office is not yet notified about the write off.
Required:
How much is the unadjusted balance of the branch current account as of 12-31-14?

Problem 16
QRS Trading Co. operates a branch in Baguio City. At close of the business on December 31, 2014 Baguio
Branch account in the home office books showed a debit balance of P184, 750. The interoffice accounts
were in agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the
following facts were ascertained:
a. Furniture and fixtures costing the home office P19,000 was picked up by the branch as P1,900. The
branch will maintain the records of the asset used.
b. Freight charge on merchandise made by the home office for P1,350 was recorded in the branch books as
P3,150.
c. Home office credit memo for P2,400 was recorded twice by the branch.
d. The branch failed to take up a P3,000 debit memo from the home office.
e. The home office inadvertently recorded a remittance for P11,000 from its Bicol branch as a remittance
from its Baguio branch.
f. On December 30, 2014 the branch sent a check for P27,000 to the home office to settle its account. The
check was not delivered to the home office until January 3, 2015.
g. On December 27, 2014 the branch returned P11,000 of seasonal merchandise to the home office for the
January clearance sale. The merchandise was not received by the home office until January 4.
h. The home office allocated general expenses of P5,000 to the branch. The branch had not entered the
allocation at the year-end.
i. Branch store insurance premiums of P3,200 were paid by the home office. The branch recorded the
amount of P32,000.
Required:
Determine the balance in the branch books of the home office account before adjustments as of
12-31-14
Problem 17
MMM Company has established a branch in Tacloban be sending goods costing P184,900 and P80,000 in
cash on July 1, 2014. Home office initiated transactions for the remainders of the year are found below. At
the end of the year, the companys controller has found out that the accounting staff assigned in recording
the transactions between the home office and the branches had failed to record all the transactions
initiated by the branch. Because of this, there is a significant discrepancy between the balances of the
reciprocal accounts.

The home office acquired computer equipment amounting to P420,000 for the branch on August 1,
2014. As per agreement, the branch will keep all the property, plant and equipment records.
Goods costing P320,000 were shipped from the home office to branch on November 9,2014
Additional cash amounting to P53,000was transferred to the branch on 12-2-14
A branch customer has incorrectly paid P25,000 cash to the home office on 12-16-14
The home office incurred P65,000 of advertising cost and P96,000 of salaries. Tacloban branch is to
shoulder 30% and 20% of these expenses respectively

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ADVANCE ACCOUNTING PART 1 & 2 (ACCTG 10 & 11)

For the purpose of reconciling the reciprocal accounts, the controller has instructed the branch accountant
to send a copy of the Home office current general ledger to the home office
HOME OFFICE CURRENT
8/3
11/5
12/20

Equip. acquisition
Cash remittance
Returns of good to
HO

420,000
78,000
49,000

7/1
7/1
8/15
11/10
12/4

Goods from HO
Cash
Collection of HOs
AR
Goods from HO
Cash

184,900
80,000
113,600
230,000
50,300

Compute for the unadjusted balance of investment in Tacloban account

a. P1,142,800
b. P1,044,800
c. P1,071,600
d. P1,058,200
The net adjustment balance in the Home Office Current account
a. P946,400 net debit
b. P946,400 net credit
c. P996,400 net debitd.
credit

P996,400

net

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