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AFAR 2: HOME OFFICE AND BRANCH ACCOUNTING

EXERCISE PROBLEMS
1. Jeremy Lin, Inc. established a branch in Antipolo to distribute part of the goods purchased by
home office. The home office prices inventory shipped to the branch at 25% above cost. The
following account balances were taken from the ledger maintained by the home office and the
branch.
Jeremy Lin, Inc. Antipolo Branch
Sales P336,000 P144,000 (20% still uncollected)
Beginning inventory 69,000 38,400 (1/3 from HO)
Purchases 222,000 40,000 (30% unpaid)
Shipments to branch 66,000
Shipments from HO 82,500
Operating expenses 68,000 11,200 (4/5 unpaid)
Ending inventory 48,000 21,600 (10% from outsiders)

Calculate the combined net income for the home office and the branch:
a. P84,500
b. P83,172
c. P96,972
d. P99,672

2. On December 31, 2012, the home office of Tony Company recorded a shipment of merchandise
to its Calamba branch as follows:
Calamba branch 30,000
Shipment to Calamba branch 25,000
Unrealized profit in branch inventory 4,000
Cash (for freight charges) 1,000
The Calamba branch sells 40% of the merchandise to outside entities during the rest of
December, 2012. The books of the home office and Calamba branch are closed on December
31 of each year. At what amounts should the 60% of the merchandise remaining unsold at
December 31, 2012 should be included in the published statement of financial position of Tony
Company at December 31, 2012?
a. 15,600
b. 15,000
c. 18,000
d. 18,600

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 P51,000. The following information
may help in reconciling both accounts:
a) A P24,000 shipment, charged by home office to Davao Branch, was actually sent to and
retained by Cebu Branch.
b) A P30,000 shipment, intended and charged to Aklan Branch, was shipped to Davao
Branch and retained by the latter.
c) A P4,000 emergency cash transfer from Cebu Branch was not taken up in the Home
Office books.
d) Home Office collects a Davao Branch accounts receivable of P7,200 and fails to notify
the branch.
e) 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 balance of the Home Office and Davao Branch reciprocal accounts on
December 31, 2013?

a. P40,300
b. P54,700
c. P47,500
d. P43,500

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
Shipments from Home Office 136,080
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. The Home office shipped merchandise costing P47,100 to Branch A and paid for the freight
charges of P7,500. Branch A was subsequently instructed to transfer the merchandise to
Branch B wherein Branch A paid P6,000 freight. If the shipment was made directly from Home
Office to Branch B, the freight cost would have been P11,250.
Which of the following statements is incorrect?
a. Upon receipt of merchandise by B from A, B credits home office accounts by P58,350
b. Upon transfer of merchandise by A to B, home office debits Investment in Branch A
account by P58,350
c. Upon transfer of merchandise by home office to A, home office debits investment in
branch A account by P54,600
d. Upon transfer of merchandise by A to B, A debits home office accounts by P60,600

7. SPIDERMAN Corporation maintains a branch in Pampanga. Selected account balances taken


from the books of the Home office and its branch as of December 31, 2014 were as follows:
Home Office Pampanga Branch
Sales P1,200,000 P540,000
Inventory, January 1, 2015 80,000 122,100
Purchases 500,000
Shipments to branch 315,000
Shipments from Home Office 346,500
Inventory, December 31, 2013 350,000 157,500
Expenses 113,000 89,000
In 2013, the Home Office billed its branch at 120% of cost which was higher by 5% than the
previous year. All of the units in the beginning inventory of the branch were acquired from the
home office in 2013.
By what amount will the retained earnings of SPIDERMAN Corporation increase for the year
2014?
a. P732,793
b. P747,750
c. P743,750
d. P738,500

8. The following were found in your examination of the interplant accounts between the Home
Office and the Ironman Branch:
 Transfer of fixed assets from Home Office amounting to P53,960 was not booked by the
Ironman branch.
 P10,000 covering marketing expense of another branch was charged by Home Office to
Ironman.
 Ironman recorded a debit note on inventory transfers from Home Office of P75,000
twice.
 Home Office recorded cash transfer of P65,700 from Ironman Branch as coming from
THOR Branch.
 Ironman reversed a previous debit memo from HULK Branch amounting to P10,500.
Home Office decided that this charge is appropriately THOR Branch’s cost
 Ironman recorded a debit memo from Home Office of P4,650 as P4,560.

The net (debit)/credit adjustment in Ironman’s books related to the Home Office account is:
a. P20,950 net increase
b. P31,450 net decrease
c. P(20,950)
d. P31,450 net credit

9. On June 1, 2013, EliteFurn Co. established an agency in Davao, sending samples costing
P4,200,000 which are useful until May 31, 2014 and have a salvage value of 20% of cost. A
working fund of P3,412,500 is to be maintained using the imprest basis. During 2013, the
agency submitted to the home office sales order amounting to P35,437,500. Sales per invoice
were P27,562,500 which were duly approved by the home office. Collections during the year
amounted to P14,784,000 net of 4% sales discount. The cost of merchandise sold during the
year is equal to 70% of the gross selling price. Vouchers for expenses amounted to P1,837,500.
How much net income would be reported by the BGC agency on December 31, 2013?
a. P4,471,250
b. P4,135,250
c. P5,535,250
d. P3,855,250

10. TMOSSIY Inc. opened an agency in Marikina. The following are transactions for July 2013.
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 agency’s working fund was replenished for the
following expenses incurred; rent for two 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 for the month of July; salaries and wages P15,000
and commission which is 5% of sales. The agency sample inventory at the end of the month
was 25% of the quantity shipped. The agency has used 20% of the advertising materials sent by
the home office.
The agency net income for the month of July is:
a. P17,400
b. P22,400
c. P23,650
d. P28,650

11. During the year 2013 goods billed at P3,250,000 were shipped to the branch at 130% of cost.
The account Loading in Branch Inventory has a balance of P1,225,000 before adjustment. The
beginning inventory of the branch from the home office at cost is P2,375,000; the beginning
inventory of the branch from outsiders is P540,000; purchases from outsiders is P1,450,000.
How much is the total goods available for sale of the branch from the home office?
a. P5,308,335
b. P6,337,500
c. P8,090,000
d. P6,100,000

12. Fire Company has a branch in Baguio and Davao. The reciprocal accounts between the home
office and the branches were in agreement at the beginning of 2013. However at December 31,
2013, the following reciprocal balances are found in the home office books:

Investment in Baguio P186,500


Investment in Davao 84,000

Data for reconciliation of the reciprocal accounts are as follows:


 On December 29, 2013, the home office has instructed Baguio to transfer P74,000 cash to
Davao. Baguio recorded this transaction immediately. Upon receipt, Davao has recorded
this transfer at P47,000. The home office however has not yet recorded this interbranch
transaction as of the end of the year.
 Fire has transferred goods costing P28,900 to Baguio branch and paid P2,500 of shipping
cost on December 16, 2013. Baguio shipped all of these goods to Davao upon instruction of
the home office on December 30, 2013. Shipping cost is P3,600 freight collect. Had the
goods were shipped directly to Davao, P5,000 of freight cost should have been incurred.
The interbranch shipment was not recorded by the branches and the home as well.
 Baguio has collected cash of P5,750 from Davao’s customer. This transaction is not yet
recorded by Davao and the home office.
 The home office has already allocated P11,000 and P9,000 of administrative expenses to
Baguio and Davao respectively. The branches are not yet notified.
 Baguio remitted P14,300 cash to the home office on December 12, 2013. The home office
has failed to record the said remittance.
 Davao returned goods costing P6,850 to the home office. The goods were shipped on
December 19 and received on December 24 but no entries have been made in the home
office books.
Compute for the following:
Adjusted balance of Investment in Baguio account
A. P72,550
B. P66,800
C. P86,850
D. P103,950
Adjusted balance of Investment in Davao account
A. P181,450
B. P182,550
C. P175,700
D. P145,400
Unadjusted balance of Home Office Current account in Baguio’s books
A. P52,150
B. P87,200
C. P107,250
D. P92,950
Unadjusted balance of Home Office Current account in Davao’s books
A. P236,250
B. P122,000
C. P115,150
D. P84,850

13. The following transactions were entered in the branch current account of Makati Head Office for
the year 2013:

Investment in Branch – Ortigas


Beg. Balance, 1/1/13 459,258 Collection of AR, 9/1 33,300
Shipments to branch, 4/1/13 212,400
Cash forwarded, 6/1/13 15,000
Operating expenses charged to
the
Branch, 12/31/13 2,880

 Shipments 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 December 10, 2013, 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 five years and will
be carried in the books of the branch, but the home office recorded the purchase 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, 2014.
 The Ortigas branch reported net income of P197,730.
 It also remitted cash to the home office on December 31, 2013 amounting to P33,000, which
the home office received and recorded on January 1, 2014.
 The interoffice accounts were in agreement at the beginning of the year.
How much is the adjusted balance of the Branch Current account on December 31, 2013 before
the necessary closing entries were made?
A. P701,718
B. P659,238
C. P623,238
D. P665,718
What is the amount of adjustment in the Allowance for Overvaluation of Branch inventory
account?
A. P56,700
B. P49,080
C. P14,700
D. P42,000
How much is the net income of Ortigas branch that will be reported in the combined income
statement of Makati Company?
A. P236,250
B. P208,950
C. P194,250
D. P239,130
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?
A. P856,668
B. P895,488
C. P856,368
D. P853,488

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