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ADVANCEDACCOUNTING 2:HOME OFFICE, BRANCH ANDAGENCY –GENERAL PROCEDURESSubmitted by: Alcantara, Jiezelle D. Baldueza, Jaciel B. Milan, Joymee M. Sicam, Coleen S. Tiongco, Helen Grace V. A3B - BSA Papa Inc. of Makati opens a sales agency in Bacolod city and a working fund of P50,00 in establish on imp...

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ADVANCED ACCOUNTING 2: HOME OFFICE, BRANCH AND AGENCY – GENERAL PROCEDURES Submitted by: Alcantara, Jiezelle D. Baldueza, Jaciel B. Milan, Joymee M. Sicam, Coleen S. Tiongco, Helen Grace V. A3B - BSA

1. Papa Inc. of Makati opens a sales agency in Bacolod city and a working fund of P50,00 in establish 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 this transaction? a. Rent expense-Bacolod agency Cash b. Bacolod Agency Cash c. Rent expense-Bacolod agency Working fund d. No Entry

5,000 5,000 5,000 5,000 5,000 5,000

ANSWER: D. No Entry, because this is recorded when the working fund is replenished. 2. QC Company had an agency in Iloilo City. During the year, the transaction of the agency are summarize below: Sales 868,000 Disbursement: Purchases 800,000 Salaries 140,000 Rent 40,000 Supplies 20,000 Other Expenses 10,000 The agency had 200,000 receivables and 100,000 payables as of the end of the period. Also, there are inventories on hand of 180,000 and unused supplies of 12,000. The agency was setup as an experiment for 1year and would be closed if losses were incurred. The agency should be: a. b. c. d.

Reviewed again, because it was a break-even operation. Closed with the period’s operational loss of 310,000 Closed with the period’s operational loss of 118,000 Continued with the periods profit of 50,000

ANSWER: C. Closed with the period’s operational loss of 118,000 Sales Cost of goods sold: Purchases Merchandise inventory, end Gross profit Expenses Net income (loss)

P 700,000 P800,000 180,000

620,000 P 80,000 198,000 P (118,000)

3. On June 1, 2013, Makati Company established a sales agency in Fairview, QC. Upon the establishment of the sales agency the Makati office sent merchandise samples costing 8,000 and a cash working fund of 3,000 to be maintained on the imprest basis. During the month of June, the sales agency reported to the home office sales order. These were billed at 70,000 of which 40,000 was collected. That the sales agency paid expenses of 2,800 but was reimbursed by the home office. On June 30, 2013, the sales agency samples were valued at 6,000. It was estimated that the gross profit on good ships to fill agency sales orders averaged 40% of cost. What is the net income of sales agency for the month ended June 30, 2013? a. b. c. d.

10,400 15,200 10,000 23,200

ANSWERS: B. 15,200 Sales Cost of goods sold (P70,000 / 140%) Gross profit Less: Samples (P8,000 – P6,000) Expenses Net income

P

70,000 P

P 2,000 2,800 P

50,000 20,000 4,800

15,200

4. On January 2, 2013, Jose Company established a sales agency in Pasig City. During the year the following transactions occurred: 1. Transfer of 10,000 worth of merchandise to Pasig agency to establish a working fund. 2. Receipts of sales orders from the agency, 100,000. 3. Collections of agency accounts by the Home office, 70,000. 4. Home office disbursements representing agency expense, 9,000. 5. Replenishment of the agency working fund upon receipts of expense vouchers for 4,500. 6. Cost of goods sold indentified with the agency sales, 72,000. What is the net income (loss) of the agency for the year, 2013? a. 14,500 b. 4,500 c. (14,500)

d. 14,000 ANSWER: A. 14,500 Sales Cost of goods sold Gross profit Expenses (P9,000 + P4,500) Net income

P 100,000 72,000 P 28,000 13,500 P 14,500

5. If all fixed assets are kept on the home office books, and the branch purchased equipment for 50,000 cash, the appropriate journal entry for the branch is a debit to: a. b. c. d.

Home Office account and a credit to Cash for 50,000. Investment in branch account and a credit to Cash for 50,000. Equipment and a credit to Cash for 50,000. Equipment and a credit to Home Office account for 50,000. ANSWERS: A. Home Office account and a credit to Cash for 50,000.

6. The Home Office allocates monthly depreciation to the branch on the branch’s fixed assets kept on the Home Office books. The April depreciation amounts to 7,500. The branch should this allocation by the following entry: a. Depreciation expense 7,500 Home Office 7,500 b. Depreciation expense 7,500 Accumulated Depreciation 7,500 c. Depreciation expense 7,500 Investment in branch 7,500 d. Home Office 7,500 Depreciation expense 7,500 ANSWER: A. Depreciation expense Home Office

7,500 7,500

7. The collection of a 5,000 branch receivable by the Home Office should be recorded by the branch with the following entry: a. No Entry is necessary, since the branch was not involved in the transaction. b. Cash 5,000 Home office 5,000

c. Home office 5,000 Accounts Receivable 5,000 d. Cash 5,000 Accounts Receivable 5,000 ANSWER: C. Home office Accounts Receivable

5,000 5,000

8. Luzon Corporation starts a branch operation in a nearby town. Merchandise costing 80,000 is shipped to this branch along with equipment costing 50,000. During the initial year, the home office assigns 8,000 in expenses to the branched. The branch sells 70% of the inventory that it received for 80,000 and remits 40,000 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. b. c. d.

98,000 104,000 122,000 178,000 ANSWER: A. 98,000 Shipment of merchandise to home office Equipment sent to home office Expenses assigned to branch by the home office Cash remittance to home office Home office account balance

P 80,000 50,000 8,000 (40,000) P 98,000

9. Just before the books are closed on December 31, 2013, the trial balances for the Home Office and branch contained the following account balances: Investment in Branch Home office

38,600 21,320

Your examination of accounts revealed the following information: 1. On December 26, the branch remitted 10,400 in cash to the Home Office that was not received until January 3. 2. Merchandise that was billed to the branch at 7,280 was in transit at December 31. 3. A cash payment of 400 on an open accounts receivable was received by the Home Office. The account, however, was carried on the books of the branch, the Home Office did not notify the branch of the cash collections.

What is the adjusted balance of the reciprocal accounts on December 31,2013? a. b. c. d.

29,000 49,000 39,000 28,200 ANSWER: D. 28,200

Unadjusted balances, Dec. 31 Remittance in transit Shipment in transit Cash collections of home office Adjusted balances, Dec. 31

(Branch Books) Home Office P 21,320 7,280 ( 400) P 28,200

(Home Office Books) Investment in Branch P 38,600 (10,400)

P 28,200

10. Manila Company, Inc. has been operating a branch in Cavite for a year. Shipments are billed to the branch at cost. The branch carries its own accounts receivable, makes its own collections, and pays its own expenses. On December 31, 2013, the branch books shows the following balances: Cash Home office Shipments from Home Office Accounts receivable Sales Expenses

8,500 35,000 135,000 25,000 147,000 13,500

The branch inventory on December 31,2013 is 18,500. On January 1, 2014, what are the balances of the following accounts in the books of the Home Office?

a. b. c. d.

Investment In Branch 52,000 52,000 35,000 35,000

Shipments to Branch 0 135,000 0 135,000

ANSWER: A. Investment In Branch 52,000

Shipments to Branch 0

Home Office account balance before closing, Dec. 32, 1008P 35,000 Net income (loss) Sales P147,000 Cost of cost goods sold Shipment to branch P135,000 Inventory, 12/31 18,500 116,500 Gross profit P 30,500 Expenses 13,500 17,000 Home Office account balance (Investment in Branch account balance) P 52,000 Shipment to Branch account has no beginning balance, because this was closed at the end of 2008. 11. On December 31, 2013 the branch manager of Jenna Company in Iloilo city submitted the following data to the Home office in Manila: Petty Cash Fund Sales Shipments from Home office Accounts receivable, January 1, 2013 Inventory, January 1, 2013 Inventory, January 1, 2013 Expenses

6,000 390,000 270,000 86,000 74,000 82,000 96,000

All cash collected on accounts receivable amounting to 378,000 were remitted to the Home Office. What is the balance of the Home Office account on:

a. b. c. d.

January 1, 2013 270,000 166,000 166,000 270,000

January 1,2014 186,000 186,000 88,000 88,000

ANSWER: B. January 1, 2013 166,000 Petty cash fund Accounts receivable Inventory Home Office account balance

January 1,2014 186,000 Jan. 1, 2008 P 6,000 86,000 74,000 P166,000

Jan. 1, 2009 P 6,000 98,000 82,000 P186,000

12. A reconciliation of the investment in Tarlac branch account of Manila Company and the Home Office account carried in the books of the branch shows the following discrepancies at December 31, 2013: 1. A credit from merchandise allowance for 3,000 was taken by the branch as 3,600. 2. A charge by the branch of 5,500 for an advance taken by the president when he visited the branch as not yet been recorded by the Home Office. 3. The branch has not taken up 9,000 covered by a debit memo from the Home Office as share in advertising expenses.

The investment in Tarlac branch account in the Home office books had a debit balance of 430,000 at December 31, 2013. The reciprocal accounts were in agreement at the beginning of the year. What is the unadjusted balance of the Home Office account in the books of the branch on December 31,2013? a. b. c. d.

414,900 419,900 429,500 404,900 ANSWER: A. 414,900

Unadjusted balance – Investment in Branch account, 12/31 Charge for advances by president Erroneous entry for merchandise allowance Share in advertising expense Unadjusted balance – Home Office account, 12/31

P430,000 (5,500) ( 600) (9,000) P414,900

13. A reconciliation of the investment in branch account in the Home Office of Makati Company and the Home Office account carried on the branch books showed the following discrepancies at December 31, 2013: a. Collections of branch accounts receivables by the Home Office 8,000 the branch were not notified. b. Shipment in transit to branch in December 31,2013, 32,000. c. Acquisition of the furniture by the branch 12,000. The fixed assets account to be maintained on the Home office books. The home office had not been notified as such acquisition. d. Return of excess merchandise by the branch but not received yet by the home office, 15,000. e. Cash remittance by the branch on December 31, 2013 was in transit, 5,000.

f. The balance of the Home Office account in the books of the branch on December 31, 2013 is 440,000. Compute the following balances on December 31,2013: Unadjusted balance of Investment in Branch Account 464,000 496,000 474,000 501,000

Adjusted balances

ANSWER: A. Unadjusted balance of Investment in Branch Account 464,000

Adjusted balances

a. b. c. d.

Unadjusted balances Branch AR collected by Home Office Shipments in transit Acquisition of furniture Merchandise returns Cash remittance in transit Adjusted balances

464,000 472,000 474,000 472,000

464,000 (Branch Books) Home Office P 440,000 ( 8,000) 32,000

P 464,000

(Home Office Books) Investment in Branch P 496,000

(12,000) (15,000) ( 5,000) P 464,000

14. On December 31,2013, the Investment in branch account on the home office’s books has a balance of 85,000. In analyzing the inter-company transactions recorded in each of these accounts for December, you discover the following discrepancies: 1. A P10,000 branch remittance to the home office initiated on December 27,2013, was recorded on the home office books on January 4,2014. 2. A home office merchandise shipment to the branch on December 29,2013 was recorded by the branch on January 5,2014. The cost of this merchandise is P20,000. 3. The home office incurred P12,000 of advertising expenses and allocated P5,000 of this amount to the branch on December 15,2013. The branch has not recorded this transaction. 4. A branch customer erroneously remitted P3,000 to the home office. The home office recorded this cash collection on December 23,2013. Meanwhile, back at the branch, no entry has been made yet. 5. Merchandise costing P43,000 was sent to the branch by the home office on December 10,2013. The billing was at cost, but the branch recorded the transaction at P34,000.

Compute the following balances as of December 31,2013: Unadjusted balance Adjusted Balances Of the Home Office Account a. P64,000 P95,000 b. P26,000 P16,000 c. P44,000 P75,000 d. P44,000 P78,000 ANSWER: C.

Unadjusted balance Of the Home Office Account P44,000

Unadjusted balance- Investment in Branch account Remittance in transit Shipment in transit Expenses allocated Error in recording remittance Error in recording shipments Unadjusted balance – Home Office account

Unadjusted balances, Remittance in transit Shipment in transit Expenses allocated Unrecorded HO collection of AR Error in recording shipments Adjusted balances

( Branch Books) Home Office P 44,000 20,000 5,000 (3,000) 9,000 P 75,000

Adjusted Balances P75,000

P 85,000 (10,000) (20,000) ( 5,000) 3,000 ( 9,000) P 44,000 (HomeOffice Books) Investment in Branch P 85,000 (10,000)

P 75,000

15. Miguel Corporation operates a branch in Cebu. In October, the home office shipped P34,000 merchandise to this branch. Although the home office made the correct journal entry, the branch credited its Home Office account for P43,000. In November, the branch collected P1,000 on an accounts receivable for the home office. The home office was properly notified but debited Investment in Branch account for P4,000. At the end of the year, the home office paid and recorded a P6,000 expense for the branch but the branch as not yet made the appropriate entry. Also, at year’s end, the branch conveyed P25,000 in cash to the home office but the home office has not yet made the necessary entry. What corrections are needed?

a. The home office needs to credit its Investment in Branch account for P24,000 and the branch needs to debit its Home Office account for P9,000. b. The home office needs to credit its Investment in Branch account for P30,000 and the branch needs to debit its Home Office account for P3,000. c. The home office needs to credit its Investment in Branch account for P22,000 and the branch needs to debit its Home Office account for P15,000. d. The home office needs to credit its Investment in Branch account for P28,000 and the branch needs to debit its Home Office account for P3,000. ANSWER: D. The home office needs to credit its Investment in Branch account for P28,000 and the branch needs to debit its Home Office account for P3,000.

1. 2. 3. 4. 5.

16. Candy Corporation, operates a number of branches in Metro Manila. On June 30,2013,its Nova branch showed a Home Office account balance of P27,350 and the home office books showed Investment in Nova Branch account balance of P25,550. The following data were discovered in reconciling the two reciprocal accounts: A P12,000 shipment, charged by the home office to Nova Branch, was actually sent to and retained by QC branch. A P15,000 shipment, intended and charge to Bulacan branch was shipped to Nova branch. The home office collects a Nova branch accounts receivable of P3,600 and fails to notify the branch. The home office was charged for P1,200 for merchandise returned by Nova branch on June 28. The merchandise is in transit. The home office erroneously recorded Nova branch’s net income for May at P16,275. The branch reported a net income of P12,675.

What is the reconciled amount of the Home Office and Investment in Nova Branch accounts? a. b. c. d.

P23,750 P21,750 P27,350 P20,150

ANSWER: A. P23,750

Unadjusted balances

(Branch Books) Home Office P25,550

(Home Office Books) Investment in Branch P27,350

Error in recording shipment to Cavity branch Error in recording shipment to Tagaytay branch Branch AR collected by home office Merchandise returns in transit Error in recording branch profit Adjusted balances

(12,000) 15,000 (3,000) ( 1,200) ( 3,600) P23,750

P23,750

17. On December 31,2013 the Investment in Branch account on the home office books of the Lady Company shows a balance of P84,000, and the Home Office account on the books of the branch shows a balance of P97,350. The following data are determined in accounting for the difference. 1. Merchandise billed at P6,150 was shipped by the home office to the branch on December 28. The merchandise is in transit and had not been recognized on the books of the branch. 2. The branch collected a home office accounts receivable of P25,000, but failed to notify the home office of this collection. 3. The home office recorded incorrectly the branch net income at P11,250. The branch reported net income of P12,150. 4. The home office was charged P6,400 when the branch returned merchandise to the home office on December 31. The merchandise is in transit. What is the reconciled amounts of the reciprocal accounts on December 31? a. P103,500 b. P102,600 c. P78,500 d. P97,350 ANSWER: A. P103,500

Unadjusted balances, 12/31 Shipment in transit Collection of HO A/R by branch Error in recording of branch profit Returns of merchandise in transit Adjusted balances, 12/31

(Branch Books) Home Office P 97,350 6,150

P103,500

(Home Office Books) Investment in Branch P 84,000 25,000 900 ( 6,400) P103,500

18. Best By Ventures operates a branch in Cebu, City. Selected accounts taken from the May 31,2016 statements of Best Buy and its branch follow: Sales Shipments to branch Shipments to branch—loading Inventory, June 1,2015 Purchases Shipments from home office Inventory, May 31,2016

H/Office P380,000 150,000 39,500 24,000 300,000 28,000

Branch P353,000 16,000 60,000 187,500 20,700

The branch ending inventory included items costing P8,700 that were acquired from outside supplies. The realized markup on branch merchandise that would be recognizes by the home office is: a. P36,000 b. P36,700 c. P37,100 d. P37,500 ANSWER: C. P37,100 Shipments to branch- loading/allowance for overvaluation of merchandise before adjustments

39,500

Less: Allowance for overvouchers of ending inventory (after adjustment): (P20,700- p8,700) x 25/125*

2,400

Realized mark up on branch merchandise

37,100

19. The Bicol Corporation operates a branch in Naga City. The information from the December 31,2016 trial balance are as follows: Home Office Naga Branch Sales P840,000 P420,000 Shipments to branch 280,000 Purchases 490,000 Shipments from home office 350,000 Inventory, January 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. b. c. d.

P56,000 P120,400 P64,400 P80,000

ANSWER: C. 64,400 Inventory, January 1,2016

56,000

Add: Shipments from home office

350,000

Cost of goods available for sale

406,000

Less: Inventory, December 31,2016

84,000

Cost of goods sold at billed price

322,000

Multiplied by: Mark-up on cost (P350,000- P280,000)/P350,000

20%

Overvaluation of c...