HOB test bank - Lecture notes 1 PDF

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CHAPTER 13HOME OFFICE AND BRANCH ACCOUNTING: GENERAL PROCEDURESTrue 1. An expense item allocated by the home office to a branch is recorded by the branch by adebit to an expense ledger account and a credit to the Home office accountTrue 2. A debit to the Home Office ledger account and a credit to th...

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CHAPTER 13 HOM HOME E OF OFFICE FICE AND BRA BRANCH NCH AC ACCOUN COUN COUNTING TING TING:: G GENER ENER ENERAL AL PPROC ROC ROCEDUR EDUR EDURES ES True 1. An expense item allocated by the home office to a branch is recorded by the branch by a debit to an expense ledger account and a credit to the Home office account True 2. A debit to the Home Office ledger account and a credit to the Trade Accounts Receivable account in the accounting records of a branch indicate that the home office collected accounts receivable of the branch False 3. Start-up costs incurred by a branch in the initial months of operations are appropriately deferred and amortized in subsequent profitable accounting periods False 4. If the home office carries branch equipment in its accounting records, an acquisition of equipment by the branch is recorded in the home office accounting records by a debit to the Investment in Branch ledger account and a credit to the Equipment: Branch Account True 5. Separate financial statements of home office and branch do not meet the needs of investors, creditors, or other outside users of financial statements. False 6. In a working paper for combined financial statements of home office and branch, the balance of the Shipments to Branch ledger account is eliminated against the balance of the Investment in Branch account. False 7. If the perpetual inventory system is used by both the home office and the branch, the reciprocal ledger accounts used by the branch are the Home Office and Shipments from Home Office accounts. False 8. The “shipments to branch” account is added to the home office’s purchases account in determining home office cost of goods sold. True 9. When inventory is received from the home office, a branch increases its home office account. True 10. Reciprocal home office and branch accounts are eliminated when home office and branch financial statements are combined for external reporting. False 11. The “branch office” account on the home office’s books and the “home office” account on the branch’s books are examples of nonreciprocal accounts whose balances would be combined when the home office is preparing a balance sheet for all its combined operations. True 12. When performing the “end-of-the-period reconciliation between the Home Office account on the branch’s books and the Branch Account on the home office’s books, shipments in transit from the branch back to the home office will be treated as an addition to the home office’s Branch Account.

False 13. When performing the “end-of-the-period reconciliation between the Home Office account on the branch’s books and the Branch Account on the home office’s books, home office expenses which are allocated to the branch office from the home office will be subtracted from the Home Office Account on the branch’s books True 14. There are three ways to reconcile the balance in the home office’s Branch Account with the balance in the branch’s Home Office Account. One way would be to reconcile from the home office balance to the branch balance. A second way would be to reconcile from the branch balance to the home office balance. A final way would be to reconcile both the home office’s branch balance and the branch’s home office balance to the adjusted true balance. True 15. The incremental profitability of a branch office may be hidden if the home office allocates too many fixed costs to the branch office False 16. A major disadvantage of a centralized accounting system is that the profitability of branch operations cannot be determined because branch operations are not accounted for in a separate general ledger. True 17. Home office allocations to a branch are not required under current standards True 18. Income taxes can be allocated to a branch True 19. Branch fixed assets can be carried on the home office’s books under a decentralized accounting system False 20. If branch fixed assets are recorded on the home office’s books, depreciation expense would not be charged to branch operations

CHAPTER 14 HOM HOME E OF OFFICE FICE AND BRA BRANCH NCH AC ACCOUN COUN COUNTING TING TING:: SP SPECIA ECIA ECIALL PR PROCED OCED OCEDURE URE URESS TRUE 1. The balance of the allowance for Overvaluation of Inventories: Branch ledger account is deducted from the balance of the investment in branch account in the separate balance sheet of the home office. FALSE 2. If the home office bills shipment of merchandise to the branch at 25% above home office cost and the judgment balance of the allowance for Overvaluation of Inventories: Branch ledger account is 2,400 and amount of branch inventories at build prices is 81,600. TRUE 3. If the branch managers are responsible for ordering merchandise from the home office any exist freight costs incurred as a result of inter-branch shipments are absorbed by the appropriate branch rather than by the home office. TRUE 4. Freight cost on merchandise shipped, as directed by the home office, by Westside branch to Eastside branch in excess of normal freight costs from the home office to Eastside Branch are recognized as operating expenses of the home office. FALSE 5. A markup of 16 2/3% on billed price is equal to the markup of 14 2/7% on cost of merchandise shipped to the branch by the home office. FALSE 6. If the home office bills merchandise shipments to the branch at prices above the home office cost, the net income reported to the home office by the branch is overstated from a total company point of view. FALSE 7. In a combined balance sheet for home office and branch, the balance of the allowance for overvaluation of inventories: branch ledger account is deducted from the balance of the investment in branch account. FALSE 8. A home office ships merchandise to its branch at the transfer price greater than cost. When this merchandise is resold by the branch to outside entities the branch's profit will be overstated. TRUE 9. A closing entry prepared by a branch will adjust the loading account and record branch profit or loss in the home office account. TRUE 10. Unrealized profits from transactions between a home office and its branch are eliminated in preparing combined financial statements for the enterprise. FALSE 11. A home office records shipments to its branch at billing prices and adjusts the loading account at year-end . When this approaches used, the loading account during the period will always be zero.

TRUE 12. If a "loading" account is used, the "shipments to branch" account on the home office books is created for the actual cost of shipments made to the branch whereas the "shipments from the home office" on the branch's books includes any initial unrealized profit. FALSE 13. Freight charges incurred by the branch office on merchandise inventory shipped from the home office would be included in the branch cost of goods available-for-sale even if the wrong merchandise was shipped from the home office. TRUE 14. One reason why a branch office would not have a "loading" account is that the home office usually does not want the branch personnel to know the amount of unrealized profit built into the merchandise's transfer price. FALSE 15. It is equally probable that a "loading" account could be charged with an unrealized inventory loss as it is that it could be charged with an unrealized inventory profit. TRUE 16. As a general rule, the "loading" account will be credited for the unrealized profit element of the merchandise shipped to the branches and debited for the amount of any realized inventory profits. TRUE 17. If the "Shipments from the Home Office" account and the "Shipments to the Branch Office" account are kept on a reciprocal basis and home office charges of mark-up on these shipments, there will be no need to adjust the loading account at the end of the period for any realized inventory profits. TRUE 18. If the "Shipments from the Home Office" account and the "Shipments to the Branch Office" account are kept on a reciprocal basis and the home office charges a markup on this shipments, two adjustments to the loading account will be needed at the end of the period. One adjustment will be needed to adjust the "Shipments to Branch" account down to its cost basis, and, a second adjustment will be needed to transfer any realized inventory profits from the loading to the "Branch Profit" account. FALSE 19. When a branch receives merchandise a transfer prices that include a loading factor and sells that merchandise, its cost of goods sold will be understated and its income will be overstated.

20. The Allowance for Overvaluation of Inventories: Branch ledger account of the home office is debited: a) When the home office ships merchandise to the branch at a billed price that exceeds cost b) In a journal entry to close the account at the end of an accounting period c) When the branch’s ending inventory is recorded in the home office accounting records d) In some other circumstances 21. Amongst the various reasons given for the internal transfer of merchandise inventory at a price above its cost are: a) b) c) d)

The equitable allocation of income amongst the various units of the business enterprise Efficiency in pricing inventories Concealment of the true profit margins from branch personnel All of the above are considered valid reasons

22. A branch office is allowed to make sales, carry inventory for resale to customers, and incur normal operating expenses. The home office ships merchandise to the branch office at cost plus a 20% markup. The home office uses a loading account. If the loading account is used in its customary fashion, it will track: a) b) c) d)

Unrealized inventory profits only Unrealized inventory profits and overall branch profits but not branch losses Unrealized inventory profits and overall branch profits and losses Overall branch profits and losses but not unrealized inventory profits

23. It is generally accepted that a branch office should incur and pay for, or at least be charged with it, the reasonable caused of transporting merchandise into the branch office and preparing it for sale to customers. In light of this generally accepted practice, which of the following charges for freight costs would be considered unreasonable if imposed on the branch office: a) Requiring the branch to ship some of its inventory or another branch location due to inventory shortages at the destination branch b) Charging a cost to the branch for freight charges that is a fixed percentage of the cost billed to the branch for the inventory itself c) Charging freight charges to a branch office for inventory shipped by mistake where the number of such mistakes occur rather frequently d) All of the situations would normally be considered unreasonable

24. In preparing combined financial statements, which of the following accounts are eliminated (brought to a zero balance) in the combining process? Branch Income or Loss a) b) c) d)

Yes No No Yes

Purchases Sent to Branch Yes Yes No No

25. In the year end general ledger closing procedures, which accounts are closed in arriving at Cost of Sales? Purchases Sent to Branch a) b) c) d)

Yes No No Yes

Purchases from Home Office Yes Yes No No

26. The general ledger entry to adjust the Intracompany Profit Deferred account at the end of an accounting period a) b) c) d)

Is reversed in the following accounting period Is reversed in the combining process Results in an entry in the combining process that is essentially a reclassification entry Results in the Intracompany Profit Deferred account being reduced to a zero balance in the combined column of the combining statement worksheet e) None of the above

D. Which of the following accounts is a reciprocal account to the Investment in Branch account? a. Branch Income b. Equity in Home Office c. Home office capital d. None of the above D. In preparing combined financial statements, which of the following accounts are eliminated (brought to a zero balance) in the combining process? Branch Income or Loss a. Yes b. No c. No d. Yes

Home office capital Yes Yes No No

D. A control feature in a decentralized accounting system is a. The balance in the investment in Branch account must equal the balance in the Home Office Capital account b. The balance in the Investment in Branch account must equal the balance in the Home Office Capital account less the branch’s cumulative unremitted profits c. The intracompany accounts are eliminated in preparing combined financial statements d. The balance in the Investment in Branch account must equal the balance in the Branch Income account B. Which of the following would explain why the Investment in Branch account is less than the Hoome Office Capital account? a. b. c. d.

A cash transfer to the branch is in transit A cash transfer to the home office is in transit An inventory shipment to the branch (at cost) is in transit A home office has received and deposited a remittance from a branch customer but has not yet notified the branch e. None of the above A. A home office, month-end allocation of previously recorded advertising expenses to a branch requires the following entry on the home office’s books:

a. b. c. d. e.

Debit Investment in Branch Home Office Capital Branch Income Investment in Branch None of the above

Credit Advertising Expense Advertising Expense Home Office Capital Accrued Liabilities

B. A home office, month-end allocation of previously recorded advertising expenses to a branch requires the following entry on the branch’s books to record the allocation:

a. b. c. d. e.

Debit Advertising expense Branch income Advertising expense Home Office capital None of the above

Credit Accrued liabilities Home Office capital Branch income Accrued liabilities

D. The Shipments to Branch Ledger account in the accounting records of the home office of a business enterprise: a. Is an asset valuation account b. Indicates that the home office uses the periodic inventory system c. Is adjusted at the end of the accounting period to equal the unrealized profit in the branch’s ending inventories d. Is not displayed in the home office’s separate financial statements C. The Western Branch of Rivas Company reported a net income of 60,000 for the month of January. The appropriate journal entry (explanation omitted) for the home office of Rivas Company is: a. Income Summary 60,000 Income: Western Branch 60,000 b. Income: Western Branch 60,000 Income Summary 60,000 c. Investment in Western Branch 60,000 Income: Western Branch 60,000 d. Investment in Western Branch 60,000 Income Summary 60,000 C. Both a home office and a branch use the periodic inventory system. If at the end of an accounting period the balance of the branch’s Home Office ledger account does not agree with the balance of the home office’s Investment in Branch account because of a shipment of merchandise in transit from the home office to the branch a. b. c. d.

The home office debits Investment in Branch and credits Shipments in Transit to Branch The branch debits Home Office and credits Shipments in Transit from Home Office The home office debits Shipments in Transit to Branch and credits Investment Branch The branch debits Shipments in Transit from Home Office and credits Home Office

A. The fiscal year of King Company which is located in Manila end on September 30. On September 30,20x4, the home office of King Company shipped merchandise costing 80,000 to Rizal Branch and prepared an appropriate entry for the shipment. The Rizal Branch did not receive the merchandise on that same day. Both the home office and the branch use the perpetual inventory system.

The end of period adjustments on September 30,20x4 should include: a. A debit to Inventories and a credit to Home Office Current in the branch accounting records b. A debit to Branch Current and a credit to Inventories in the home office accounting records c. A debit to Home Office Current and a credit to Inventories in the branch accounting records d. Other journal entry B. Among the journal entries (explanation omitted) in the accounting records of the home office of Price Company was the following: Office Equipment: Lang Branch 12,500 Investment in Lang Branch 12,500 This journal entry indicates that: a. The home office acquired office equipment for the branch b. The home office shipped office equipment to the branch c. The branch acquired office equipment, which is carried in the accounting records of the home office d. None of the foregoing occurred B. a. b. c. d.

The Income: Branch ledger account is maintained in the accounting records of: The home office only The branch only Both the home office and the branch Neither the home office nor the branch

D.If at the end of an accounting period the balance of the Investment in Branch ledger account in the accounting records of the home office is 20,000 and the balance of the Home Office account in the accounting records of the branch (after the branch recorded closing entries) is 25,500, the most likely explanation for the discrepancy of 5,500 is a: a. b. c. d.

Remittance of cash is best described to the branch not recorded by the home office Net income of branch not recorded by the home office Net loss of branch not recorded by the home office Collection by the home office of a branch note receivable not recorded by the branch

A.The Home Office ledger account in the accounting records of a branch is best described as: a. b. c. d.

A revenue account An equity account A deferred revenue account None of the foregoing

D.The following journal entry (explanation omitted) appeared in the accounting records of Marty Corporation’s only branch: Operating expenses

600,000

Home Office

600,000

The journal entry indicates that: a. b. c. d.

The branch incurred operating expenses for the benefit of the home office The home office incurred operating expenses for the benefit of the branch The branch paid the home office for services rendered to the branch None of the foregoing occurred

A.In a working paper for combined fianancial statements of home office and branch, the branch’s net income is included in: a. The debit column of the branch income statement section and the credit column of the branch statement of retained earnings section b. The credit column of the branch income statement section and the debit column of the branch statement of retained earnings section c. The debit column of the branch income statement section and the credit column of the home office statement of retained earnings section d. Some other manner B.A debit to the Income Summary ledger account and a credit to the Home Office account appear in: a. b. c. d.

The accounting records of the home office to record the net income of the home office The accounting records of the home office to record the net income of the branch The accounting records of the branch to record the net income of the branch Some other manner

D.The following journal entry (explanation omitted) appeared in the accounting records of the home office of Silversmith Company: Investment in Seaside Branch Operating expenses

8,980 8,980

This journal entry indicates that: a. b. c. d.

The branch incurred operating expenses for the benefit of the home office The home office incurred operating expenses for the benefit of the branch The branch paid the home office for services rendered to the branch None of the foregoing occurred

C.If both the home office and the branch of a business enterprise use the periodic inventory system, the home office’s Shipments to Branch ledger account: a. b. c. d.

Is a valuation account for the home office’s Investment in Branch account Always should have the same balance as the branch’s Shipments from Home Office account Is a revenue account Is a valuation account for the home office’s Purchases account

C.If both the home office and the b...