HOBA2020-2 - HOME OFFICE AND BRANCH ACCOUNTING PDF

Preview

Summary

HOME OFFICE AND BRANCH ACCOUNTINGREGULAR TRANSACTIONSI. January 1, 2020, the BAL Company opened the Arren Branch in neighboring city. The statement of financial position for the home office on January 1 and a summary of the transactions for the home office and branch for 2016 are given below. Taxes ...

Description

HOME OFFICE AND BRANCH ACCOUNTING REGULAR TRANSACTIONS I.

January 1, 2020, the BAL Company opened the Arren Branch in neighboring city. The statement of financial position for the home office on January 1 and a summary of the transactions for the home office and branch for 2016 are given below. Taxes are ignored. Assets Cash Accounts receivable Merchandise Inventory Prepaid expenses Equipment Less: Accumulated Depreciation Total Assets

P296,500 138,250 200,600 9,000 P100,000 22,000

Liabilities and Shareholder’s Equity Accrued expenses Accounts payable Share Capital, P20 par, ordinary Retained Earnings Total Liabilities and Shareholder’s equity

78,000 P722,350

P6,250 114,000 250,000 352,100 P722,350

Branch Transactions a. Cash received from the home office, P212,500 b. Merchandise received from the home office, P251,000 c. Sales on account, P400,000 d. Purchases on account, P112,500 e. Collections on account deposited to the credit of the home office, P267,000. f. Payment on accounts, P61,250 g. Purchases of equipment for cash, P40,000. h. Expenses paid, P90,000. Adjusting data on December 31: Depreciation, P3,250. Merchandise inventory end, P 117,500 Prepaid expenses, P 3,750 Accrued expenses P 1,500 Home Office Transactions a. Transfer of cash to branch, P212,500 b. Transfer of merchandise to branch (billing at cost), P251,000. The company uses the periodic system c. Sales on account, P525,000 d. Purchases on account, P612,500 e. Collections on account, P568,000 f. Payments on account, P620,000 g. Expenses paid, P133,000 h. Cash received from the branch, P267,000 i. Dividends declared and paid immediately, P50,000.

Adjusting entries on December 31: Depreciation for the year, P5,900 Merchandise inventory end, P242,500. Prepaid expenses, P10,250. Accrued expenses, P6,750. Instructions: Prepare journal entries, adjusting journal entries, separate financial statements and combined financial statement for the home office and branch. II.

On December 31, 2014 the Investment in Branch account on the home office books of the Strygwyr Company shows a balance of 84,000, and the Home Office account on the books of the branch shows a balance of 97,350. The following data are determined in accounting for the difference. a. Merchandise billed at 6,150 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. b. The branch collected a home office accounts receivable of 25,000, but failed to notify the home office of this collection. c. The home office recorded incorrectly the branch net income at 11,250. The branch reported net income of 12,150. d. The home office was charged 6,400 when the branch returned merchandise to the home office on December 31. The merchandise is in transit. 5. What is the reconciled amount of the reciprocal on December 31 a. 103,500 b. 102,600 c. 78,500 d. 97,350

III. Just before the books are closed on December 31, 2014, the trial balances for the home office and branch contained the following account balances: Investment in branch Home office-current

P

38,600 21,320

Information follows: a. On December 26, the branch remitted 10,400 in cash to the home office that was not received until January 3. b. Merchandise that was billed to the branch at 7,280 was in transit at December 31. c. 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 collection. 6. Compute for the adjusted balance of the reciprocal accounts at December 31, 2014. a. 29,000 b. 49,000 c. 39,000 d. 28,200 IV.

At the end of 2016, the following records were taken from the books of the home office and the branch:

Branch Books Home Office-current account 2016 2016 Dec. 1 Cash remitted to home office 80,000 Jan. 1 Balance

60,000

Dec. 28 Cash remitted to home office 30,000 Dec. 28 Mdse returned to home office 12,000

2016 Jan. 1 Balance Dec. 4 Shipments to branch 28 Expense allocation 28 Shipments to branch 28 Supplies purchased for Branch and shipped Directly to branch Balance

Dec. 5 Shipments from home office 120,000 Dec. 28 Expenses from home office 45,200 Balance 103,200

Home office books Investment in branch 2016 60,000 Dec. 3 Cash received from branch 80,000 120,000 28 Collection from customer 18,000 52,400 24,000

8,000 166,400

Except for the error by the branch in recording its share of allocated expenses, all differences are timing differences, Compute for the correct balances of the reciprocal accounts.

V.

Binay Company located in Makati, operates a branch in Taguig City. At close of business on December 31, 2016, the Home Office account in the books of the Taguig branch showed a credit balance of 2,784,300. 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. On December 29, 2016, the branch sent a check for 13,500 to its suppliers. The branch erroneously recorded the transaction as a remittance to the home office and sent a copy of the debit memo to the home office. The home office recorded this upon receiving the debit memo on January 4, 2017. b. The home office allocated promotions and insurance expense totalling 13,000 to Taguig Branch. The home office inadvertently charged the said expense to Manila branch. Taguig branch had not entered the allocation at year – end. c. Home office debit memo for 20,700 regarding transfer of funds was recorded twice by the branch by debiting its reciprocal account. d. A branch customer remitted 15,000 to home office. The home office recorded this is a cash collection of its own receivable on December 23, 2016. Upon notification on the same year, the branch debited the amount to Receivable from Home Office and credited its reciprocal account. e. A 105,000 shipment, charged by home office to Taguig branch, was actually sent to and retained by Mandaluyong branch. f. The home office failed to take up a 12,000 credit memo from the branch. g. Branch store insurance premiums of 9,600 were paid by the home office. The home office debited insurance expense and credited Cash in the books. The branch recorded the amount of 96,000 as a liability. h. Inventory costing 39,000 was sent to the branch by the home office on December 12, 2016. The branch recognized a liability by crediting Accounts Payable upon the receipt of the inventory. i. Freight charge of 12,600 on merchandise shipped to the branch was paid by the home office and was recorded in the branch books as 1,260.

j.

A branch customer remitted 63,000 to the home office. The home office recorded this cash collection on December 28, 2016. Upon receiving a credit memo, the branch recorded the transaction twice on December 30, 2016.

7. The unadjusted balance of the branch current account as of December 31, 2016 is: a. 2,970,840 b. 3,075,240 c. 3,051,240 d. 2,962,140

HOME OFFICE AND BRANCH ACCOUNTING H102 – SPECIAL WITH AGENCY TRANSACTIONS I.

The Company opened a branch of its business in 2016. During the year, the following transactions have occurred in connection with this new operation:  The home office acquired P 72,000 in equipment to be used and recorded by the branch.  The home office paid P 12,000 to lease a building for the last six month of this year. This cost was charged to the branch.  Inventory costing P 320,000 was shipped to branch by the home office at a billed price of P 400,000. The home offce separately records all of its unrealized profit.  The branch paid P 44,000 for various operating expenses.  The branch sold 75% of the inventory received, collecting P 420,000 in cash.  The branch transferred P 240,000 in cash to home office. a. Prepare journal entries for both home office and the branch. b. Prepare closing and adjusting entries for both.

II.

The following records were taken from the books of the Company and its branch on December 31, 2016: Home Office Books Branch Books Sales P 920,000 P 800,000 Shipments to branch 600,000 Beginning inventory 96,000 64,000 Purchases 1,200,000 240,000 Shipments from home office 750,000 Allowance for overvaluation 158,000 Ending inventory 112,000 82,800 Expenses 40,000 20,000 Ending inventory of the branch includes P 34,800 acquired from outsiders. a. Compute for the true net income of the branch b. Ending balance and balance before adjustment of Unrealized Profit on Branch Inventory c. Combined net income d. Beginning and ending inventory at cost presented in the combined financial statements

III. The following records were taken from the books of the Company and its branch on December 31, 2016: Home Office Books Branch Books Sales P 1,060,000 P 315,000 Shipments to branch 210,000 Beginning inventory 115,000 44,500 Purchases 820,000 Shipments from home office 252,000 Ending inventory 142,500 58,500

Expenses

382,000

101,500

In 2016, home office billed the branch at 120% of cost which was lower by 5% than last year’s. a. What is the combined net income? b. Compute for the total beginning and ending inventory at cost. c. What is the balance of the allowance for overvaluation of inventory of the branch after closing entries have been made? IV.

The following records were taken from the books of the Company and its branch on December 31, 2016: Home Office Books Sales P 512,000 Purchases 420,000 Shipment to branch 60,000 Shipment from home office Expenses 120,000 Beginning inventory Home office 160,000 Branch: From outsiders From home office Billed at 22.5% above cost Ending inventory Home office 110,000 Branch: - From outsiders - From home office

Branch Books P 157,000 40,000 80,000 25,000

15,000 49,000

11,000 52,000

Compute for the combined net income. The home office shipped merchandise costing P48,000 to Manila Branch and paid freight of P3,200. Shortly afterward, the home office instructed Manila branch to transfer this merchandise to Baguio branch. Freight costs of P2,400 were paid by Manila branch to carry out the order. If the merchandise had been shipped directly from the home office to Baguio branch, the freight cost could have been P4,000. Prepare entries to be made on the books of the home office and the branches. VI. The following transactions happened between the home office, branch X and branch Y during the year:

V.

 Upon the instruction of the home office, branch Y affected a fund transfer of P 25,000 to branch X.  Branch X collected a branch Y’s account receivable of P 35,000 less 2% discount.  Branch Y paid P 250,000 representing the traveling expenses of Mr. Jan Michael Prisoris, a Senior Vice President, when the latter attended the regional conference in Australia. Of the amount paid, 60% was charged to the home office, 25% to branch X and the balance to branch Y.  Home office shipped merchandise costing P 200,000 to branch Y. Freight of P3,000 was paid by home office. It is the policy of the company to bill its branches at 25% above cost.



Upon the instruction of the home office, branch Y reshipped the above merchandise to branch X. Freight of P 1,500 was paid by the branch X. Had the goods been shipped directly to branch X, the freight would have been only P 4,200.

a. Compute for the balance of Branch Y – Current in the home office books. b. Compute for the balance of the Home Office account in the books of branch X. VII. It is the policy of the home office to bill the branch for shipments of inventory at 20% above cost. The branch in turn prices inventory for sale purposes at 25% above billed price. On January 10, 2016, the entire branch inventory is destroyed by fire. No insurance was maintained. Branch account shows the following information: Beginning inventory (at billed price) Shipments from home office (Jan 1 – 10) Sales Sales returns Sales allowances

P 26,400 20,000 15,000 2,000 1,000

What is the cost of inventory destroyed by fire? VIII. On September 1, 2016, the home office established two branches in Bacolod and Cebu.  The home office transferred P 320,000 worth of cash and P 1,400,000 worth of inventory to its Bacolod branch. The home office transfers merchandise to its branch at of 25% mark up above cost.  The home office instructed Bacolod to transfer 75% of both the goods and cash received to Cebu.  In addition, on October 1, 2016, shipments from home office were received by Bacolod amounting to P500,000 at cost and the branch paid freight costs amounting to P26,000.  60% of the October shipments were sold to outsiders on account for P420,000  On November 1, 2016, Bacolod transferred 50% of the remaining October shipments from home office to Cebu, with Cebu branch paying freight costs of P 10,000.  Had the merchandise been shipped from home office to Cebu branch, only P 7,600 worth of freight would have been incurred. How much is the balance of the Cebu branch account on the home office books? AGENCY IX. On October 1, 2016, the Home Office established a sales agency in Manila.  

   

The home office sent samples of its merchandise amounting to P 42,000 and a working fund amounting to P 360,000 to be maintained on an imprest basis. The samples sent were intended to last until June 1, 2017. During the first two months of operations,the agency transmitted to the home office sale of goods costing P 1,458,000 but the home office were not able to fill up 25% of the said transmitted sales orders. Collections from customers amounted to P 369,705, net of 2% sales discount. Payments made by the agency during October and November were as follows: annual rent of P 288,000, advertising expenses worth P 28,000 and Utilities amounting to P 36,000. It also purchased equipment worth P 45,000 which will be depreciated at 20% per annum. The gross profit rate on sales agency order is 20% of sales. Net Income of the agency for two months ended November 30, 2016 is

a. b. c. d.

P 149,375 P 134,330 P 87,135 P 141,830...