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HOME OFFICE AND BRANCH ACCOUNTING At the end of the year the Investment in Bacolod account of the home office is P300,500. However, there are transactions discovered to have errors.  Bacolod branch bought equipment on June 1, 2020 costing P63,800 for the home office’s use and the policy is to recor...

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HOME OFFICE AND BRANCH ACCOUNTING 1.

At the end of the year the Investment in Bacolod account of the home office is P300,500. However, there are transactions discovered to have errors. 

Bacolod branch bought equipment on June 1, 2020 costing P63,800 for the home office’s use and the policy is to record the asset in Bacolod’s books. During that time the home office recorded the equipment and credited its reciprocal account of its Bacolod branch



The policy of the company regarding the equipment’s depreciation is that it has a life of 8yrs with no salvage value and the straight-line method should be used. No entry has been made by the home office and branch



The home office ships merchandise to Bacolod amounting to P96,700. Bacolod recorded the transaction as P97,600

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Bacolod pays the home office’s creditors in the amount of P32,400 and sends a debit memo to the home office. Upon receipt of the debit memo, the home office debited its reciprocal account in the amount of P23,400 twice

1. What is the unadjusted balance of the home office current account in the books of Bacolod at the end of the year? a. 379,600 b. 252,000 c. 286,000 d. 315,800 2. What is the net adjustment of the investment in Bacolod account at the end of the year? a. 20,052 debit b. 20,052 credit c. 19,387.5 debit d. 19,387.5 credit 3. What is the net adjustment of the home office current account in the books of Bacolod branch at the end of the year? a. 4,887.5 debit b. 4,887.5 credit c. 5,552 debit d. 5,552 credit 2.

Miles Company established a branch in Ayala by sending merchandise costing P924,500 and effecting a fund transfer of P400,000 cash on January 1, 2020. The branch purchased computer equipment costing P420,000 on April 1. As per agreement, the home office will maintain all the property, plant and equipment records. Ayala branch collected P56,000 worth of Ortigas branch’s receivable on August 4. Cash remittance to the home was P250,000 on September 28. On November 21, Ayala branch returned defective merchandise worth P125,000 to the home office. At the end of the year, the company’s controller found out that the branch accountant had failed to record all the transactions initiated by the home office from the second half of the year. Because of this, there is a significant discrepancy between the balances of the reciprocal accounts. For the purpose of reconciling the reciprocal accounts, the controller instructed the accounting staff of the home office to send a copy of the Investment in Ayala general ledger to the branch.

1/1 1/1 7/2 8/31 10/5

Merchandise to branch Fund transfer Merchandise to branch Fund transfer Expense paid for branch

Investment in Ayala 924,500 4/2 Equipment acquisition 400,000 9/30 Remittance 135,000 11/22 Return of goods from branch 95,000 29,000

1. What is the unadjusted balance of the Home Office account? a. 598,500 b. 585,500 c. 723,500 d. 335,500 2. What is the adjusted balance of the reciprocal accounts? a. 844,500 b. 574,500 c. 901,000 d. 596,500

240,000 225,000 12,500

3.

The home office transfers merchandise to Manila branch at a mark-up of 25% above cost during the year 2022, and 30% mark-up above cost during the previous year. In 2022, the reciprocal account in the income

statement of the branch is P1,487,500. The account Unrealized Branch Inventory Profit has a balance of P84,000 at the end of the previous year. There were no inventory beginning from outside purchases in 2022, however purchases were made during 2022 at P76,000. The ending inventory reported by the branch in 2022 was P1,650,500. At the end of 2022, an additional profit of P54,000 was realized from the Unrealized Branch Inventory Profit account. 1. What is the cost of goods sold of the branch in the combined financial statements? a. 180,000 b. 223,000 c. 234,000 d. 203,000 2. What is the cost of goods available for sale of the branch at cost? a. 1,927,500 b. 1,470,000 c. 1,546,000 d. 1,851,500 3. What is the ending inventory of the branch in the combined financial statements? a. 1,323,000 b. 1,343,000 c. 1,310,000 d. 1,290,000 4. During the year 2022, merchandise 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. The beginning inventory of the branch from home office at cost was P2,375,000 and the beginning inventory of the branch from outside purchases was P540,000. Purchases from outsiders during the year was P1,450,000. What is the total goods available for sale of the branch from the home office merchandise? a. 5,308,000 b. 6,337,000 c. 8,090,000 d. 6,100,000

5. On August 1, 2022, the home office in Ortigas established a branch in Makati to act as a sales agency. The following assets were sent to the sales agency: Cash (for working fund to be operated under the imprest system) P22,000; samples from the merchandise stock, which have a salvage value of 15% of the cost, P36,000 which were useful until December 1, 2022. During August, the sales agency submits sales order of P272,000, sales per invoice was billed at P268,000 duly approved by the home office. Collection during the month was P58,200, net of 3% discount. Cost of merchandise shipped was P155,000 of which 80% were sold during August. Home office disbursements chargeable to the sales agency were as follows: Furnitures & Fixtures P40,000; salaries of the manager and salesmen for the month P21,600; annual rent of the office space P36,000. On August 31, the sales agency working fund was replenished in the amount of P17,925. The furnitures & fixtures were depreciated 18% per annum. What is the net income of the agency for the month of August? a. 51,825 b. 91,425 c. 93,225 d. 58,425

EXERCISES 1. In the separate statement of financial position of the home office, the investment in branch account shall be presented as a. Liability b. Equity c. Asset d. Income 2.

In a. b. c. d.

the separate statement of financial position of the branch, the home office account shall be presented as Liability Equity Asset Income

3.

In the combined statement of financial position prepared by the company, the inventory of the branch shall be measured and presented at a. Lower of cost or net realizable value b. Cost c. Billed price d. Fair value

4.

The main difference between the net income reported in the separate income statement of the branch and the net income reported by the home office for the branch’s operation is the a. Overstatement of beginning and ending inventory reported by the branch b. Overstatement of total goods available for sale reported by the branch c. Overstatement of cost of goods sold reported by the branch for the goods coming from the home office

d.

Overstatement of shipment from home office reported by the branch...