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ARTS CPA Review Center No. 44, Kamagong Avenue, Metroville, Santiago City

0917-5723900

e-mail address: [email protected] ADVANCED ACCOUNTING

24TH

BATCH

CHARLON F. HUAN, CPA/SAMUEL U. ITHCON, JR., CPA

HOME OFFICE-BRANCH ACCOUNTING

ADV – 10

Use the following information for questions 1 to 5: Selected balances from the Amor Corporation’s Branch A and Branch B are as follows: Branch A Branch B Inventory, Jan. 01, 2006 21,000 19,000 Imprest Branch Fund 2,000 1,500 Inventory, Dec. 31, 2006 19,000 12,000 Accounts receivable, Jan. 01, 2006 55,000 43,500 Merchandise from Home Office 61,000 47,000 Accounts receivable, Dec. 31, 2006 70,000 53,500 Cash collections 85,000 70,000 Sales 100,000 80,000 Cash Expenses 21,000 14,300 All sales, collections and expenses are handled at the branch. All cash received from sales and collections are sent directly to the Home Office. Expenses are paid bys the branch from the imprest fund and immediately reimbursed by the Home Office and credited to the Home Office account. All expenses paid by the branch are recorded in the books of the branch. 1. The net profit of Branch A is: a. 16,000 c. 15,000 b. 21,000 d. 18,000 2. The balance of the Home Office account of Branch A on Jan. 01, 2006 is: a. 80,000 c. 78,000 b. 64,000 d. 75,000 3. The balance of the Home Office account of Branch B on Jan. 01, 2006 is: a. 80,000 c. 78,000 b. 64,000 d. 95,000 4. The balance of the Branch Current account for Branch B on December 31, 2006 is: a. 70,000 c. 67,000 b. 64,000 d. 65,000 5. The entry in Branch B’s records in order to update the reciprocal Home Office account on December 31, 2006 is: a. Dr – Home Office. Cr – Profit & Loss b. Dr – Profit & Loss Cr – Branch Current c. Dr – Branch Current Cr – Profit & Loss d. Dr – Profit & Loss Cr – Home Office 6.

Sim Corporation, operates a number of branches in Metro Manila. On June 30, 2011, its San Lorenzo branch showed a Home Office account balance of P 27,350 and the Home Office books showed a San Lorenzo branch account balance of P 25,550. The following information may help in reconciling both accounts:  A P 12,000 shipment, charged by Home Office to San Lorenzo branch, was actually sent to and retained by Santo Tomas branch.  A P 15,000 shipment, intended and charged to San Jose branch was shipped to San Lorenzo branch and retained by the latter.  A P 2,000 emergency cash transfer from Santo Tomas branch was not taken up in the Home Office books.  Home Office collects a San Lorenzo branch accounts receivable at P 3,600 and fails to notify the branch.  Home Office was charged for P 1,200 for merchandise returned by San Lorenzo branch on June 28. The merchandise is in transit. Home Office erroneously recorded San Lorenzo’s net income for May, 2011 at P 16,275. The branch reported a net income of P 12,675. What is the reconciled amount of the Home Office and San Lorenzo branch reciprocal accounts? a. 21,750 c. 27,350 b. 23,750 d. 20,150

7. Kami Marketing operates a branch in Makati, Metro Manila. On October 31, 2008, the Branch Current account had a balance of P 300,000. In the process of reconciling the reciprocal current accounts, the items that follow were noted:  The home office had billed the branch P 75,000 for merchandise shipment still in as of October 31.  A home office customer’s account for P 21,000 collected by the branch on October 26 has not been reported to the home office.  The branch has failed to recognize its P 5,000 share of advertising expense paid for by the home office.  The branch reported a net income of P 43,500 during the fiscal period then ended, this was erroneously taken up as P 45,500 by the home office. Assuming that all other transactions related to the home office and the branch are correctly recorded, the adjusted balance of the reciprocal accounts as of October 31, 2008, was: a. 300,000 c. 319,000 b. 314,000 d. 323,000

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8. After examining on a comparative basis the inter-office account of the Bulacan Company with its suburban branch and the similar account carried on the latter’s books, the following discrepancies at the close of the business on June 30, 2005 were seen: a. A charge for labor by the Home Office, P 500 was recorded twice by the branch. b. A charge of P 895 was made by the Home Office for freight on merchandise, but the amount was recorded by the Branch as P 89.50. c. A charge of P 980 (furniture and fixture) on the Home Office books was taken up by the Branch as P 890. d. A credit by the Home Office for P 350 (merchandise allowances) was taken up bys the Branch as P 400. e. The Home Office charged the Branch P 425 for interest on open account which the Branch failed to take up in full; instead, the Branch sent to the Home Office a wrong adjusting memo, reducing the charge by P 100 and set up a liability for the net amount. f. The Home Office received P 5,000, from the sale of a truck which it erroneously credited to the Branch; the Branch did not charge the Home Office therewith. g. The Branch by mistake sent the home office a debit note for P 370 representing its proportion of a bill for repairs of truck; the Home Office did not record it. h. The Branch inadvertently received a copy of the Home Office entry dated July 19, 2005 correcting item (f) and entered a credit in favor of the home office as of June 30, 2005. At June 30, 2005, the unadjusted balance of the Investment in Branch account on the Home Office books showed P 175,520. At the beginning of the year, the inter-office accounts were in balance. What is the unadjusted balance of the Home Office account on the branch books on June 30, 2005? a. 184,279.50 c. 184,729.00 b. 160,725.50 d. 165,279.50 9. Jaime Marketing Co. opened a branch in San Fernando City at the beginning of 2005. The branch extends credit, makes collections, pays expenses from cash receipts, and acquires goods exclusively from the home office. During 2005, goods shipped by the home office to the branch, at a billing price of 125% of cost, amounted to P 104,000, of which P 12,500 remained in the branch’s year-end inventory. Other branch transactions in 2005 were as follows: sales, all on credit, P 117,430; expenses, of which P 1,500 are unpaid at year-end, P 20,000; collections on account, after deducting discounts of P 1,480, P 84,000; and, total remittances to the home office, P 62,500. As far as the home office is concerned, the operations of the branch in 2005 resulted in a: a. 4,450 net income. c. 18,300 net income. b. 9,550 net loss. d. 22,750 net income. 10. The Clark branch of Freeport Corporation submitted the following trial balance as of 30 June 2005: Debit Credit Cash 28,600 Accounts receivable 173,800 Shipments from home office 462,000 Home office – current 324,500 Sales 369,600 Expenses 29,700 ------------------------------------Total 694,100 694,100 =========== ========== Clark reported an ending inventory of P 138,600. Shipments are billed at a markup of 40% on cost. What is the real net income of Clark branch? a. 92,400 c. 70,600 b. 138,600 d. 108,900 Use the following information for questions 11 & 12: New Era Co. bills its newly established branch for merchandise at 140% of cost. At the end of its first month, the branch reported, among other things, the following: Merchandise from home office (at billed price) 28,000 Merchandise purchased locally by branch 10,000 Inventory, September 30, of which P 2,000 are local purchases 9,000 Net sales for month 43,500 11. The branch inventory at cost should be recorded at: a. 38,000 c. 9,000 b. 7,000 d. 10,000 12. The gross profit of the branch in so far as the home office is concerned was: a. 22,500 c. 22,790 b. 14,500 d. 20,500 13. Pekto Sales, Inc. has branch in Cubao, Quezon City. The branch buys merchandise from outside parties and also receives merchandise from the home office for which it is billed at 20% above cost. Below are excerpts from trial balances and other data of the home office and the Cubao branch for the month just ended: Home Office: Cr.: Allowance for overvaluation of branch merchandise 370,000 Cr.: Shipments to branch 850,000

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Cubao Branch: Dr.: Dr.: Dr.:

Beginning inventory Shipments from Home Office Purchases

1,440,000 1,020,000 410,000

Month-end branch inventory: From home office, at billed price 1,170,000 From outside parties, at cost 290,000 The amount of overvaluation that was realized because of branch sales for the month just ended was: a. 175,000 c. 200,000 b. 195,000 d. 370,000 14. The home office in Quezon City ships and bills merchandise to its provincial branch at cost. The branch carries its own accounts receivable and makes its own collections. The branch also pays its expenses. The transactions for 2005 are reflected in the branch trial balance that follows: Debit Credit Cash 20,000 Home Office 180,000 Shipments from Home Office 250,000 Accounts Receivable 80,000 Expenses 55,500 Sales 225,500 --------------------------------Total 405,500 405,500 ========== =========== December 31 inventory 65,000 =========== Assuming all the transactions are properly recorded, what is the balance of the Investment in Branch account in the home office books? a. 180,000 c. 165,000 b. 195,000 d. 175,000 15. On December 31, 2005, the following data are in the records of the Cebu City branch of the Claire Company: Petty cash 94,500 Accounts receivable, Dec. 31, 2004 85,200 Merchandise inventory, Dec. 31, 2004 75,500 Accounts receivable, Dec. 31, 2004 88,800 Merchandise inventory, Dec. 31, 2005 81,000 Sales 272,700 Sales returns 4,800 Accounts receivable written off 2,000 Shipments from home office 220,600 Expenses (paid by home office) 22,500 If all cash collections in 2005 were remitted to Home Office, the total remittance amounted to: a. 262,300 c. 264,300 b. 266,800 d. 267,100 16. Toper Corp. bills its branch for merchandise shipments at 125% of cost as of cut-off date on December 31, the following data are available: Mdse from HO Outside (Billing Price) Purchases Total December 01 300,000 120,000 420,000 Dec. additions 450,000 360,000 810,000 December 31 420,000 150,000 570,000 The branch returned merchandise to the home office at P 15,000 billed price. As a result of branch sales for the month of December, the portion of the allowance for overvaluation that was realized as income was: a. 63,000 c. 84,000 b. 66,000 d. 87,500 17. Filipinas Corp, a Bicol-based agricultural corporation, has a new opened branch in Lucena City to which it ships merchandise at 140% of cost. In the first year, 2007, Lucena Branch submitted this data: Net sales 325,000 Merchandise received from home office 175,000 Merchandise acquired from outside sources 140,000 Operating expenses 20,000 Merchandise inventory (including P 10,000 acquired from outside sources) 45,000 What is the Lucena branch net income to be reported in the year-end combined income statement? a. 35,000 c. 75,000 b. 55,000 d. 95,000 18. Selected balances from the Legaspi Company’s Branch A and Branch B are as follows: Branch A Branch B Inventory, Jan. 01, 2008 21,000 19,000 Imprest Branch Fund 2,000 1,500 Inventory, Dec. 31, 2008 19,000 12,000 A/Receivable, Jan. 01, 2008 55,000 43,500

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Merchandise from Home Office 61,000 47,000 A/Receivable, Dec. 31, 2008 70,000 53,500 Cash collections 85,000 70,000 Sales 100,000 80,000 Cash expenses 21,000 14,300 All sales, collections and expenses are handled at the branch. All cash received from sales and collections are sent directly to the Home Office. Expenses are paid by the branch from the imprest fund and immediately reimbursed by the Home Office and credited to the Home Office account. All expenses paid by the branch are recorded in the books of the branch. Compute the balance of the Home Office account on January 01, 2008: Branch A Books Branch B Books a. 78,000 67,000 b. 75,000 64,000 c. 64,000 78,000 d. 78,000 64,000 19. The J Company Inc. opened an agency in Makati in 2008. The following is a summary of the transactions of the agency: Sales orders sent to home office 66,000 Sales orders filled by home office in 2008 55,800 Freight on shipment to agency 1,320 Collections, net of 2% discount 47,628 Selling expenses paid from the agency working fund 3,384 Administrative expenses charged to agency 5% of gross sales Sampled shipped to agency: Cost 3,600 Inventory, December 31, 2008 1,320 The company maintains its gross margin on agency gross sales at 30% excluding the freight cost on shipments to agency. The agency’s cost of sales including freight and agency’s net income would amount to: Cost of sales Net income a. 39,000 5,994 b. 47,520 7,668 c. 40,380 5,994 d. 40,380 7,320 Use the following information for questions 20 to 22: The following information are extracted from the books and records of Ivana Corporation and its branch. The balances are at December 31, 2008, the third year of the corporation’s existence. Home Office Branch Books Books Sales 700,000 Expenses 250,000 Shipments from home office 383,750 Allowance for overvaluation of branch inventory 93,750 The branch acquires all of its merchandise from the home office. The inventories of the branch at billed prices are as follows: January 01, 2008 85,000 December 31, 2008 84,000 20. The percentage of profit on cost that the home office uses to bill merchandise shipped to branch is: a. 120% c. 20% b. 125% d. 25% 21. The balance of the Shipments to Branch account before the books are closed is: a. 375,000 c. 383,750 b. 362,500 d. 307,000 22. The adjusted profit of the branch is: a. 65,250 b. 142,200

c. 160,800 d. 67,250

Use the following information for questions 23 to 25: The following information is taken from the books and records of Atlas Company and its branch. The balances are at December 31, 2015, the second year of the company’s operations: Home Office Branch Books Books Sales 500,000 Expenses 150,000 Shipments to branch 180,000 Allowance for overvaluation Of branch inventory 37,500 The branch obtains all of its merchandise from the home office. The home office ships the merchandise at 120% of its cost. The ending inventory of the branch is P 60,000 billed price. 23. The beginning inventory of the branch at billed price is: a. 9,000 c. 7,500 b. 36,000 d. 1,500

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24. The net income as reflected on the books of the branch is: a. 212,500 c. 175,000 b. 185,000 d. 182,500 25. The true income of the branch is: a. 212,500 b. 185,000

c. 175,000 d. 182,500

Use the following information for questions 26 & 27: Selected accounts from the December 31, 2015 trial balances of Five Star Co. and its branch follow: 5-star Branch Inventory, Jan. 01 46,000 23,100 Branch current 116,600 Purchases 380,000 Shipments from home office 209,000 Freight in 10,450 Expenses 104,000 58,100 Home Office Current ( 106,600 ) Sales ( 310,000 ) ( 280,000 ) Shipments to branch ( 200,000 ) Branch merchandise markup ( 22,000 ) As of December 31, 2015, a shipment with a billing price of P 11,000 was in transit to the branch. Freight cost, typically 5% of the billing price, is inventoriable. Merchandise on hand at year end were: at home office, P 64,000 at cost; at branch, P 33,000 at billing price. 26. As far as home office is concerned, the branch’s net income for the year ended December 31, 2015 was: a. 12,350 c. 31,350 b. 14,000 d. 33,000 27. Net income of the combined operation was: a. 29,000 b. 36,000

c. 58,000 d. 77,000

28. Lobby Trading bills its Iloilo City branch for shipments of goods at 25% above cost. At the close of business on October 31, 2016, a fire gutted the branch warehouse and destroyed 60% of the merchandise stock stored therein. Thereafter, the following data were gathered: January 01 inventory, at billed price 50,000 Shipments from home office to Oct. 31 130,000 Net sales to October 31 225,000 If undamaged merchandise recovered are marked to sell for P 30,000, the estimated cost of the merchandise destroyed ;by the fire was: a. 14,400 c. 24,000 b. 21,600 d. 27,500 29. On August 31, 2016, a fire destroyed totally the rented “bodega” or stockroom of Isabela Company. The following are some of the data of the company: Merchandise inventory, Dec. 31, 2015 110,000 For the period Jan. 01 – Aug. 31, 2016: Purchases 560,500 Freight in 5,600 Purchase returns 10,200 Sales 695,000 Sales returns and allowances 7,500 Using a 20% gross profit rate, the cost of the merchandise lost in the fire was: a. 90,700 c. 88,400 b. 115,900 d. 63,200 30. The account balances shown below were taken from the trial balances submitted to Bona Corporation by its Alabang branch: 2015 2016 Petty cash fund 1,500 1,500 Accounts receivable 43,800 49,140 Inventory 37,170 Sales 173,180 195,120 Shipments from home (140% of cost) 107,450 136,080 Expenses 51,260 57,930 Accounts written off 1,220 1,920 All branch collections are remitted to the home office. All branch expenses are paid out of the petty cash fund. When the petty cash fund is replenished, the branch debits appropriate expense accounts and credits Home Office Current. The petty cash is counted every December 31, and its composition was as follows: 12.31.15 12.31.16 Currency and coins 580 860 Expense vouchers 920 640 The branch inventory on December 31, 2016 was P 41,370. The correct branch net income for 2016 was: a. 3,390 c. 41,070 b. 3,670 d. 41,350

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