Sunshine Joy Gino - End Of Module Exercises- Major Examination (part 2)

Sunshine Joy R. Gino BSMA 3102 Module 8 Home Office, Branch and Agency Accounting

MULTIPLE CHOICE: THEORY/PROBLEMS 1.After year-end adjustments but before elimination entries, the balance in the “allowance for mark-up on shipments to branch” a. is equal to zero c. represents the realized mark-up b. represents the unrealized mark-up d. represents profit 2.When shipments to branch are billed at other than cost, the individual profit of the branch is not equal to its true profit. The difference​ ​pertains to the a. unrealized mark-up c. total mark-up b. realized mark-up d. errors committed 3.The combined profit of the entity is equal a. to the individual profits of the home office and the branch. b. to the individual profits of the home office and the branch after eliminating any unrealized mark-up during the period. c. to the individual profit of home office plus the true profit of the branch. d. to the true profit of the home office plus its share in the profit of the branch. 4.Excess freight on inter-branch transfers of merchandise is a. charged as expense in the home office books. b. recorded as freight-in in the books of the recipient branch. c. charged as expense in the books of the recipient branch. d. not recorded. 5.Freight savings on inter-branch transfers of merchandise is a. recognized as gain in the home office books. b. recorded as a reduction to the cost of shipments. c. recognized as gain in the transferring branch’s books. d. not recorded.

Use the following information for the next two questions: The trial balances of INTERIM TEMPORARY Co.’s home office and branch are shown below: INTERIM TEMPORARY Co. Trial balance December 31, 20x1 Home office Dr. (Cr.) Cash 4,400,000 Accounts receivable 720,000 Inventory, beg. 2,600,000 Shipments from home office Purchases 288,000 Freight-in 88,000 Shipments to branch (920,000) Investment in branch 3,308,000 Equipment 2,880,000 Accumulated depreciation - equipment (288,000) Furniture 360,000 Accumulated depreciation - furniture (36,000) Accounts payable (288,000) Accrued expenses (180,000) Share capital (8,000,000) Share premium (2,000,000) Retained earnings - beg. (824,800) Home office (3,600,000) Sales Depreciation expense 672,000 Utilities expense 72,000 General overhead expense 28,800 Various operating expenses 720,000 Totals

-

Branch Dr. (Cr.) 1,668,000 400,000 920,000 160,000 72,000

1,600,000 (160,000) 200,000 (20,000) (160,000) (100,000)

(3,308,000) (2,000,000) 272,000 40,000 16,000 400,000 -

The home office and the branch have ending inventories of ₱1,080,000 and ₱600,000, respectively.

6.How much is the total assets in the combined statement of financial position? a. 13,440,000 b. 14,800,000 c. 14,340,000 d. 13,404,000 SOLUTION INTERIM TEMPORARY Co. Statement of financial position As of December 31, 20x1 Assets Cash Accountable receivable Inventory (1,080,000 home office + 600,000 branch) Equipment Accumulated depreciation- equipment Furniture Accumulated depreciation – furniture

6,680,000 1,120,000 1,680,000 4,480,000 (448,000) 560,000 (56,000)

Total assets

14,016

7.How much is the total profit in the combined statement of profit or loss? a. 1,851,200 b. 1,960,200 c. 1,815,200 d. 1,720,200 SOLUTION INTERIM TEMPORARY Co. Working Paper for Combined Financial Statements December 31, 20x1

Cash Accounts receivable Inventory, beg. Shipments from home office Purchases Freight-in

Home office Dr. (Cr.) 4,400,000 720,000 2,600,000 -

Branch Dr. (Cr.) 1,668,000 400,000 920,000

288,000 88,000

160,000 72,000

Elimination Dr. (Cr.)

(920,000)

Combined Dr. (Cr.) 6,680,000 1,120,000 2,600,000 448,000 160,000

Shipments to branch Investment in branch Equipment Accum. Dep. -equipment Furniture Accum. Dep. furniture Accounts payable Accrued expenses Share capital Share premium Retained earnings beg. Home office Sales Depreciation expense Utilities expense General overhead expense Various operating expenses Totals

(920,000)

920,000

-

3,308,000

(3,308,000)

-

2,880,000 (288,000)

1,600,000 (160,000)

4,480,000 (448,000)

360,000 (36,000)

200,000 (20,000)

560,000 (56,000)

(288,000) (180,000) (8,000,000) (2,000,000) (824,800)

(160,000) (100,000)

(448,000) (280,000) (8,000,000) (2,000,000) (824,000)

(3,600,000) 672,000

(3,308,000) (2,000,000) 272,000

72,000 28,800

40,000 16,000

112,000 44,800

720,000

400,000

1,120,000

-

-

3,308,000 (5,600,000) 944,000

-

INTERIM TEMPORARY Co. Statement of profit or loss For the year ended December 31, 20x1 Sale Cost of goods sold: Inventory, beg. Purchases Freight – in Total goods available for sale Inventory, end. (1,080,000 + 600,000) Gross profit Depreciation expense Utilities expenses General overhead expenses

5,600,000 2,600,000 288,000 88,000 2,976,000 (1,680,000)

(1,296,000) 4,304,000 (944,000) (112,000) (44,800)

-

Various operating expenses Profit for the period

(1,120,000) 2,083,200

The combined profit can be reconciled as the sum of the individual profits of the home office and the branch. The profit of the home office is computed as follow: Sale Cost of goods sold: Inventory, beg. Purchases Shipments to branch Freight – in Total goods available for sale Inventory, end. Gross profit Depreciation expense Utilities expenses General overhead expenses Various operating expenses Profit for the period

3,600,000 2,600,000 288,000 (920,000) 88,000 2,056,000 (1,080,000) (976,000) 2,624,000 (672,000) (72,000) (28,800) (720,000) 1,131,200

● P 1,131,200 profit of home office + P7200,000 profit of branch =​P 1,851,200​ combined profit 8.AMNESTY PARDON Co. is currently preparing its combined financial statements. At December 31, 20x1, the home office shows a ₱624,000 balance in its ​“Investment in branch” ​account while the branch showed a ₱280,800 balance in its ​“Home office” a​ ccount. The following information has been gathered: a. The home office shipped merchandise worth ₱80,000 to the branch during December 20x1 which the latter has received and recorded only in January 20x2. b. The home office collected ₱40,000 accounts receivable on behalf of the branch. The branch did not yet receive the credit memo sent by the home office. c. The branch returned damaged merchandise worth ₱120,000 to the home office. The home office did not yet receive the debit memo sent by the branch. d. A remittance of cash collections amounting to ₱160,000 was not yet recorded by the home office. e. The home office allocated overhead cost of ₱20,000 to the branch which the latter has recorded twice. f. Freight charge of ₱48,000 paid by the home office for shipments of merchandise to the branch was recorded by the latter as ₱4,800.

How much is the adjusted balance of the “home office” account? a. 324,000 b. 344,000 c. 354,000 d. 364,000 SOLUTION:

Unadjusted balance a. Shipment in transit b. Collection of receivable c. Return of damage merchandise d. Unrecorded remittance e. Allocation of cost recorded twice f. Mathematical error in recording Adjusted balance

HOME OFFICE BOOKS Investment in branch 624,000

BRANCH BOOKS Home office 280,800 80,000 (40,000)

(120,000) (160,000)

344,000

(20,000) 43,200 344,000

9.ABASE HUMILIATE Co. is currently preparing its combined financial statements for the year ended December 31, 20x1. As of this date, the ​“Investment in branch” ​account has a balance of ₱380,000 while the ​“Home office” ​account has a balance of ₱528,000. The following information has been gathered: a. The home office allocated unpaid utilities expenses amounting to ₱40,000 to the branch which the branch did not record in full. Instead, the branch sent a wrong adjusting memo to the home office reducing the charge by ₱10,000 and setting up a liability for the remaining amount. b. The home office erroneously credited the branch for a return of shipment of merchandise worth ₱100,000. The branch did not make any return of merchandise. c. The branch mistakenly received a copy of the home office correcting entry for item (b) above dated January 3, 20x2 and entered a credit in favor of the home office on December 31, 20x1. d. The branch mistakenly sent the home office a debit memo amounting to ₱12,000 for an apparent remittance of collections which did not happen. The home office did not record the debit memo. How much is the net adjustment to the “Home office” account? increase (decrease) a. 100,000 b. 48,000 c. (48,000) d. (52,000)

SOLUTION: HOME OFFICE BOOKS Investment branch Unadjusted balances 380,000 a. Allocated expense b. Erroneous credit by home office 100,000 c. Erroneous correcting entry d. Erroneous debit memo

BRANCH BOOKS Home office 528,000 40,000 (100,000) 12,000

Net adjustments- Requirement (a)

100,000

(48,000)

Adjustment balance – Requirement (b)

480,000

480,000

10.ABOMINABLE VERY BAD Co. has several branches. On December 31, 20x1, the ​“Investment in Branch One” m ​ aintained by the home office shows a balance of ₱400,000 while the ​“Home office” account maintained by ​Branch One shows a balance of ₱568,000. The following information was determined: a. Branch Two acquired equipment for ₱120,000 to be maintained in the books of the home office. This was recorded by the home office as a transaction with Branch One. b. Branch One acquired equipment for ₱160,000 to be maintained in its books. This was not recorded by the home office. c. Branch Four remitted cash collections of ₱40,000 to the home office which the latter failed to record. d. The home office erroneously charged Branch One for a debit memo of ₱48,000 received from Branch Five. e. Branch One reversed a previous debit memo from Branch Six amounting to ₱24,000. The home office decided that this charge is appropriately Branch Seven’s cost. How much is adjusted balance of the “Home Office” account? a. 568,000

b. 588,000

c. 628,000

d. 658,000

SOLUTION

Unadjusted balances a. Branch Two’s transaction b. Branch One’s acquisition c. Branch Four’s remittance d. Branch Five’s debit memo e. Inter – branch debit memo

HOME OFFICE BOOKS Investment in Branch 400,000 120,000 48,000 -

BRANCH BOOKS Home office 568,000 -

Adjusted balance

568,000

568,000

Module 9 Insurance Contracts 1. C 2.D 3. A 4. C 5. E 6. B 7. D 8. A 9. D 10. B

Module 10 Accounting for Build-Operate-Transfer 1. False 2. True 3. True 4. False 5. True 6. True 7. False 8. True 9. True 10. C 11. B 12. C 13. A 14. A 15. D