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4 Home Office Agency Handout Solution
4 Home Office Agency Handout Solution
A balance sheet for the Manila Company as for January 1, 2009 is given below:
On this date a branch sales office was established in Cebu. The home office sent the following assets to
the branch upon its organization:
1. Cash, P37,500
2. Merchandise costing P255,000
3. Equipment previously used by home office cost, P75,000; age 2 ½ years; depreciation rate used, 10%
a year. The equipment account is to be carried on the books of home office.
4. Accounts receivable, P65,000. Accounts arose from sales by the home office to customers in Cebu.
The branch is authorized to take over the accounts and make collections.
Home office and Cebu Branch transactions with outsiders during January were:
HO Branch
a. Merchandise costing P15,000 was shipped by the home office to the branch on January 31. This
merchandise is in transit and will not reach the branch until February 2. (This shipment is not
included in the transfers previously mentioned).
b. Expenses paid by the home office during the month that are chargeable to the branch total P11,875.
c. Depreciation on equipment is recorded at the rate of 10% a year.
d. Merchandise inventories, excluding merchandise in transit are: Home Office, P1,112,500; and branch
P245,000.
e. Accrued expenses are: Home Office, P18,650; and Branch, P8,750.
Required: Prepare
1. Journal entries to record the foregoing transactions in the books of the Home Office and the Branch.
2. Adjusting and closing entries at January 31, 2009 for the Home Office and the Branch.
P1. The following information came from the books and records of the Home Office and its Pasig
Branch. The balances are as of December 31, 2010, the fourth year of the corporation’s existence.
P2. A home office transfers inventory to its branch at a 25% mark-up above cost. During 2010, the
reciprocal account in the income statement of the branch amounts to P320,000. At year-end, the home
office debited its Deferred Profit account in the amount of P48,000. The branch’s balance sheet at the
beginning of the year shows P130,000 of inventory acquired from the home office. How much is the
ending inventory per branch books?
P3. The home office bills GM branch at 140% of cost during the year 2010 and 110% of cost during the
year 2009. In the 2010 goods billed at P445,000 were shipped to the branch. Also, during the year the
branch returned P25,000 defective merchandise to the home office. The account Unrealized
Intracompany Inventory Profit has a balance of P8,500 at the end of last year. The branch started to
acquire merchandise from outsiders during the year in the amount of P121,000, and returned defective
merchandise to the vendor amounting to P12,000. How much is the total goods available for sale of the
branch at cost?
P4. A home office ships inventory to its branch at a mark-up of 120% above cost. The required balance of
the contra branch current account is P90,000. During the year, the home office sent merchandise to the
branch costing P1,135,000. At the start of the year, the branch’s balance sheet shows P440,000 of
inventory on hand that was acquired from the home office. What is the amount of adjustment in the
Allowance for Unrealized Gross Margin in Branch Inventory account?
P5. The home office bills BX branch at a mark-up above cost. During the year 2010 goods costing
P175,000 were shipped to the branch. The account for the unrealized mark-up has a balance of P35,000
before adjustment. The net income of the branch is understated by P22,000. How much is the ending
inventory of the branch to be reported for the company as a whole?
P6. The home office of DQ Company which uses perpetual inventory system, bills shipments of
merchandise to the RS branch billed at 125% of cost. On August 31, 2010 the credit balance in the Home
Office’s Branch Inventory Allowance account was P80,000. In September, the home office shipped
merchandise to the branch at a cost of P390,000. The branch reported an ending inventory at billed price
of P248,000 on September 30, 2010. How much is the realized inter-office inventory profit during
September?
P7. During the year 2010 goods billed at P770,000 were shipped to the branch at 140% of cost. The
account Loading in Branch Inventory has a balance of P272,000 before adjustment. The beginning
inventory of the branch from the home office at cost is P208,000; the beginning inventory of the branch
from outsiders is P52,400; purchases from outsiders is P296,800. How much is the cost of goods
available for sale of the branch?
-End of Handout-
French Corporation opened a sales agency in Sta. Rosa Laguna in 2009. The following is a summary of
the transactions of the sales agency:
Felix Inc. Opened an agency in Manila. The following are transactions for July 2010. Samples worth
P10,000, advertising materials of P5,000 and checks for P50,000 were sent to the agency. Agency sales
amounted to P220,000 (cost P150,000). The collection for agency amounted to P176,400 net of 2%
discount. The agency’s working fund was replenished for the following expenses incurred; rent for 2
months P10,000; delivery expenses P2,500 and miscellaneous expenses of P2,000. Home office charges
the following to the agency, after analysis of accounts recorded on the books; salaries and wages
P15,000 and commission which is 5% of sales. The agency sample inventory at the end of December is
25% of the quantity shipped. The agency has used 20% of the advertising materials sent by the home
office.
On May 1, 2009, the home office in Ortigas establishes a branch in General Santos to act as a sales
agency. The following assets are sent to the sales agency on that date:
Cash (for the working fund to be operated under the imprest system) P14,000
Samples from the merchandise stock 36,000
During May, the sales agency submits sales on account of P172,000 duly approved by the home office.
Cost of merchandise shipped to fill the orders from customers obtained by the sales agency is P96,000.
Home office disbursements chargeable to the sales agency were as follows: Furniture and fixtures,
P18,000; Manager’s and salesmen’s salaries, P17,600 and Rent, P8,300. On May 31, the sales agency
working fund is replenished, paid vouchers submitted by the sales agency amounting to P7,925. Sales
agency samples are useful until December 31, 2009 which, at this time, are believed to have a salvage
value of10% of cost. Furnitures are depreciated at 25% per annum.
What is the net profit of the sales agency for the month of May?
-End of Handout-
Problem A. Swift Corporation, operates a number of branches in Metro Manila. On June 30, 2012, its
San Lorenzo branch showed a Home Office Account balance of P27,350 and the Home Office books
showed a San Lorenzo branch account balance of P25, 550. The following may help in reconciling both
accounts:
1. A P12,000 shipment, charged by Home Office to San Lorenzo branch, was actually sent to and
retained by Santo Tomas branch.
2. A P15,000 shipment, intended and charged to San Jose branch was shipped to San Lorenzo
branch and retained by the latter.
3. A P2,000 emergency cash transfer from Santo Tomas branch was not taken up in the Home
Office books.
4. Home Office collects a San Lorenzo branch accounts receivable of P3,600 and fails to notify the
branch.
5. Home Office was charged for 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, 2012 at P16,275. The branch
reported a net income of P12, 675.
Required:
Problem B. On December 31, 2012, the investment in Branch account on the home office's books has a
balance of P102,000. In analyzing the activity in each of these accounts for December, you find the
following differences:
1. A P12,000 branch remittance to the home office initiated on December 27,2012, was recorded on
the home office books on January 3, 2013.
2. A home office inventory shipment to the branch on December 28, 2012, was recorded by the
branch on January 4, 2013; the billing of P24,000 was at cost.
3. The home office incurred P14,000 of advertising expense and allocated P6,000 of this amount to
the branch, on December 15, 2012. Meanwhile, back at the branch, no entry has been made yet.
4. A branch customer erroneously remitted P3,600 to the home office. The home office recorded
this cash collection on December 23, 2012. The branch has not recorded this transaction.
5. Inventory costing P51,600 was sent to the branch by the home office on December 10, 2012. The
billing was at cost, but the branch recorded the transaction at P40,800.
Required:
Problem C. The following were found in your examination of the interplant accounts between the Home
Office and Blumentritt Branch
1. Transfer of fixed assets from Home Office amounting to P53,960 was not recorded by the branch.
Fixed Assets used in the branch are required to be maintained in the books of branch.
2. P10,000 covering marketing expense of another branch was charged by Home Office to
Blumentritt branch.
3. Blumentritt recorded a debit note on inventory transfers from Home Office of P75,000 twice.
4. Home Office recorded cash transfer of P65,700 from Blumentritt Branch as coming from
Tacloban Branch.
5. Blumentritt reversed a previous debit memo from Samar Branch amounting to P10,500. Home
Office decided that this charge is appropriately Tacloban’s Branch cost.
6. Blumentritt recorded a debit memo from Home Office of P4,650 as 4,560.
Required:
PROBLEM A
PROBLEM B
PROBLEM C
PROBLEM 1
SALES 1,010,000
COST OF GOODS SOLD (705,500)
Beginning Inventory 172,000
Purchases 280,000
Shipment from Home Office 336,000
= Total Goods Available for Sale 788,000
(Ending Inventory) (82,500)
= Cost of Goods Sold 705,500
= GROSS PROFIT 304,500
(OPERATING EXPENSE) (160,000)
= NET INCOME 144,500
PROBLEM 2
PROBLEM 3
*Last Year: 110% 100% 10%
Current: 140% 100% 40%
Billed Allowance for
Cost
Price Overvaluation
Beginning Inventory 85,000* 8,500*
Shipment from Home Office 420,000 300,000 120,000
= Total Goods Available for Sale 385,000**
(Ending Inventory)
= Cost of Goods Sold
PROBLEM 4
PROBLEM 5
PROBLEM 6
PROBLEM 7
* Answer: 1,379,200
TGAS 1,030,000
Beginning Inventory from Outsiders 52,400
Purchases from Outsiders 296,800
1,379,200
HANDOUT IV
PROBLEM 1
Sales 308,655*
(Sales Returns and Allowances)
(Sales Discount) (20,250)**
Net Sales 288,405
(Cost of Goods Sold) (192,193) ****
Gross Profit 96,212
(Operating Expense) (41,428)***
Net Income 54,784
PROBLEM 2
Sales 220,000
(Sales Returns and Allowances)
(Sales Discount) (3,600)
Net Sales 216,400
(Cost of Goods Sold) (150,000)
Gross Profit 66,400
(Operating Expense) (37,750)*
Net Income 28,650
PROBLEM 2
Sales 172,000
(Sales Returns and Allowances)
(Sales Discount) _______
Net Sales 172,000
(Cost of Goods Sold) (96,000)
Gross Profit 76,000
(Operating Expense) (38,250)*
Net Income 37,750