HOME OFFICE AND BRANCH ACCOUNTING

DRILLS

Problem 1
Dasma Company established a sales agency in Malolos.
Given the following transactions, give the appropriate journal entries
1 A working fund of P20, 000 is established
2 Shipped merchandise to Malolos agency for use as samples P3, 000
3 Fill sales orders from Malolos Agency, P150, 000
4 Cost of goods sold identified with agency sales, P90, 000
5 Replenishment of working fund of the agency, P25, 000
6 Close revenue and expense accounts of the agency
7 Close Malolos Agency Income to Income Summary account

Required: Prepare the necessary journal entries.

Problem 2
On January 1, 2020, Steve Corporation establishes branch in Pangasinan for an initial cash investment of
P488,000. Home office and branch are using the perpetual inventory system with the latter having a
beginning inventory amounting to P12,000. The following are the other transactions during the 1st
Quarter of 2020.

a. The branch acquires inventory of P200,000 on account, half of which is charges to the home
office.
b. The branch acquires equipment for P120,000 cash. The equipment will be carried in the books
of the branch.
c. The home office transfers old equipment with carrying amount of P60,000 and accumulated
depreciation of P300,000 to the branch. The branch will carry this equipment in its books.
d. The branch makes total cash sales of P600,000. Unsold goods at the end of the period amounted
to P20,000.
e. The branch remits P80,000 cash to the home office.
f. The branch pays other expenses of the P150,000. Total depreciation for the period is P10,000.
The home office allocates P25,000 expense to the branch representing the branch’s share in the
maintenance costs of the company’s management information systems.

Required:

1. Provide the entries in each of the books of the home office and the branch. Provide also the
closing entries.
2. Reconcile the reciprocal accounts at the end of the period.
3. Prepare the statement of financial position and statement of profit or loss of the branch.

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PROBLEMS

#1

The Bignay Branch of Valenzuela Products, Inc. buys merchandise from outsiders and receive
merchandise from the home office for which it is billed at 20% above cost. Below are excerpts from the
trial balances and data on the home office and Bignay Branch for the month of April, 2020:

HOME OFFICE:
Cr. Allowance for overvaluation of 462,500
branch merchandise
Cr. Shipment to Branch 1,062,500
BRANCH:
Dr. Beginning inventory 1,800,000
Shipments from home office 1,275,000
Purchases 512,500
Month-end additional data:
Ending inventory of branch 1,825,000
From Home Office, billed price of 1,462,500
From outsiders, at cost 362,500

The total cost of goods sold of the Bignay Branch at cost (net of overvaluation) for the month just ended
amounted to:

a. P1,762,500
b. P1,543,750
c. P1,731,250
d. P2,312,500

#2
The following information are taken from the books and records of SWIFT Company and its branch. The
balances are at December 31, 2020, the second year of the company's operations.
Home Office Branch Office
Books Books
Sales P500,000
Expenses 125,000
Shipment to Branch P250,000
Branch inventory
allowance 71,875

The branch obtains all its merchandise from the home office. The home office ships the merchandise at
125% of its cost. The ending inventory of the branch is P50,000 at the billed price.
The true income of the branch is:
a. P68,281.25
b. P127,500
c. P140,000
d. P52,500

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#3
Profit and loss data for Taft Company and its Ermita Branch for 2020 follows:

H.O. Branch
Sales P1,060,000 P315,000
Inventory, January 1 (at cost) 115,000
Inventory, January 1:
Acquired from Home Office (billed price
- 50,000
Acquired from Outsiders (at cost)
- 35,000
Purchases 820,000 120,000
Shipments to Branch (at cost) 110,000
Shipments from Home Office (at billed price
132,000
Inventory, December 31 (at cost)
142,000
Inventory, December 31:
Acquired from Home Office (billed price)
66,000
Acquired from Outsiders (at cost)
70,000
Operating Expenses 200,000 100,000

Records show that the Ermita Branch was billed for merchandise shipment as follows:
In 2019, cost + 25%;
In 2020, cost + 20%.
The combined net income of the home office and the branch for the year ended December 31, 2020 is:
a. P212,000
b. P247,000
c. P225,000
d. P269,000

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#4
A reconciliation of the Inv. In Branch account in the head office of #CPA Company and the Home Office
account carried on the books of its #Dream branch showed the following discrepancies at December 31,
2020.
a) Collection of branch account receivable by the home office, P800. The branch was not notified.
b) Shipment in transit to branch on December 31, 2020, P3,200.
c) Acquisition of furniture by the branch, P1,200. The furniture account is to be maintained on the
home office books. The home office had not been notified of the acquisition.
d) Return of excess merchandise by the branch but not received yet by the home office, P1,500.
e) Cash remittance by the branch on December 31, 2020, P500. This was still in transit.

The Home Office account on the branch books has a credit balance of P44,000 at December 31, 2020.

COMPUTE: (1) the unadjusted balance of the Inv. in Branch account on the home office books at
December 31, 2020; (2) the adjusted balance of the reciprocal accounts on December 31, 2020.
a. (1) P49,600; (2) P47,200
b. (1) 49,600; (2) 46,400
c. (1) 47,400; (2) 40,000
d. (1) 50,100; (2) 46,000

#5
The home office in CEBU shipped merchandise costing P55,500 to its DUMAGUETE branch, prepaid, the
freight amounting to P4,200. The home office transfers merchandise to the branch at a 20% mark-up
above cost. DUMAGUETE branch was subsequently instructed to transfer the merchandise to the
company’s BACOLOD branch wherein the latter paid P2,800 for freight cost. If the shipment was made
directly from CEBU to BACOLOD, the freight cost would have been P6,200. How much is the excess of
freight?
a. P3,400
b. P800
c. P2,000
d. P6,200

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#6
The Batangas Corporation operates a branch in Lipa City. The Home Office ships merchandise to the
branch at 125% of its cost. Selected information from the December 31, 2020 trial balance are as
follows:
Home Office Books Branch Office Books
Sales P600,000 P300,000
Shipments to branch 200,000
Purchases 350,000
Shipments from Home Office
250,000
Inventory, January 1 100,000 40,000
Allowance for Overvaluation of branch
Inventory 58,000
Expenses 120,000 50,000

Inventory at December 31, 2020:

The combined net income of the home office and the branch after adjustment is:
a. P326,000
b. P500,000
c. P496,000
d. P280,000
#7
April Boy Commercial Corp. maintains a branch in Iloilo City. Selected balances taken from the books of
Teardrops and its Bacolod City branch as of December 31, 2020 are as follows:
Home Office Branch Office
Merchandise Inventory, Jan 1
P 12,000 P 8,000
Purchases 150,000 30,000
Shipments from Home Office
93,750
Shipments to Branch 75,000
Branch Inventory Allowance
19,750
Sales 115,000 176,500
Merchandise Inventory, Dec 31
14,000 10,350

P4,350 of the branch's ending inventory came from purchases from suppliers other than the home
office.

As far as the home office is concerned, the cost of sales of the branch was:
a. P 97,120
b. P121,400
c. P102,850
d. P131,850

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