Home, Branch and Agency (PA2.

M-1412)

Straight Problems

Problem 1
On June 1, 2013, Ellaine Co. established an agency in Davao, sending samples costing
P4,200,000 which are useful until May 31,2014 and have a salvage value of 20% of cost.
A working fund of P3,412,500 is to be maintained using the imprest basis. During 2013,
the agency submitted to the home office sales order amounting to P35,437,500.Sales per
invoice were P27,562,500 which were duly approved by the home office. The cost of
merchandised sold during the year amounted to P14,784,000 net of 4% sales discount.
The cost of merchandise sold during the year is equal to 70% of the gross selling price.
Vouchers for expenses amounted to P1,837,500

How much net income would be reported by the agency on December 31,2013?

Problem 2
Davao Corporation has two branches, Cebu and Manila to which merchandise is billed at
20% above cost. Partial trial balance accounts of the three entities at December 31,2014
are summarized as follows:

Home Cebu Manila

office Branch Branch
Inventory 800,000 180,000 240,000
Cebu Branch 450,000
Manila Branch 420,000
Shipments from home
office 600,000 360,000
Purchases 1,600,000
Expenses 900,000 250,000 200,000
Home Office 450,000 300,000
Loading-Cebu Branch 130,000
Loading-Manila Branch 120,000
Sales 1,950,000 900,000 750,000
Shipments to Cebu Branch 500,000
Shipments to Manila
Branch 400,000

Additional information:
Physical inventories on hand at December 31,2014 were as follows:
 Physical inventories on hand at December 31,2014 were as follows:
Home office P700,000 at cost
Cebu branch P210,000 at billed prices
Manila Branch P150,000 at billed prices

Required
1. The ending inventory of Davao Corporation must be:
2. The combined net income of home office and branches for 2014 must be:
3. Correct net income of branches for 2014 must be:

Problem 3
The following information came from the books and records of Philip Corporation and its
branch. The balances are as December 31,2014, the fourth year of the corporations existence.

Home
office Branch
Dr. (Cr.) Dr.(Cr.)
Sales P(80,000) P(320,000)
Shipments to branch
Shipments from home office 120,000
Purchases 50,000
Expenses 80,000
Inventory, January 1,2014 36,000
Unrealized profit in
branch inventory (50,000)

There are no shipments in transit between the home office and the branch. Both shipments
accounts are properly recorded. The closing inventory billed prices includes merchandise
acquired from the home office in the amount of P 21,000 and P9,000 acquired from the vendors
for a total of P30,000.

Required: Determined the following:

1. Beginning inventory acquired from the outsiders.
2. Correct cost of beginning inventory
3. Realized profit from inventory shipments.
4. Correct net income of branch
5. Correct ending inventory
 6. Allowance balance at the end.

Problem 4
The income statement submitted by the General Santos City branch to the Home office for the
month of December, 2014 is shown below. After effecting the necessary adjustments the true net
income of branch was ascertained to be P156,000.

Sales P600,000
Cost of sales
Inventory, December 80,000
Shipments from home office 350,000
Local purchases 30,000
Total Available for sale 460,000
Inventory, December 31 100,000 360,00
Gross margin 240,000
Operating expenses (180,000)
Net income 60,000

The branch inventories were: Dec. 01,2014 Dec.31,2014

Merchandised from home office 70,000 84,000
Local purchases 10,000 16,000
Total 80,000 100,000

Required
1. The billing price based on cost imposed by the home office to the branch, and
2. The balance of allowance for overvaluation of the branch December 31,2014 after
adjustment.

Problem 5
The following transactions were entered in the branch current account of Marikina Head Office
for the year 2013:

Investment in Branch- Olanggapo

Beg.balance1/1/13 459,258 33,300 Collection of AR, 9/12/13

Shipments to branch, 4/1/13 212,400
Cash forwarded, 6/1/13 15,000
Operating Expenses charged to
The branch, 12/31/13 2,880

Shipments to the Branch during the year were made at 20% above cost.
The balance of the Allowance for Overvaluation of Branch Inventory account was
P21,300 at the beginning, and the allowance was written down to P14,700 at year-end.
On December 10,2013, the home office purchased a piece of equipment amounting to
P36,000 for its branch in Olanggapo. The said equipment has a useful life of five years
and will be carried in the books of the branch, but the home office recorded the purchase
by debiting Equipment.
The branch recorded the depreciation of the equipment by debiting the home office
current account and crediting Accumulated Depreciation.
Debit memo regarding the allocation of operating expenses to the Olanggapo branch was
received by the branch on January 2, 2014.
The Olanggapo branch reported net income of P197,730.
It also remitted cash to the home office on December 31,2013 amounting to P33,000,
which the home office received and recorded on January 1,2014.
The interoffice accounts were in agreement at the beginning of the year.

Required
1. How much is the adjusted balance of the branch Current account on December 31,2013
before the necessary closing entries were made?
2. What is the amount of adjustment in the allowance for Overvaluation of Branch
inventory?
3. How much is the net income of Olanggapo branch that will br reported in the combined
income statement of the Marikina Company?
4. What is the amount of the Office Current account that will be reported in the books of
Olanggapo branch after closing entries are made?

Problem 6
The preclosing general ledger trial balances at December 31,2013 for the CRC company and its
Cagayan de Oro Branch office are shown below:
 Branch
Home Office Office
Dr(Cr) Dr(Cr)
Cash 360,000 80,000
Accounts receivable 350,000 120,000
Inventory 700,000 150,000
Property,Plant and equiptment (net) 900,000
investment in Branch 200,000
Accounts Payable -360,000 -135,000
Accrued Expenses -140,000 -25,000
Home Office Equity -90,000
Common stock (P10 par) -500,000
Retained Earnings -450,000
Sales -4,400,000 -950,000
Purchases 2,900,000 240,000
Expenses 440,000 160,000
Purchases from home office 450,000
Total 0 0

An audit disclosed the following data:

a) On December 23 the branch office manager purchased P40,000 of furniture and fixtures
but failed to notify the home office. The bookkeeper, knowing that all plant assets are
carried on the home office books, recorded the proper entry on the branch books. It is the
company policy not to take any depreciation on assets acquired in the last half of a year.
b) On December 27 a branch customer erroneously sent a P20,000 account payment to the
home office. The bookkeeper made the correct entry on the home office books but did not
notify the branch.
c) On December 30 the branch remitted cash P50,000 which was received by the home
office in January, 2014
d) On December 31, the branch erroneously recorded the December allocated expenses from
the home office asP5,000 instead P15,000
e) On December 31 the home office shipped merchandise billed at P30,000 to the branch,
which was received in January,2014.
f) The entire beginning inventory of the Branch had been purchased from the home office.
Home office 2013 shipments to the branch were purchased by the home office in 2013.
The physical inventories at December 31,2013, excluding the shipment in transit are:
Home office-P550,000(at cost)
Branch-P 200,000(consisting of 180,000 from home office and P20,000 from outsiders)
g) The home office consistently bills shipments to the branch at 20% above cost. The sales
account is credited for the invoice price.
 Required:

1. The adjusted reciprocal accounts before branch net income,

2. The correct branch net income.
3. The combined net income of the home office and branch.
4. Prepare the financial statements of the company as of December 31, 2013

MULTIPLE CHOICE QUESTIONS

1. A home office ships inventory to its branch at a mark-up of 125% above cost. The
required balance of the allowance for overvaluation account is P1,425,000. During the
year, the home office sent merchandise to the branch costing P 9,000,000. At the start of
the year, the branchs statement of financial Position shows P1,800,000 of inventory on
hand that was acquired from the home office.
By what amount will the Allowance for Unrealized Gross Margin Branch inventory
account be debited at the end of the year?
a.P12,250,000 c.P1,185,000
b.P10,825,000 d.P2,610,000
2. During the year 2013 goods 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 before
adjustment. The beginning inventory of the branch from the home office at cost is
P2,375,000; the beginning inventory of the branch from outsiders is P540,00; purchases
from outsiders is P1,450,000. How much is the total goods available for sale of the
branch from the home office?
a.P5,308,335 c.P8,090,000
b.P6,337,500 d.P6,100,000
3. PrestigeFix Co. operates a branch in Cebu. On December 31,2013, the Cebu branch in the
home office books showed a debit balance of P3,132,660.
The interoffice accounts were in agreement at the beginning of the year. For the purposes
of reconciling the interoffice accounts, the following facts were given: It is the policy of
the home office to bill its branches at 20% above cost.
Shipments from the home office to Cebu branch costing P435,000 were in transit
as of the year-end .Cebu branch recorded the said transfer twice at cost: one on
December 31,2013 and the other on January 1,2014.
The home office allocated to the Cebu branch of the rent expenses it paid for
the year ended 2013. The rent expense was P144,000. The home office sent a
debit memo to Cebu branch for the allocated amount, but the branch recorded the
said debit memo by debiting the home office current account and crediting rent
payable.
 The branch wrote-off uncollectible accounts amounting to P60,720. The
allowance for doubtful accounts is maintained in the books of the home office.
The home office recorded the write-off as a write-off of its own accounts
receivable.
The branch collected accounts receivable from the home offices customers
amounting to P317,520, net of 2% cash discount. The branch treated the said
transaction as if it was a collection from its own customers. The office was not yet
notified of the said collection.

What is the unadjusted balance of the home office-current account in the books of
Cebu branch on December 31,2 013?

a.P2,855,940 c.P2,781,900

b.P2,768,940 d.P2,754,420

Question 4 through 8 based on the following:

Comparative trial balances of the home office and the two branches of Norway Corporation at
December 31,2014 were as follows:

Home Branch Branch

office 1 2
Cash 5,000 15,000 22,000
Accounts receivable 80,000 30,000 40,000
Inventories 150,000 60,000 48,000
Branch no.1 170,000
Branch no.2 165,000
250,00 200,00
Plant asset (net) 730,000 0 0
Purchases 900,000
Shipments from home 300,00 240,00
office 0 0
Expenses 300,000 75,000 50,000
2,500,00 730,00 600,00
Total 0 0 0
Accounts payable 100,000 45,000 30,000
Other liabilities 80,000 15,000 5,000
Loading in branch inventories 108,000
Capital Stock , P10 par 500,000
Retained earnings 262,000
170,00 165,00
Home office 0 0
 1,000,00 500,00 400,00
Sales 0 0 0
Shipments to branches 450,000 0 0
2,500,00 730,00 600,00
Total 0 0 0
Additional information:

Home office (at cost) P120,000

Branch no.1 (at billed price) 72,000
Branch no.2 (at billed price) 96,000

4. What is the mark-up rate merchandise transfers to branch?

a.20 percent of billed price c.16-2/3 percent of billed price
b.25 percent of cost d.25 percent of billed price
5. How much is the beginning inventory of Norway Corporation?
a.P150,000 c.P240,000
b.P258,00 d.P90,000
6. How much is the ending inventory of Branch No.1 at cost?
a.P72,000 c.P60,000
b.P57,600 d.P54,000?
7. How much is the correct net income of Branch No.2 as far as home office is concerned?
a.P190,000 c.P185,000
b.P158,000 d.P94,000
8. How much net income will the office report in its separate income statement?
a.P220,000 c.494,000
b.P595,000 d.P100,000

Question 9 and 10 are based on the following:

The Dagupan City branch of Andy Enterprises, Manila was billed for merchandise shipments
from home office at cost plus 25% in 2013 and cost plus 20% in 2014. Other pertinent data for
2014:

Dagupan Branch Home office

Sales P212,000
Inventory
Beginning 23,000(at cost)
Purchases 8,900(at billed price) 164,000
Inventory transfers 50,400(at billed price) 42,000(at cost)
Inventory , end 11,700(at billed price) 28,500(at cost)
Expenses 20,300 76,400
9. What will be the combined cost of sales of dagupan branch and Andys home office that
must be shown in the combined income statement?
a.P22,430 c.P155,870
b.P155,815 d.P22,040
10. What will be the combined net income of Dagupan branch and Andys home office?
a.P22,430 c.P22,133
b.P22,600 d.P22,040