COLLEGE OF BUSINESS AND ACCOUNTANCY

MATERIALS AND HANDOUTS ON ADVANCED ACCOUNTING AND REPORTING ONE

WESLEYAN UNIVERSITY – PHILIPPINES

ADVANCED ACCOUNTING AND REPORTING 1 ANGELUS EDWARD R. JOSE, CPA, MBA
HOME OFFICE AND BRANCH ACCOUNTING

PROBLEM 1. On February 29, 2012, the Keema established an agency in La Union,

sending its merchandise samples costing P186,000 and a working fund of P200,000 to
be maintained on the imprest basis. The agency transmitted to the home office sales
orders that costs at P1,650,000. However, the home office was able to fill up only 80% of
the orders. Total cash of P810,000 was collected from the customers. A home office
disbursement chargeable to the sales agency includes the acquisition of furniture and
fixtures for La Union, P310,000 to be depreciated at 18% per annum. The agency paid
expenses of P84,000 and received replenishment thereof from the home office. The
agency are good until November 30,2012. It was estimated that the gross profit on goods
shipped to bill agency sales orders average 25%.

How much is the net Income of the sales agency for the 2012?

PROBLEM 2. On December 31, 2012, the Branch Current account on the home office’s
books has a balance of P405,000. In analyzing the activity in each of these accounts for
December, you find the following differences:

 The home office accountant had recorded a branch remittance initiated on

December 28, 2012 for P64,000 twice.
 Inventories costing P89,000 was received by the branch from the home on January
2, 2013. However, the home office accountant informed the branch accountant
about this shipment on December 29, 2012 and the letter had recorded the
inventory shipment at P98,000. The home office ships goods to its branches at
cost.
 The home office incurred P12,000 of advertising expenses and allocated 1/8 of the
amount to the branch on December 21, 2012. The branch inadvertently recorded
half of the advertising expense incurred by the home office during the year.
 A home office customer remitted P41,000 to branch. The branch recorded this
cash collection on December 23, 2012. Meanwhile, back at the home office, no
entry has been made yet.
 Inventory costing P14,500 was returned by the home office on December 19, 2012.
The billing was at cost, but the home office recorded the transaction at P1,450.

How much is the unadjusted balance of the Home Office Current account on the
branch’s books?

PROBLEM 3. Hydro company opened a sales agency in Camiguin. Pertinent information

regarding the sales agency transaction are found below:

Sales P653,000
Collections, net of 4% discount 483,840
Expenses paid from the agency working fund 63,500
Expenses allocated by the home office 29,850
Agency samples:
Cost 34,000
Inventory 3,600

PROPERTY OF MR. ANGELUS EDWARD DELA ROSA JOSE

CERTIFIED PUBLIC ACCOUNTANT (CPA) AND MASTER OF BUSINESS ADMINISTRATION (MBA)
 COLLEGE OF BUSINESS AND ACCOUNTANCY
MATERIALS AND HANDOUTS ON ADVANCED ACCOUNTING AND REPORTING ONE

Hydro’s gross profit rate is 30% on net sales. The receivable balance is estimated to 97%
collectible.

What is the net income of Camiguin sales agency?

PROBLEM 4. Metro company has established a branch in Tuguegarao by sending goods

costing P184,900 and P80,000 cash on July 1, 2012. Home office initiated transactions
for the remainder of the year are found below. At the end of the year, the company’s
controller has found out that the accounting staff assigned in recording the transactions
between the home office and the branches had failed to record all the transactions
initiated by the branch. Because of this, there is a significant discrepancy between the
balance of the reciprocal accounts.

 The home office acquired computer equipment amounting to P420,000 for the
branch on August 1, 2012. As per agreement, the branch will keep all the property,
plant and equipment records.
 Goods costing P320,000 were shipped from the home office to branch on
November 9, 2012.
 Addition cash amounting to P53,000 was transferred to the branch on December
2, 2012.
 A branch customer has incorrect paid P25,000 cash to the home office on
December 16, 2012.
 The home office incurred P65,000 of advertising cost and P96,000 of salaries.
Tuguegarao branch is to shoulder 30% and 20% of these expenses, respectively.

For the purpose of reconciling the reciprocal accounts, the controller has instructed the
branch accountant to send a copy of the Home Office Current general ledger to the home
office.

Home Office Current

8/3 Equipment acquisition P420,000 7/1 Goods from HO P184,900
11/5 Cash remittance 78,000 7/1 Cash 80,000
12/20 Return of goods to HO 49,000 8/15 Collection of HO’s AR 113,600
11/10 Goods from HO 230,000
12/4 Cash 50,300

Balance P111,800

Compute for the following:

Unadjusted balance of Investment in Tuguegarao accounts?

Net adjustment in the Home Office Current Account. Indicated whether net debit
or net credit.

PROBLEM 5. On December 31, 2012, the Investment in Seoul account on the books of
the home office has a balance of P568,750. In analyzing the activity in each of these
accounts for December, you find the following differences:

PROPERTY OF MR. ANGELUS EDWARD DELA ROSA JOSE

CERTIFIED PUBLIC ACCOUNTANT (CPA) AND MASTER OF BUSINESS ADMINISTRATION (MBA)
 COLLEGE OF BUSINESS AND ACCOUNTANCY
MATERIALS AND HANDOUTS ON ADVANCED ACCOUNTING AND REPORTING ONE

 Branch remittance of P34,750 was recorded twice by the branch on December 20

and 26 and once by the home office on December 21.
 The home office incurred advertising amounting to P67,000 and allocated 3/24 of
this cost to Seoul Branch on December 29 which was immediately recorded by the
branch on the same date for P13,400.
 Inventory costing P95,300 was sent to the branch by the home office on December
16. The billing was at cost, but the branch recorded the transaction at P103,900.
 The home office erroneously recorded the branch net income at P243,075. The
branch reported net income of 261,975.

Unadjusted balance of the Home Office Current Account of Seoul Branch.

PROBLEM 6. New World Company operates a branch in Iloilo. Operating data from the
home office and the branch for 2012 are presented below:

Home Office Branch Books

Books
Sales P3,065,500 P670,500
Purchases 2,400,000 106,900
Shipments to branch 502,500
Shipments from home office 670,000
Freight in 64,700 18,200
Expenses 976,000 125,700
Inventories 1/1
Home office 234,600
Branch (60% from the HO billed at 30 % above cost) 78,000
Inventories, 12/31
Home office 357,800
Branch (40% from the HO) 325,000
The ending inventory of the home office is excluding freight of P5,000 while the branch
ending inventory is excluding freight of P2,000.

Compute for the following:

a. Combined of goods available for sale.

b. Cost of goods sold of the branch.

c. Realized interbranch profit for the period.

d. Combined net income.

PROBLEM 7. Fire Company has a branch in Baguio and Davao. The reciprocal accounts
between the home office and the branches were in agreement at the beginning of 2012.
However at December 31, 2012, the following reciprocal balances are found in the home
office books:

Investment in Baguio P186,500

Investment in Baguio 84,000

Data for reconciliation of the reciprocal accounts are as follows:

PROPERTY OF MR. ANGELUS EDWARD DELA ROSA JOSE

CERTIFIED PUBLIC ACCOUNTANT (CPA) AND MASTER OF BUSINESS ADMINISTRATION (MBA)
 COLLEGE OF BUSINESS AND ACCOUNTANCY
MATERIALS AND HANDOUTS ON ADVANCED ACCOUNTING AND REPORTING ONE

 On December 29, 2012, the home office has instructed Baguio to transfer P74,000
cash to Davao. Baguio recorded this transaction immediately. Davao has recorded
this transfer at P47,000. The home office however has not yet recorded this
interbranch transaction as of the end of the year.
 Fire has transferred goods costing P28,900 to Baguio branch and paid P2,500 of
shipping cost on December 16, 2012. Baguio shipped all of these goods to Davao
upon instruction of the home office on December 30, 2012. Shipping cost is P3,600
freight collect. Had the goods were shipped directly to the Davao, P5,000 of freight
cost should have been incurred. The interbranch shipment was not recorded by
the branches and the home office as well.
 Baguio has collected of P5,750 from Davao’s customer. This transaction is not yet
recorded by Davao and the home office.
 The home office has already allocated P11,000 and P9,000 of administrative
expenses to Baguio and Davao respectively. The branches are not yet notified.
 Baguio remitted P14,300 cash to the home on December 12, 2012. The home
office has failed to record the said remittance.
 Davao returned goods costing P6,850 to the home office. The goods were shipped
on December 19 and received on December 24 but no entries have been made in
the home office books.

Compute for the following:

Excess freight on interbranch transfer in inventories

Adjusted balance of investment in Baguio account

Adjusted balance of Investment in Davao account

Unadjusted balance of Home Office Current account in Baguio’s books

Unadjusted balance of Home Office Current account in Davao’s Books:

PROBLEM 8. The following transactions were entered in the branch current account of
Makati Head Office for the year 2012;

Investment in Branch – Ortigas

Beg. Balance, 1/1/12 459,258 33,300 Collection of AR, 9/1
Shipments to branch, 4/1/12 212,400
Cash forwarded, 6/1/12 15,000
Operating expenses charged to the
branch,12/31/12 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, 2012, the home office purchased a piece of equipment
amounting to P36,000 for its branch in Ortigas. The said equipment has a useful
life of five years and will be carried in the books of 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.
PROPERTY OF MR. ANGELUS EDWARD DELA ROSA JOSE
CERTIFIED PUBLIC ACCOUNTANT (CPA) AND MASTER OF BUSINESS ADMINISTRATION (MBA)
 COLLEGE OF BUSINESS AND ACCOUNTANCY
MATERIALS AND HANDOUTS ON ADVANCED ACCOUNTING AND REPORTING ONE

 Debit memo regarding the allocation expenses to the Ortigas branch was received
by the branch on January 2, 2013.
 The Ortigas branch reported net income of P197,730.
 It also remitted cash to the office on December 31, 2012 amounting to P33,000
which the home office received and recorded on January 1, 2013.
 The interoffice account were in agreement at the beginning of the year.

How much the adjustment balance of the Branch Current account on December
31,2012 before necessary closing entries were made?

What is the amount of adjustment in allowance for Overvaluation of Branch

Inventory account?

How much the net income of Ortigas branch that will be reported in the combined
income stateme The Makati Company?

What is the amount of the Home Office Current account that will be reported in the
books of Ortigas branch after closing entries are made?

-end of handouts-

PROPERTY OF MR. ANGELUS EDWARD DELA ROSA JOSE

CERTIFIED PUBLIC ACCOUNTANT (CPA) AND MASTER OF BUSINESS ADMINISTRATION (MBA)