ACCOUNTING 7

Instructions: Choose the most correct answer for each of the following questions. Write the letter of your choice in
CAPITAL in the FIRST PAGE OF THE GREEN BOOK PROVIDED. 

Questions 1 & 2 are based on the following information. 

On February 14, 2012, Therese Company established a sales agency in Tagbilaran. Upon establishment of the sales
agency, the home office sent samples costing P8,000 and a working fund of P3,000 to be maintained on the imprest
basis. During the six months period, the sales agency reported to the home office sales orders. These were billed at
P70,000 of which of P40,000 was collected) the sales agency paid expenses of P5,800 but was reimbursed by the home
office.

On August 15, 2012, the sales agency samples were valued at P2,000. It was estimated that the gross profit on goods
shipped to fill sales order averaged 40% of cost.

1.  The cost of sales of the sales agency for the six months period is
a. P42,000 c. P48,000
b. P44,000 d. P50,000

2.  The net income of the sales agency for the six months period is
a. P16,200 c. P10,200
b. P14,200 d. P8,200

3.   A branch’s ending inventory of merchandise shipped by the home office and purchased from outside vendors
amounts to P 50,000. The post-closing trial balance in the Unrealized Gross Profit in Branch Inventory account is P
6,000 due to the home office practice of shipping merchandise at 20% above cost. The merchandise purchased from
outside vendors contained in the ending inventory of the branch amounts to:
a.  P 38,000 c. P 30,000
b.  P 18,000 d. P 14,000

Questions 4 and 5 are based on the following information.

The income statement submitted by Loon Branch to the Home Office for the month of December 31, 2013 follows:

Sales P600,000
Cost of Sales:
Inventory, December 31, 2013 P80,000
Shipments from Home office 350,000
Purchased locally by branch 30,000
Total P460,000
Inventory, December 31, 2013 100,000 360,000
Gross Margin P240,000
Operating Expenses 180,000
Net Income for the month P 60,000

The Branch inventories consisted of:

12/1/2012 12/31/2012
Merchandise purchased from home P70,000 P84,000
Local purchases P10,000 P16,000
Total P80,000 P100,000

 After effecting the necessary adjustments, the Home Office ascertained the true net income of the Branch to be
P156,000.

4.   At what percentage of cost did the home office bill the branch for merchandise shipped to it?
a.  100% c. 120%
b.  140% d. 150%

5.  What is the balance of the Allowance for Overvaluation in the branch inventory at December 31, 2013?
a.  P10,000 c. P16,000
b.  P24,000 d. P34,000
 

Questions 6 and 7 are based on the following information. 

The following information is extracted from the books and records of Elaine Company and its branch. The balances are at
December 31, 2012 of the company’s operations. 1 of 5
Home Office Branch
Sales P260,000
Shipments to branch P 78,000
Shipments from home office 104,000
Purchases 39,000
Expenses 78,000
Inventory, January 1, 2012 26,000
 Allowance for overvaluation of branch inventory 31,200

However, no shipments in transit between home office and the branch were made. Both shipments accounts are
properly recorded. The ending inventory includes merchandise acquired from the home office in the amount of
P26,000 and P7,800 acquired from outsiders acquired from the home office in the amount of P26,000 and P7,800
acquired from outsiders for a total of P33,800.

6.  What is the realized profit in branch inventory?

a. P21,000 c. P22,533
b. P31,200 d. P24,700

7.  What is the amount of branch merchandise beginning inventory that was acquired from the home office?
a. P14,000 c. P15,600
b. P19,000 d. P20,800

Questions 8 and 9 are based on the following information. 

 Auto Supply Company is engaged in merchandising both at its home office in Cebu City and its branch in Toledo City.
Selected accounts taken from the trial balances of the home office and the branch as of December 31, 2012 follow:

Debits Cebu City Toledo Branch

Inventory, January 1, 2012 P 23,000 P 11,550
Toledo Branch 58,300
Purchases 190,000 105,000
Freight in from home office 5,500
Sundry Expenses 52,000 28,000

Credits
Home Office P 53,300
Sales P155,000 140,000
Sales to branch 110,000
 Allowance for Overvaluation of branch inventory at
January 1, 2012. 1,000

 Additional information:
  The Toledo City branch gets all of its merchandise from the home office. The home office bills the goods at
cost plus a 10% mark-up. At December 31, 2012, a shipment with a billed value of P5,000 was still in
transit. Freight on this shipment was P250 and is to be treated as part of the inventory.
  Inventories on December 31, 2012, excluding the shipment in transit, follow:
Home office, at cost………………………………….………..   P30,000
Branch, at billed price (excluding freight of P520…… 10,000

8.  What is the net income of the home office from own operations?
a. P30,470 c. P21,000
b. P20,000  d. P30,470

9.  What is the net income of the branch in so far as the home office is concerned?
a. P870 c. P1,500
b. P10,470  d. P12,000

10.  Durable Textile Company has a single branch in Bohol. On March 1, 2012, the home office accounting records
included an Allowance for Overvaluation of Inventories  –  Bohol Branch ledger account with a credit balance of
P32,000. During March, merchandise costing P36,000 was shipped to the Bohol Branch and billed at a price
representing a 40% markup on the billed price. On March 31, 2012, the branch prepared an income statement
indicating a net loss of P11,500 for March and ending inventories at billed prices of P25,000. What is the amount of
adjustment for allowance for Overvaluation of Inventories to reflect the true branch net income?
a. P39,257 debit c. P39,333 debit
b. P46,000 credit d. P46,000 debit
 

Questions 11 and 12 are based on the following information. 

 Yul Trading Corp. operates a branch in Talisay City. At the close of business on December 31, 2012, Talisay Branch
account in the home office books showed a debit balance 2 ofof
P225,770.
5 The interoffice accounts were in agreement at the
beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were ascertained:
1.   An office equipment costing the home office P3,5000 was picked up by the branch as P350.
2.  Insurance premium of P675 charged by the home office was taken up twice by the branch.
3.  Freight charges on merchandise made by the home office for P1,125 were recorded in the branch book as
P1,215.
4.  Home office credit memo representing a discount on merchandise for P800 was not recorded by the branch.
5.  The branch failed to take up a P700 debt memo from the home office representing the share of the branch in the
advertising.
6.  The home office inadvertently recorded a remittance for P3,000 from the Cebu branch as a remittance from its
Talisay branch.

11.  What is the balance of the Home Office account before adjustment as of December 31, 2012?
a. P225,000 c. P228,485
b. 225,770 d. 226,485

12.  What is the adjusted balance of the Home Office account as of December 31, 2012?
a. P225,000 c. P225,770
b. 226,485 d. 228,770

Questions 13 and 14 are based on the following information. 

PTT Corporation retails merchandise through its home office store and through a branch store in a distant city. Separate
ledgers are maintained by the home office and the branch. The branch store purchases merchandise from the home
office (at 120% of home office cost), as well as from outside supplies. Selected information from the December 31, 2012
trial balances of the home office and branch is as follows:
Home Office Branch
Sales P120,000 P50,000
Shipments to branch 16,000 ----
Purchases 70,000 11,000
Inventory, January 1, 2012 40,000 30,000
Shipments from home office ----- 19,200
Expenses 28,000 2,000
Unrealized profit in branch inventory 7,200 -----

 Additional information:
   The entire difference between the shipment accounts is due to the practice of billing the branch at cost plus 20%.
   The December 31, 2012 inventories are P40,000 and P20,000 for the home office and the branch, respectively.
(The branch purchased 16% of its ending inventory from outside supplies.)
   Branch beginning and ending inventories include merchandise acquired from home office is inventoried at 120%
of home office cost.

13.  What is the realized profit in branch inventory?

a. P4,000 c. P2,800
b. 7,200 d. 4,400

14.  What is the net income of the branch as far the home office is concern?
a. P50,200 c. P10,600
b. 15,000 d. 12,200

Questions 15 and 16 are based on the following information. 

Kulas Corporation has one branch operation located 500 miles away from the home office. The branch office sales
merchandise which is shipped to it from the home office. The merchandise is transferred at cost but the branch pays
reasonable freight charges. The branch office makes sales and incurs and pays operating expenses. At the end of the
current accounting period the true adjusted balance for the home office account on the branch’s books and the branch
office account on the home office’s books is P500,000.

The following items may or may not be reconciling items. The current year is 2012.
1)  The home office has shipped merchandise to the branch office which cost P10,000 and which incurs P500
freight charges paid by the home office but charged to the branch. This merchandise is received by the
branch on January 5, 2012.
2)  The branch has transmitted P17,000 in cash back to the home office as a partial payment on such purchased
merchandise. This cash is received by the home office on January 6, 2012.
3)  The branch office returns some defective merchandise to the home office. The cost of the returned
merchandise is P750. The branch office pays P25 of freight costs which will be charged back to the home
office.
 

4)  On December 1, 2012, the home office sends a check for P25,000 to replenish the branch’s charged back to
the home office.
5)  The branch pays an advertising expense of P800 that should have been paid by the home office since it
applied to advertising fees incurred by the home
3 ofoffice
5 of its own benefit.
6)  The home office allocated P12,000 of general and administrative expenses to the branch. The branch had not
entered the allocation as of the end of the year.
7)  The home office pays insurance premiums on the branch store. The amount paid by the home office is
P1,000 but the branch erroneously records it as P776.00

15.  What is the unadjusted balance of the Home Office account?

a.  P481,425 c. P500,000
b.  452,276 d. 518,575

16.  What is the unadjusted balance of the Branch account?

a.  P433,701 c. P518,575
b.  500,000 d. 452,276

Questions 17 through 20 are based on the following information. 

Selected information from the trial balances for the home office and the branch of Lalay Company at December 31, 2012
is provided. The branch acquires merchandise from the home office and outside suppliers.
Home Office Branch
Sales P60,000 P30,000
Shipments to branch 8,000
 Allowance for overvaluation of branch inventory 3,600
Shipments from home office 10,000
Purchase (outsiders) 35,000 5,500
Merchandise inventory 12.01.12 20,000 15,000
Expenses 14,000 6,000
 Additional information:
Merchandise inventory, December 31, 2012:
Home office P20,000
Branch (P7,500 from home office and P2,500 from outsiders) 10,000

17.  The billing rate of home office to branch for merchandise shipments is
a. 120% of cost c. 130% of cost
b. 125% of cost d. 135% of cost

18.  How much of the December 1 inventory of the branch represent purchases from outsiders and goods shipped from
home office
a. Home office, P5,000 and Outsiders, P10,000 c. Home office, P8,000 and Outsiders, P7,000
b. Home office, P15,000 and Outsiders, P00,000 d. Home office, P12,000 and Outsiders, P3,000

19.  The net income reported by the branch is

a. P4,500 c. P3,500
b. P5,600 d. P2,500

20.  The combined net income for Home office and branch operations is
a. P22,500 c. P25,100
b. P24,600 d. P21,500

21.  Clang-clang Corporation’s home office ships merchandise to its Toledo branch at a billing price of 125% of cost.
During 2012 the home office makes the following entry:
Toledo Branch 75,000
Shipments to Toledo branch 75,000
 At year-end 2012, P12,000 of this merchandise remains at Toledo branch inventory.

The entry to adjust the branch income in the books of the home office will include
a.  Debit to Allowance for overvaluation of branch inventory, P12,600
b.  Credit to Toledo branch account, P2,400
c.  Debit to Shipments to Toledo branch, P12,600
d.  Credit to Toledo branch inventory, P2,400

22.  May Corporation operate two stores: the Head Office store and Rose branch. On December 31, 2012, the Rose
Branch account in the home office books has a balance of P340,000. Both stores use a standard 120% markup on
cost. However May’s home office ships merchandise to the branches at cost. Rose’s ending inventory includes
P20,000 of merchandise received from home office
 

Rose branch remitted P15,000 to home office on December 30, 2012. The Home office will not receive the remittance
until January 4, 2013. The Home office allocated P5,000 general expenses to each of the branches but Rose branch
have not yet recorded the expenses at year-end)
4 of 5
Rose branch paid P2,000 for advertising “after Christmas” sales that were to be allocated equally between the two
stores. The Home office has not recorded its share in the expenses.

The unadjusted balance of the Home office account in the books of Rose branch is
a. P324,000 c. P323,000
b. P319,000 d. P318,000

Questions 23 & 24 are based on the following information. 

On December 31, 2012, the home office account on the branch books shows a balance of P9,735. The following
reconciling data are determined in accounting for the difference.
a.  Merchandise billed at P615 shipped by the home office to the branch on December 28 is still in transit.
b.  The branch collected a home office accounts receivable of P2,500, but failed to notify the home office of this
collection.
c.  The home office recorded the branch net income for November at P1,125. This was in error, as the branch
reported net income was P1,215.
d.  The home office was charged P640 when the branch returned merchandise to the home office on December 31.
The merchandise is in transit.

23.  The unadjusted balance of Branch account is

a. P9,735 c. P10,990
b. P10,350 d. P8,400

24.  The adjusting entry to correct branch net income for November is
a.  Debit, Branch profit and loss P90 and Credit, Branch account P90
b.  Debit, Home office account P90 and Credit, Branch profit and loss P90
c.  Debit, Branch account P90 and Credit, Branch profit and loss P90
d.  Debit, Branch profit and loss P90 and Credit, Home office account P90

25.  BONUS

---NOTHING FOLLOWS---
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