Pamantasan ng Cabuyao

Katapatan Subd., Banay Banay, City of Cabuyao

Accounting Review IV – Practical Accounting II (ACCTG100D) P2-07

HOME AND BRANCH ACCOUNTING
Problem I
HER Corporation of Manila has operated as sales branch in Davao, for a number of years. All merchandise shipped to the
Davao branch is transferred at normal sales prices, which are 125% of home office cost. The Davao branch also purchases
merchandise from outside suppliers. This merchandise is sold by Davao at 25% markup based on invoice cost. Balance sheet
for HER Corporation’s home office and its Davao branch at December 31, 2017 are as follows:
HER CORPORATION HOME OFFICE AND DAVAO BRANCH
Statement of Financial Position
December 31, 2017
Home Office Branch
Assets
Cash P 250,000 P110,000
Accounts receivable – net 420,000 230,000
Inventory 200,000 160,000
Plant assets – net 700,000 0
Davao Branch 430,000 xxxxxxxxx
Total assets P2,000,000 P500,000
Liabilities and Equity
Accounts payable P 140,000 P 50,000
Other liabilities 100,000 20,000
Loading – branch inventory 16,000 0
Home office 430,000
Capital stock 1,500,000
Retained earnings 244,000
Total liabilities and equity P2,000,000 P500,000
All plant asset record for HER’s home office and Davao branch are maintained on the home office books. Half of the P160,000
branch inventory at December 31, 2017 was received from local suppliers, and the remaining P80,000 was received from the
home office at established transfer prices. A summary of the transactions for HER’s home office and branch for 2018 were as
follows:
1. HER’s sales for 2018 were P2,817,500, of which P2,000,000 were home office sales and P817,500 were sales made by
the Davao branch. All sales were on account.
2. Home office and branch purchases on account for 2018 were P2,050,000 and P200,000, respectively. The home office
shipped P400,000 of merchandise to Davao branch at a transfer price of P500,000.
3. The home office collected P1,950,000 on account during 2018, and Davao branch collected P797,500.
4. The Davao branch transferred P550,000 cash to the home office during 2018.
5. Payments on account were home office, P2,100,000; Davao branch, P210,000.
6. During 2018, the home office paid operating expenses of P200,000, and Davao branch paid operating expense of P20,000.
Of the operating expenses paid by the home office P10,000 was allocated to Davao branch.
7. Total depreciation for the year was P80,000, of which P15,000 was allocated to branch operations.
Year-end inventories are P250,000 for the home office, and P100,000 for Davao branch, with half of the branch inventory
consisting of merchandise acquired from home office.

Required.
1. Prepare the journal entries for the year 2018 on the books of the home office and branch.
2. Prepare the adjusting and closing entries on the home office books and the closing entry on the books of the branch.
3. Prepare the unadjusted trial balance of the home office and the branch for the year 2018.
4. Prepare the individual financial statements of the home office and the branch.
5. Prepare the combined financial statements of HER Corporation for the year 2018.

Problem II

VENTURA Grament Company operates a branch in Cebu City. At the end of the year, the branch account in the books of home
office at Manila shows a balance of P1,500,000. The following information are ascertained:

1. The home office has billed the branch the amount of P375,000 for the merchandise, which was in transit on Dec. 31.
2. A home office accounts receivable for P105,000 was collected by the branch. Said collection was not reported to the
home office by the branch.
3. Supplies of P45,000 was returned by the branch to the home office but the home office has not yet reflected in its
records the receipt of the supplies.
 4. The branch mad profit of P101,000 for the month of December but the home office erroneously recorded it as
P111,800.
5. The branch has not received the cash in the amount of P250,000 sent by the home office on December 31. This was
charged to general expense account.
All transactions are presumed to have been properly recorded.
What is the balance of the Home Office account on the books of the branch as of December 31, before adjustment?
A. P1,219,200 B. P1,230,000 C. P1,174,200 D. P1,069,200

Problem II
Comparative trial balances of the home office and two branches of France Corporation at December 31, 2017 were as follows:

Home Office Branch 1 Branch 2

Cash P50,000 P150,000 P220,000
Accounts receivable (net) 800,000 300,000 400,000
Inventories 1,500,000 600,000 480,000
Branch 1 1,700,000
Branch 2 1,650,000
Plant assets (net) 7,300,000 2,500,000 2,000,000
Purchases 9,000,000
Shipments from hone office 3,000,000 2,400,000
Expenses 750,000 500,000
Total P25,000,000 P7,300,000 P6,000,000

Accounts payable P1,000,000 P450,000 P300,000

Other liabilities 800,000 150,000 50,000
Loading in branch inventory 1,080,000
Capital share, P100 par 5,000,000
Retained earnings 2,620,000
Home office 1,700,000 1,650,000
Sales 10,000,000 5,000,000 4,000,000
Shipments to branches 4,500,000
Total P25,000,000 P7,300,000 P6,000,000
Additional information:
Home office and branch inventories at December 31, 2017 were:
Home office (at cost) P1,200,000
Branch 1 (at billed price) 720,000
Branch 2 (at billed price) 960,000
1. What is the markup rate on merchandise transfers to branch?
A. 20 percent at billed price C. 16-2/3 percent of billed price
B. 20 percent at cost D. 25 percent of billed price

2. How much is the beginning inventory of France Corporation?

A. P1,500,000 B. P2,580,000 C. P2,400,000 D. P900,000

3. How much is the ending inventory of Branch 1 at cost?

A. P720,000 B. P576,000 C. P600,000 D. P540,000

4. How much is the correct net income of Branch 2 as far as home office is concerned?
A. P1,900,000 B. P1,580,000 C. P1,850,000 D. P940,000

5. How much net income will the home office report in its separate net income statement?
A. P2,200,000 B. P5,950,000 C. P4,940,000 D. P1,000,000

Problem III

The Palawan branch of Brandy Enterprises, Manila was billed for merchandise shipments from home office at cost plus 25%
in 2016 and cost plus 20% in 2017. Other pertinent data for 2017 are as follows:

Palawan Branch Home Office

Sales P630,000 P2,120,000
Inventory, beginning 89,000 at billed price 230,000 at cost
Purchases 1,640,000 at cost
Inventory transfers 504,000 at billed price 420,000 at cost
Inventory, end 117,000 at billed price 285,000 at cost
Expenses 203,000 764,000

1. What will be the combined cost of sales of Palawan branch and Brandy’s home office that must be shown in the combined
income statement?
A. P224,300 B. P1,558,150 C. P1,558,700 D. P220,400
2. What will be the combined net income of Palawan branch and Brandy’s home office?
A. P224,300 B. P226,000 C. P221,330 D. P220,400

Problem IV

The home office sells merchandise to its branch at 120% of cost. The branch was established several years ago with policy
that all its merchandise would be acquired from home office. The branch reported inventory at the beginning of P36,000 and
inventory ending of P60,000. The home office showed in its trial balance an unrealized profit on inventory account balance of
P46,000. The cost of merchandise sold by the branch that came from home office is
A. P216,000 B. P180,00 C. P210,000 D. Cannot be determined.

Problem V

The following information were given:

Home Office Control (Branch Books)

Jan. 1, 2018 Balance 600,000
Jan. 3, 2018 Cash remitted to home office 800,000
Jan. 5, 2018 Shipments from home office 1,200,000
Jan. 28, 2018 Expenses from home office 452,000
Jan. 28, 2018 Cash remitted to home office 300,000
Jan. 28, 2018 Merchandise returned to home office 120,000

Branch Control (Home Office Books)

Jan. 1, 2018 Balance 600,000
Jan. 3, 2018 Cash received from branch 800,000
Jan. 4, 2018 Shipments to branch 1,200,000
Jan. 28, 2018 Expense allocation 524,000
Jan. 28, 2018 Shipments to branch 240,000
Jan. 28, 2018 Collection from branch customer 180,000
Jan. 28, 2018 Supplies purchased for branch and
shipped directly to branch 80,000

Except for the error by the branch in its share in allocated expenses, all differences are timing differences.

The adjusted balance of reciprocal accounts is:

A. P1,032,000 B. P1,664,000 C. P1,172,000 D. P1,240,000

Problem VI

The pre-closing general ledger trail balances at December 31, 2017 for the KPAPs Wholesale Company and its Manila Branch
office are shown below:
Home Office Branch Office
Dr. (Cr.) Dr. (Cr.)
Cash P3,600,000 P800,000
Accounts receivable 3,500,000 1,200,000
Inventories 7,000,000 1,500,000
Plant assets (net) 9,000,000
Branch office 2,000,000
Accounts payable (3,600,000) (1,350,000)
Accrued expenses (1,400,000) (250,00
Home office (900,000)
Capital share (5,000,000)
Retained earnings (4,500,000)
Sales (44,000,000) (9,500,000)
Purchases 29,000,000 2,400,000
Purchases from home office 4,500,000
Expenses 4,400,000 1,600,000

Your audit disclosed the following data:

1. On December 23, the branch office manager purchased P400,000 of furniture and fixtures but failed to notify the
home office. The bookkeeper, knowing the all fixed assets are carried on the home office recorded the proper entry
on the branch office records. It is the company’s policy not to take any depreciation on assets acquired in the last half
of a year.
2. On December 27, a branch office customer erroneously paid his account of P200,000 to the home office. The
bookkeeper made the correct entry on the home office books but did not notify the branch office.
3. On December 30, the branch office remitted cash of P500,000, which received by the home office in January of the
following year.
4. On December 31 the branch erroneously recorded the December allocated expenses from the home office as
P50,000 instead of P150,000.
 5. On December 31 the home office shipped merchandise billed at P300,000 to the branch office which was received
January of the following year.
6. The entire opening inventory of the branch office had been purchased from the home office. Home office 2017
shipments to the branch office were purchased by the home office in 2017. The physical inventories at December 31,
2017, excluding shipments in transit, are:
Home office – P5,500,000 (at cost)
Branch office – P2,000,000 (Comprised of P1,800,000 from Home office, and P200,000 from
outside vendors)
7. The home office consistently bills shipments to the branch office at 20% above cost. The sales account is credited
for the invoice price.

Answer the following:

1. How much is the correct ending inventory of KPAPs Wholesale Company?

A. P7,500,000 B. P7,200,000 C. P7,450,000 D. P7,380,000

2. How much is the adjusted balance of reciprocal account before net income of branch?
A. P1,100,000 B. P1,900,000 C. P800,000 D. P1,300,000

3. How much is the correct net income of the branch?

A. P2,200,000 B. P2,100,000 C. P2,340,000 D. P2,240,000

4. How much is the correct cost of sales of KPAPs Wholesale Company?

A. P36,650,000 B. P35,950,000 C. P32,900,000 D. P32,200,000

5. How much is the correct sales of KPAPs Wholesale Company?

A. P53,500,000 B. P49,000,000 C. P48,700,000 D. P49,750,000

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wep/ACCTG100D/homeandbranchaccounting