HOME OFFICE AND BRANCH ACCOUNTING

Quiz 3 for 3BAC

Test I Letter choice in the date column of your worksheet.
1. When home office ships merchandise at a billed price, effect on branch books will be:
a. overstatement on gross profit and net profit.
b. overstatement in cost of sales and home office equity.
c. overstatement in cost of sales and unsold inventory.
d. understatement in profit and home office equity.
2. The following will be debited to the home office equity account except
a. expenses paid by branch for the home office.
b. loss from branch operation.
c. cash transfers made to home office.
d. assets transferred to branch by home office.
3. Plant assets of branch are controlled and maintained in the books of the home office.The
accounting treatment if branch bought the plant asset will include the following:
a. home office credits investment in branch, branch debits plant asset.
b. home office debits branch assets, branch credits cash or accounts payable.
c. home office credits cash or accounts payable, branch debits home office equity.
d. home office debits branch asset, branch prepares a memo entry.
4. Expenses were paid by home office and some were allocated to branch This will include the
following accounting treatment:
a. home office debits investment in branch, branch debits expenses.
b. home office debits investment in branch, branch credits cash.
c. home office credits cash, branch credits home office equity.
d. no entry by home office, branch debits expenses and credits home office.
5. Home office may charge the branch interest for capital invested in branch. The accounting
treatment will be
a. home office debits interest receivable and credits interest income while branch debits interest
payable and credits interest expense.
b. home office debits investment and credits interest income while branch debits interest
expense and credits interest payable.
c. home office debits investment and credits interest income while branch debits interest
expense and credits the reciprocal account.
d. combined financial statements will show the interest accounts.
6. Home office ships merchandise P50,000 with a P5,000 freight FOB Shipping Destination. The
accounting treatment for this will be
a. branch debits shipments from home office P55,000 and credits home office equity for the
same amount.
b. branch debits shipments from home office and credits home office equity for P50,000.
c. branch debits shipments for P50,000 and freight P5,000 and credits home office equity for
P50,000 and cash for P5,000.
d. branch debits shipments for P50,000 and freight P5,000 and credits the reciprocal account
for P55,000.
For 7 and 8 write True or False. If false write the word or words that made it false:
7. When home office ships merchandise at a billed price to the branch, the former should
eliminate the mark-up over cost in the unsold merchandise of the home office when preparing
combined financial statements.
8. The net income reported by the branch should be adjusted by the home office for realized
mark-up of merchandise sold (if merchandise coming from home office is at a billed price)
before adding the branch net income to its own net income.
9. Cash in transit from home office to branch, if unrecorded by branch, will create the following
error:
a. home office equity will be overstated, while cash will be understated.
b. home office equity and cash will both be overstated
c. home office equity will be understated, while cash will be overstated.
d. both home office equity and cash will be understated.
10. Home office maintains and controls all plant assets. To record depreciation, the accounting
treatment will include the following:
a. Branch debits depreciation and credits home office equity.
b. Home office debits depreciation and credits investment in branch.
c. Branch debits depreciation, home office credits the investment account.
d. Branch debits home office equity and home office credits the accumulated depreciation.

TEST II
Home Corporations board of directors decided to create a marketing arm that will take care
of promoting and distributing its products in Davao. The following are the trial balance on
Dec. 31, 2015 after the branch, Davao Marketing, has been in operation for two years:
Cash
Receivables
Inventories
Other Assets, net
Branch, Current
Shipments from Home
Freight In
Purchases
Freight Out
Other Operating Expenses
Totals
Accounts Payable
Share Capital
Retained Earnings
Home Office, Current
Sales
Shipments to Davao
Allowance for Mark-Up, Jan 1
Totals

Homer
P 12,160
20,000
36,000
200,000
118,000
150,000
15,840
78,000
P630,000
P 67,000
200,000
30,900
277,200
52,800
___2,100
P630,000

Davao
P 20,000
38,000
34,600
90,400
57,000
3,420
80,000
13,000
65,000
P 401,420
P 79,160
102,260
220,000
________
P401,420

Additional information follow:

1. Current shipments are billed at a gross profit rate of 20%. Mark-up on current shipments are
credited to sales and adjusted accordingly only at the end of the year by debiting sales and
crediting allowance for mark-up.
2. Merchandise still in transit and unrecorded: from outside suppliers to Home Office, P35,000
(FOB Shipping Pt, freight collect P700) and from Home to Davao billed for P9,000 plus
allocated freight paid by home office.
3. Inventory beginning of Davao includes allocated freight for shipments from home office
which was 1% lower than the current shipments and also includes P22,000 coming from
purchases.
4. Inventory based on physical count:P32,000 for Home, P26,992 for Davao of which P13,000
came from outside suppliers.
5. Cash in transit from Davao to Home, P2,000.
6. P15,600 of the furniture recorded by Davao came from the Home office acquisition dated
Nov 1, 2015. Home instructed Davao to pay for the obligation on Dec. 29. The payment was
recorded by Davao but Home has not received the memo for this.
7. A 1% monthly depreciation on this current acquisition has not been recorded.
8. A branch customer paid directly to Home on Dec 29 amounting to P11,400 but failed to notify
Davao. Homes accountant, however, was able to record this properly.
Requirements: 1. Prepare a reconciliation statement together with all the adjusting entries.
2. Correct the trial balance on the questionnaire itself
3. Prepare a table to adjust the Allowance for Mark Up or reconstruct the Allow
for Mark Up using T Account.
4. Prepare closing entries for Home and Davao.
5. Prepare the working paper using the following format:

WORKING PAPER TO COMBINE HOME OFFICE AND BRANCH

For the year ended December 31, 2015

Home

Davao

Adjust & Elim Entries

Debit
Credit

Combined

INCOME STATEMENT:

Sales
_________ _________
Cost of Sales
Inventory 1/1
Purchases
Shipments to/from
Freight In
Inventory, 12/31
_________ _________
Cost of Sales
_________ _________
Gross Profit
Freight Out
Other Operating Exp
_________ _________
Net Profit fr Operation
Branch Profit/Loss
_________ _________
Net Profit
_________ _________

_________

_________
_________
_________
_________
_________

STATEMENT OF RE:
Jan 1
Add Net Income
Dec 31
BALANCE SHEET:
Assets
Cash
Receivables, net
Inventories
Other Assets, net
DVO Branch, Current
Allow for Mark-up
Total Assets

________
________

________
________

_________
_________

Liabilities & Equities

Accounts Payable
Share Capital
Retained Earnings
Home Office Current
Total Liab & Equities

________
________

________
________

_________
_________

SOLUTION 3BAC
TEST 1
1. C

2. D
3. B
4. A
5. C
6. D
7. False* 8. True
*unsold merchandise of home office (should be of the branch)

9. D

10. A

TEST II
Unadjusted balance
Merchandise in transit including freight
Cash in transit from Branch to HO
HO liability paid by branch
Branch AR collected by HO
Adjusted Balance
Adjusting entries:
Sales
Allow for Mark Up
(57,000 +9,000) * .2

Branch Current
P118,000
(2,000)
(15,600)
P 100,400

Books of Home
13,200
13,200

Purchases
Freight In
Accounts Payable

35,000
700
35,700

Cash In Transit
Branch, Current

2,000

Accounts Payable
Branch, Current

15,600

Home Office Current

P 102,260
9,540
(11,400)
P 100,400
Books of Davao

Shipments in Transit
Freight In
Home Office, Current

9,000
540
9,540

2,000
15,600

Depreciation Expense
Accumulated Depn
Home Office, Current
Accounts Receivable

312
312
11,400
11,400

Table to update Allowance:

Beginning
P 2,100
On Shipments
13,200 (53,800 66,000)
Total mark up
15,300
Ending
4,440
Realized mark-up
P10,860
*In the books of branch: 26,992 + 9,540 -13,000 = 23,532 shipments including 6% freight.
To takeout freight: 13,992/1.06= 22,200 represents shipments
To get unrealized mark-up 22,200 x .2= 4,440
Books of Home
Sales
Inventory, End
Shipments to Branch
Inventory, Beg
Purchases

Books of Davao
Sales

264,00
0
67,700

Inventory End

52,800
36,000
185,00
0
700
15,840
78,000
68,960

Freight In
Freight Out
Other Operating Expn
Income Summary
Branch Income Summary
Branch, Current

6,340
6,340

Allow for Mark Up

Branch Income S

10,860

Branch Income Summary

Income Summary

4,520

10,860
4,52
0

Income Summary

73,48
0

Retained Earnings

73,48
0

Income Summary
Inventory Beg
Shipments from Home

220,000
36,53
2
6,340
34,600
66,000

Freight In
Purchases
Freight Out
Other operating Expn
Home Office Equity
Income Summary

3,960
80,000
13,000
65,312
6,340
6,340

WORKING PAPER TO COMBINE HOME OFFICE AND BRANCH

For the year ended December 31, 2015

Home

Davao

Adjust & Elim Entries

Debit
Credit

Combined

INCOME STATEMENT:

Sales
264,000
Cost of Sales
Inventory 1/1
36,000
Purchases
185,000
Shipments to/from
(52,800)
Freight In
700
Inventory, 12/31
(67,700)
Cost of Sales
101,200
Gross Profit
162,800
Freight Out
(15,840)
Other Operating Exp
(78,000)
Net Profit fr Operation
68,960
Branch Profit/Loss
_4,520
Net Profit (Loss)
__P73,480

220,000
34,600
80,000
66,000
3,960
(36,532)
148,028
71,972
13,000
(65,312)
(6,340)
_______
(6,340)

484,000
a) 2,100
b) 52,800

68,500
265,000

b) 66,000
4,660
(_99,792)
_238,368
245,632
(28,840)
(143,312)

c) 4,440

_________
P73,480

STATEMENTOF RE:
Jan 1
Add Net Income
Dec 31

P 30,900
73,480
P104,380

BALANCE SHEET:
Assets
Cash
Receivables, net
Inventories
Other Assets, net
DVO Branch, Current
Allow for Mark-up

14,160
20,000
67,700
200,000
94,060
(4.440)

20,000
26,600
36,532
90,088

Total Assets

391,480

173,220

_470,640

87,100
200,000
104,380

79,160

P 166,260
200,000
104,380

Liabilities & Equities

Accounts Payable
Share Capital
Retained Earnings
Home Office Current
Total Liab & Equities

391,480

P 30,900
73,480
P104,380

P 34,160
46,600
99,792
290,088

c) 4,440
d)94,060
a) 2,100
b)13,200

94,060
173,220

d)94,060
_P470,640

HOME OFFICE AND BRANCH ACCOUNTING

Quiz 3 for 3AAC
Test I Letter choice in the date column of your worksheet.
1. When home office ships merchandise at a billed price, effect on branch books will be:
a. overstatement on gross profit and net profit.

b. overstatement in cost of sales and home office equity.

c. overstatement in cost of sales and unsold inventory.
d. understatement in profit and home office equity.
2. The following will be debited to the home office equity account except
a. expenses paid by branch for the home office.
b. loss from branch operation.
c. cash transfers made to home office.
d. assets transferred to branch by home office.
3. Plant assets of branch are controlled and maintained in the books of the home office.The
accounting treatment if branch bought the plant asset will include the following:
a. home office credits investment in branch, branch debits plant asset.
b. home office debits branch assets, branch credits cash or accounts payable.
c. home office credits cash or accounts payable, branch debits home office equity.
d. home office debits branch asset, branch prepares a memo entry.
4. Expenses were paid by home office and some were allocated to branch This will include the
following accounting treatment:
a. home office debits investment in branch, branch debits expenses.
b. home office debits investment in branch, branch credits cash.
c. home office credits cash, branch credits home office equity.
d. no entry by home office, branch debits expenses and credits home office.
5. Home office may charge the branch interest for capital invested in branch. The accounting
treatment will be
a. home office debits interest receivable and credits interest income while branch debits interest
payable and credits interest expense.
b. home office debits investment and credits interest income while branch debits interest
expense and credits interest payable.
c. home office debits investment and credits interest income while branch debits interest
expense and credits the reciprocal account.
d. combined financial statements will show the interest accounts.
6. Home office ships merchandise P50,000 with a P5,000 freight FOB Shipping Destination. The
accounting treatment for this will be
a. branch debits shipments from home office P55,000 and credits home office equity for the
same amount.
b. branch debits shipments from home office and credits home office equity for P50,000.
c. branch debits shipments for P50,000 and freight P5,000 and credits home office equity for
P50,000 and cash for P5,000.
d. branch debits shipments for P50,000 and freight P5,000 and credits the reciprocal account
for P55,000.
For 7 and 8 write True or False. If false write the word or words that made it false:
7. When home office ships merchandise at a billed price to the branch, the former should
eliminate the mark-up over cost in the unsold merchandise of the home office when preparing
combined financial statements.
8. The net income reported by the branch should be adjusted by the home office for realized
mark-up of merchandise sold (if merchandise coming from home office is at a billed price)
before adding the branch net income to its own net income.
9. Cash in transit from home office to branch, if unrecorded by branch, will create the following
error:
a. home office equity will be overstated, while cash will be understated.
b. home office equity and cash will both be overstated
c. home office equity will be understated, while cash will be overstated.
d. both home office equity and cash will be understated.
10. Home office maintains and controls all plant assets. To record depreciation, the accounting
treatment will include the following:
a. Branch debits depreciation and credits home office equity.
b. Home office debits depreciation and credits investment in branch.
c. Branch debits depreciation, home office credits the investment account.
d. Branch debits home office equity and home office credits the accumulated depreciation.

TEST II
Home Corporations board of directors decided to create a marketing arm that will take care
of promoting and distributing its products in Davao. The following are the trial balance on
Dec. 31, 2015 after the branch, Davao Marketing, has been in operation for two years:
Homer

Davao

Cash
Receivables
Inventories
Other Assets, net
Branch, Current
Shipments from Home
Freight In
Purchases
Freight Out
Other Operating Expenses
Totals
Accounts Payable
Share Capital
Retained Earnings
Home Office, Current
Sales
Shipments to Davao
Allowance for Mark-Up, Jan 1
Totals

P 12,160
20,000
36,000
200,000
118,000
150,000
15,840
78,000
P630,000
P 67,000
200,000
30,900
277,200
52,800
___2,100
P630,000

P 20,000
38,000
34,600
90,400
57,000
3,420
80,000
13,000
65,000
P 401,420
P 79,160
102,260
220,000
________
P401,420

Additional information follow:

1. Current shipments are billed at a gross profit rate of 20%. Mark-up on current shipments are
credited to sales and adjusted accordingly only at the end of the year by debiting sales and
crediting allowance for mark-up.
2. Merchandise still in transit and unrecorded: from outside suppliers to Home Office, P35,000
(FOB Shipping Pt, freight collect P700) and from Home to Davao billed for P9,000 plus
allocated freight paid by home office.
3. Inventory beginning of Davao includes allocated freight for shipments from home office
which was 1% lower than the current shipments and also includes P22,000 coming from
purchases.
4. Inventory based on physical count:P32,000 for Home, P26,992 for Davao of which P13,000
came from outside suppliers.
5. Cash in transit from Davao to Home, P2,000.
6. P15,000 of the furniture recorded by Davao came from the Home office acquisition dated
Nov 1, 2015. Home instructed Davao to pay for the obligation on Dec. 29. The payment was
recorded by Davao but Home has not received the memo for this.
7. A 1% monthly depreciation on this current acquisition has not been recorded.
8. A branch customer paid directly to Home on Dec 29 amounting to P10,800 but failed to notify
Davao. Homes accountant, however, was able to record this properly.
Requirements: 1. Prepare a reconciliation statement together with all the adjusting entries.
2. Correct the trial balance on the questionnaire itself
3. Prepare a table to adjust the Allowance for Mark Up or reconstruct the Allow
for Mark Up using T Account.
4. Prepare closing entries for Home and Davao.
5. Prepare the working paper using the following format:

SOLUTION 3AAC
TEST 1
1. C

2. D
3. B
4. A
5. C
6. D
7. False* 8. True 9. D
*false because unsold merchandise of the home office (should be of the branch)

TEST II

10. A

Unadjusted balance
Merchandise in transit including freight
Cash in transit from Branch to HO
HO liability paid by branch
Branch AR collected by HO
Adjusted Balance

Branch Current
P118,000
(2,000)
(15,000)
P 101,000

Adjusting entries:
Sales
Allow for Mark Up
(57,000 +9,000) * .2

Books of Home
13,200
13,200

Purchases
Freight In
Accounts Payable

35,000
700
35,700

Cash In Transit
Branch, Current

2,000

Accounts Payable
Branch, Current

15,000

Home Office Current

P 102,260
9,540
(10,800)
P 101,000
Books of Davao

Shipments in Transit
Freight In
Home Office, Current

9,000
540
9,540

2,000
15,000

Depreciation Expense
Accumulated Depn
Home Office, Current
Accounts Receivable

300
300
10,800
10,800

Table to update Allowance:

Beginning
P 2,100
On Shipments
13,200 (53,800 66,000)
Total mark up
15,300
Ending
4,440
Realized mark-up
P10,860
*In the books of branch: 26,992 + 9,540 -13,000 = 23,532 shipments including 6% freight.
To takeout freight: 13,992/1.06= 22,200 represents shipments
To get unrealized mark-up 22,200 x .2= 4,440
Books of Home
Sales
Inventory, End
Shipments to Branch
Inventory, Beg
Purchases

Books of Davao
Sales

264,00
0
67,700

Inventory End

52,800
36,000
185,00
0
700
15,840
78,000
68,960

Freight In
Freight Out
Other Operating Expn
Income Summary
Branch Income Summary
Branch, Current

6,328
6,328

Allow for Mark Up

Branch Income S

10,860

Branch Income Summary

Income Summary

4,532

10,860
4,53
2

Income Summary

73,49
2

Retained Earnings

73,49
2

Income Summary
Inventory Beg
Shipments from Home

220,000
36,53
2
6,328
34,600
66,000

Freight In
Purchases
Freight Out
Other operating Expn
Home Office Equity
Income Summary

3,960
80,000
13,000
65,300
6,328
6,328

WORKING PAPER TO COMBINE HOME OFFICE AND BRANCH

For the year ended December 31, 2015

Home

Davao

264,000

220,000

Adjust & Elim Entries

Debit
Credit

Combined

INCOME STATEMENT:

Sales
Cost of Sales
Inventory 1/1
Purchases
Shipments to/from
Freight In
Inventory, 12/31
Cost of Sales
Gross Profit
Freight Out
Other Operating Exp
Net Profit fr Operation
Branch Profit/Loss
Net Profit (Loss)
STATEMENTOF RE:
Jan 1
Add Net Income
Dec 31

36,000
185,000
(52,800)
700
(67,700)
101,200
162,800
15,840
78,00
0
68,960
__4,532
_P73,492

___484,000

34,600
80,000
66,000 b) 52,800
3,960
(36,532) c) 4,440
148,028
71,972
13,000
65,30
0
(6,328)
_______
_(6,328)

a) 2,100

68,500
265,000

b) 66,000
4,660
(_99,792)
__238,368
245,632
(28,840)
_(143,300)
73,492
_________
_P73,492_

P 30,900
73,492
P104,392

P 30,900
73,492
P104,392

BALANCE SHEET:
Assets
Cash
Receivables, net
Inventories
Other Assets, net
DVO Branch, Current
Allow for Mark-up

14,160
20,000
67,700
200,000
94,672
(4.440)

20,000
27,200
36,532
90,100

Total Assets

392,092

173,832

_471,252

87,700
200,000
104,392

79,160

P 166,860
200,000
104,392

Liabilities & Equities

Accounts Payable
Share Capital
Retained Earnings
Home Office Current
Total Liab & Equities

392,092

c) 4,440

P 34,160
47,200
99,792
290,100

d)94,672
a) 2,100
b)13,200

94,672
173,832

d)94,672
_P471,252