Name: Ortega, Jacqueline L.

Course & Year: BS Accountancy 3

MODULE 7
HOME OFFICE, BRANCH AND AGENCY ACCOUNTING

PROBLEM 1: TRUE OR FALSE

FALSE 1. An agency maintains its own separate books of accounts similar to a branch.
2. A branch maintains its own separate books of accounts prepares its own financial
TRUE statements.
3. For external reporting, the financial statements of the branch are combined with the
TRUE financial statements of the home office and the other branches.
4. When combining the financial statements of a branch with the home office, similar
items of assets, liabilities, income and expenses are added together and the reciprocal
TRUE accounts are eliminated.
5. A branch reported cash of P2 while the home office reported cash of P10. The total cash
FALSE in the combined financial statements, therefore, is P13.
6. The "Investment in branch" is an asset account in the branch's individual financial
FALSE statements.
7. The "Home office is an equity account in the combined financial statements of the
FALSE home office.
8. A home office transfers P100 to its branch to be used by the latter as working capital.
This transaction is recorded in the home office's books as a credit to the "Home office
FALSE account which is an equity account.
9. The branch remits P20 to the home office. This transaction is most likely recorded in
FALSE the branch's books as a credit to an "Investment" account.
10. The home office acquires equipment for P30 to be transferred to its branch but will be
carried in the home office books. This transaction will not be recorded in the branch's
TRUE books.

STRAIGHT PROBLEM
1. REQUIRED:
a. Provide the entries in each of the books of the home office and the branch. Provide also the
closing entries.

HOME OFFICE BOOK BRANCH BOOK

January 1, 2020 January 1, 2020
Investment in branch P500,000 Cash P500,000
Cash Home office P500,000
P500,000
(a) (a)
Investment in branch P100,000 Inventory P200,000
Accounts payable P100,000 Accounts payable P100,000
Home office 100,000
(b) (b)
No entry Equipment P120,000
Cash P120,000
(c) (c)
Investment in branch P60,000 Equipment P60,000
Acc. Depreciation 300,000 Home office P60,000
Equipment P360,000
(d) (d)
No entry Cash P600,000
 Sales P600,000
COGS (200K-20K) 180,000
Inventory 180,000
(e) (e)
Cash P80,000 Home office P80,000
Investment in branch P80,000 Cash P80,000
(f) (f)
Investment in branch P25,000 Expenses (150K+25K) P175,000
Expenses P25,000 Dep’n expense 10,000
Cash
P150,000
Acc. Depreciation 10,000
Home office 25,000
(g) Closing entries (g) Closing entries
Sales P600,000
COGS
P180,000
Expenses 175,000
Dep’n expense 10,000
Investment in branch P235,000 Income summary 235,000
Income summary P235,000 Income summary 235,000
Home office 235,000

b. Reconcile the reciprocal accounts at the end of the period.

Investment in branch Home office

Jan.1 P500,000 P500,000 Jan.1
(a) 100,000 100,000 (a)
(c) 60,000 P80,000 (e) P80,000 60,000 (c)
(f) 25,000 25,000 (f)
(g) 235,000 235,000 (g)
920,000 80,000 80,000 920,000
P840,000 P840,000

c. Prepare the statement of financial position and statement of profit or loss of the branch.

Cash P750,000
Inventory 20,000
Equipment 180,000
Accumulated depreciation (10,000)
TOTAL ASSETS P940,000

Accounts payable P100,000

Home office 840,000
TOTAL LIABILITIES AND
EQUITY P940,000

Cash P600,000
Cost of goods sold (180,000)
Gross profit 420,000
 Expenses (175,000)
Depreciation expenses (10,000)
PROFIT P235,000

2. REQUIRED: Prepare the combined statement of financial position of the home office and the
branch.

Home office Branch Combined

Cash P500,000 P200,000 P700,000
Accounts receivable 1,000,000 400,000 1,400,000
Inventory 680,000 300,000 980,000
Investment in branch 400,000 - 400,000
Land 2,000,000 - 2,000,000
Building - net 4,000,000 - 4,000,000
TOTAL ASSETS P8,580,000 P900,000 P9,080,000

Accounts payable P4,000,000 P500,000 P4,500,000

Ordinary share capital 2,000,000 - 2,000,000
Share premium 200,000 - 200,000
Retained earnings 2,380,000 - 2,380,000
Home office - 400,000 -
TOTAL LIABILITIES AND
EQUITY P8,580,000 P900,000 P9,080,000

3. REQUIRED:
a. Provide the journal entries in each of the books of the home office and the branch.

HOME OFFICE BOOK BRANCH BOOK

(a) (a)
Investment in branch Shipments from HO P450,000
(300K x 150%) + 20K P470,000 Freight-in 20,000
Shipments to branch P300,000 Home office P470,000
Allowance for mark-up 150,000
Cash 20,000
(b) (b)
No entry Purchases P100,000
Freight-in 2,000
Cash
P102,000
(c) (c)
No entry Cash P500,000
Sales
P500,000
(d) (d)
No entry Inventory – end
(470K x ½) P235,000
Income summary P235,000

b. How much is the individual gross profit of the branch?

 Sales P500,000
Cost of goods sold:
Shipments from HO P450,000
Freight-in 22,000
Purchases 100,000
Ending inventory (235,000) (337,000)
INDIVIDUAL GROSS PROFIT P163,000

c. How much is the "true" gross profit of the branch?

Sales P500,000
Cost of goods sold:
Shipments from HO P300,000
Freight-in 22,000
Purchases 100,000
Ending inventory (160,000) (262,000)
INDIVIDUAL GROSS PROFIT P238,000

d. Compute for the realized markup.

Allowance for mark-up P150,000

Multiply by: 50%
REALIZED MARK-UP P75,000

4. REQUIRED:
a. Provide the entries in each of the books of the home off the branch. Provide also the closing
entries.

HOME OFFICE BOOK BRANCH BOOK

January 1, 2020 January 1, 2020
Investment in branch P600,000 Cash P600,000
Cash Home office P600,000
P600,000
(a) (a)
Investment in branch P25,000 Prepaid supplies P100,000
Accounts payable P25,000 Accounts payable P75,000
Home office 25,000
(b) (b)
No entry Equipment P80,000
Cash P80,000
(c) (c)
Investment in branch P120,000 Equipment P120,000
Acc. Depreciation 80,000 Home office P120,000
Equipment P200,000
(d) (d)
Accounts payable P25,000 No entry
Cash P25,000
(e) (e)
No entry Accounts payable P50,000
Cash P50,000
(f) (f)
 No entry Cash P800,000
Service fees P800,000
(g) (g)
Cash P180,000 Home office P180,000
Investment in branch P180,000 Cash P180,000
(h) (h)
Investment in branch P60,000 Expenses P250,000
Expenses P60,000 Dep’n expense 40,000
Advertising expense 60,000
Supplies expense 95,000
Cash P250,000
Acc. Depreciation 40,000
Home office 60,000
Prepaid supplies 95,000
(i) Closing entries (i) Closing entries
Service fees P800,000
Expenses P250,000
Dep’n expense 40,000
Advertising expense 60,000
Supplies expense 95,000
Income summary 355,000
Investment in branch P355,000 Income summary 355,000
Income summary P355,000 Home office 355,000

b. Reconcile the reciprocal accounts at the end of the period.

Investment in branch Home office

Jan.1 P600,000 P600,000 Jan.1
(a) 25,000 25,000 (a)
(c) 120,000 P180,000 (g) P180,000 120,000 (c)
(h) 60,000 60,000 (h)
(i) 355,000 355,000 (i)
1,160,000 180,000 180,000 1,160,000
P980,000 P980,000

c. Prepare the statement of financial position and statement profit or loss of the branch

Cash P840,000
Prepaid supplies 5,000
Equipment 200,000
Accumulated depreciation (40,000)
TOTAL ASSETS P1,005,000

Accounts payable P25,000

Home office 980,000
TOTAL LIABILITIES AND EQUITY P1,005,000

Service fees P800,000

Expenses (250,000)
Depreciation expense (40,000)
 Advertising expense (60,000)
Supplies expense (95,000)
PROFIT P355,000

5. REQUIRED:
a. In the combined income statement of Home Office and Branch for the year ended December
31, 2020, what amount of the above transactions should be included in sales? (AICPA)

Answer: P250, 000 (only the sales by the branch to outside parties. Intercompany billings are
eliminated in the combined financial statements).

CLASSROOM ACTIVITIES

1. REQUIRED:
a. Provide the entries in each of the books of the home office and the branch. Provide also
the adjusting and closing entries.

HOME OFFICE BOOK BRANCH BOOK

January 1, 2020 January 1, 2020
Investment in branch P10M Cash P10M
Cash P10M Home office P10M
(a) (a)
Investment in branch P30M Land P10M
Cash P30M Building 20M
Home office P30M
(b) (b)
Investment in branch P20.5M Shipments from HO P20M
Shipments to branch P20M Freight-in 500K
Cash Home office P20.5M
500K
(c) (c)
Investment in branch P5M Shipments from HO P5M
Shipments to branch P5M Freight-in 100K
Home office P5M
Cash 100K
(d) (d)
Equipment P900K Home office P900K
Investment in branch P900K Cash P900K
(e) (e)
Investment in branch P600K Furniture P600K
Cash Home office P600K
P600K
(f) (f)
No entry Purchases P10M
Accounts payable P10M
(g) (g)
No entry Cash P50M
Accounts receivable 50M
Sales P100M
(h) (h)
Cash P10M Cash P30M
Investment in branch P10M Home office 10M
Accounts receivable P40M
(i) (i)
Cash P35M Home office P35M
Investment in branch P35M Cash P35M
(j) (j)
No entry Accounts payable P8M
Cash P8M
(k) (k)
Expenses P1M Expenses P14M
Investment in branch P1M Home office 1M
Cash P15M
(l) (l)
Investment in branch P3M Expenses P3M
Expenses P3M Home office P3M
(m) (m) Adjusting entry
No entry Inventory – end P7.5M
Income summary P7.5M
(n) Adjusting entry (n) Adjusting entry
Investment in branch P135K Dep’n - building P1M
Acc. Dep’n - eq. P135K Dep’n - equipment 135K
Dep’n - furniture 75K
Acc. Dep’n - building P1M
Acc. Dep’n - furniture 75K
Home office 135K
(o) Closing entries (o) Closing entries
Sales P100M
Income summary 7.5M
Shipments from HO P25M
Freight-in 600K
Purchases 10M
Expenses 17M
Dep’n expense 1.21M
Income summary 53.69M
Investment in branch P53.69M Income summary 53.69M
Income summary P53.69M Home office 53.69M

b. Reconcile the reciprocal accounts at the end of the period.

Investment in branch Home office

Jan.1 P10,000,000 P10,000,000 Jan.1
(a) 30,000,000 P900,000 (d) P900,000 30,000,000 (a)
(b) 20,500,000 10,000,000 (h) 10,000,000 20,500,000 (b)
(c) 5,000,000 5,000,000 (c)
(e) 600,000 35,000,000 (i) 35,000,000 600,000 (e)
(l) 3,000,000 1,000,000 (k) 1,000,000 3,000,000 (l)
(n) 135,000 135,000 (n)
(o) 53,690,000 53,865,000 (o)
122,925,000 46,900,000 46,900,000 122,925,000
P76,025,000 P76,025,000

c. Prepare the statement of financial position and statement of profit or loss of the branch.

Cash P30,400,000
 Accounts receivable 10,000,000
Inventory 7,500,000
Land 10,000,000
Building 20,000,000
Acc. depreciation - building (1,000,000)
Furniture 600,000
Acc. depreciation - furniture (75,000)
TOTAL ASSETS P78,025,000

Accounts payable P2,000,000

Home office 76,025,000
TOTAL LIABILITIES AND
EQUITY P78,025,000

Sales P100,000,000
Cost of goods sold:
Shipments from HO P25,000,000
Freight-in 600,000
Purchases 10,000,000
Ending inventory (7,500,000) (28,100,000)
Gross profit 71,900,000
Expenses (17,000,000)
Depreciation expense (1,210,000)
PROFIT P53,690,000

2. REQUIRED:
a. Provide the entries in each of the books of the home office and the branch.

HOME OFFICE BOOK BRANCH BOOK

(a) (a)
Investment in branch P200 Shipments from HO P200
Shipments to branch P200 Home office P200
No entry Home office 50
Shipments from HO 50
(b) (b)
Investment in branch P100 Cash P150
Cash P100 Home office P150
(c) (c)
No entry Home office P50
Cash (or expense) P50
(d) (d)
Investment in branch P10 No entry
Expense P10

b. Compute for the difference between the reciprocal accounts at the end of the period.

Investment in branch Home office

Jan.1 P1,000 P1,000
(a) 200 (a) P50 200
 (b) 100 (c) 20 150
(d) 10 70 1,350
P1,310 P1,280

Difference = P30 (1,310 – 1,280)

c. Provide the correcting entries.

HOME OFFICE BOOK BRANCH BOOK

(a) (a)
Shipments to branch P50
Investment in branch P50
(b) (b)
Home office P50
Cash P50
(c) (c)
Expense P20
Investment in branch P20
(d) (d)
Expense P10
Home office P10

d. Reconcile the reciprocal accounts. Start with the unadjusted balances that you have
computed in requirement (2).

Investment in branch Home office

Unadj. P1,310 P1,280 Unadj.
P50 (a) (b) P50
20 (c) 10 (d)
1,310 70 50 1,290
P1,240 P1,240