Test Bank On Home Office and Branch
Test Bank On Home Office and Branch
Test Bank On Home Office and Branch
(mavy)
1. Which of the following accounts is a reciprocal account to the investment in the branch
account?
A. Branch Income
B. Equity in Home Office
C. Home Office Capital
D. None of the above
ANSWER: D
2. The Shipments to Branch ledger account in the accounting records of the home office of a
business enterprise.
A. asset valuation account
B. Indicates that the home office uses the periodic inventory system
C. Is adjusted at the end of the accounting period to equal the unrealized profit in the
branch's ending inventories
D. Is not displayed in the home office's separate financial statement
ANSWER: D
3. Which of the following would explain why the Investment in Branch account is less than the
Home Office Capital Account?
A. A cash transfer to the branch is in transit
B. A cash transfer to the home office is in transit
C. An inventory shipment to the branch (at cost) is in transit
D. A home office has received and deposited a remittance from a branch customer but has
not yet notified the branch
E. None of the above
ANSWER: B
4. In a working paper for combined financial statements of home office and branch the branch's
net income is included in:
A. The debit column of the branch income statement section and the credit column of the
branch statement of retained earnings section.
B. The credit column of the branch income statement section and the debit column of the
branch statement of retained earnings section.
C. The debit column of the branch income statement section and the credit column of the
home office statement of retained earnings section.
D. Some other manner
ANSWER: A
ANSWER: B
6. In accounting for branch transactions, it is improper for the home office to:
A. Credit cash received from a branch to the Investment in Branch ledger account.
B. Maintain Common Stock and Retained Earnings ledger accounts for only the
home office.
C. Debit shipments of merchandise to the branch from the home office to the
Investment in Branch ledger account.
D. Credit shipments of merchandise to the branch to the Sales ledger account.
ANSWER: D
7. When a home office ships merchandise to Branch A which is later shipped to Branch B, the
additional freight charged to ship the merchandise form Branch A to Branch B should:
A. Treated as an expense on the Home Office books
B. Included as part of the cost of merchandise to Branch A
C. Included as part of the cost of merchandise to Branch B
D. Both B and C are correct
ANSWER: A
8. For a home office that uses the periodic inventory system of accounting for shipments of
merchandise to the branch, the credit balance of the Shipments to Branch ledger account
is displayed in the home office separate:
A. Income statement as an offset to purchase
B. Balance sheet as an offset to Investment in Branch
C. Balance sheet as an offset to inventories
D. Income Statement as revenue.
ANSWER: A
9. Which of the following generally is not a method of billing merchandise shipments by a home
office to the branch?
A. Billing at cost
B. Billing at a percentage above cost
C. Billing at a percentage below cost
D. Billing at retail selling price
ANSWER: C
10. The home office ledger account in the accounting records of a branch is best
described as as:
A. A revenue account
B. An equity account
C. A deferred revenue account
D. None of the foregoing
ANSWER: B
11. In preparing the financial statements of the home office and its various branches:
A. Nonreciprocal accounts are eliminated but reciprocal accounts are combines
B. Both reciprocal and nonreciprocal accounts are eliminated
C. Both reciprocal and nonreciprocal accounts are combines
D. Reciprocal accounts are eliminated and nonreciprocal accounts are combine
ANSWER: D
ANSWER: A
13. As per AICPA SOP 98-5, start-up costs an entity undertakes when it introduces a
new product or service, conducts business in a new territory or with a new class of
customer or beneficiary, initiates a new process in an existing facility or commences
some new operation:
A. Must be expensed as the entity incurs them.
B. Must be deferred as charges.
C. Either A or B.
D. Neither A nor B
ANSWER: A
14. Transactions between a home office and its branch are accounted for in reciprocal accounts.
The reciprocal account maintained in the branch books is called
A. Investment in branch
B. Home office
C. Advances from home office
D. Any of these
ANSWER: B
15. For external reporting, the individual financial statements of the home office and the branch
are combined
A. by using complex consolidation procedures
B. by recognizing the home office's own assets, liabilities, income and expenses plus its
share in the branch's assets, liabilities , income and expenses
C. by adding together similar items of assets, liabilities, income and expenses
D. by adding together similar items of assets, liabilities, income and expenses and
eliminating reciprocal accounts.
ANSWER: D
16. The freight on shipments to branch paid by the home office is recorded by the home office
as
A. Debit to freight-in
B. Credit to freight-in
C. Credit to Investment Account
D. Credit to Cash
ANSWER: D
17. Which of the following would explain why the Investment in Branch account is less than the
Home Office Capital account?
A. A cash transfer to the branch is in transit
B. A cash transfer to the home office is in transit
C. An inventory shipment to the branch (at cost) is in transit
D. A home office has received and deposited a remittance from a branch customer but has
not yet notified the branch e. None of the above
ANSWER: B
18. Which of the following accounts is a reciprocal account to the Investment in Branch
account?
A. Branch Income
B. Equity in Home Office
C. Home office capital
D. None of the above
ANSWER: D
20. if both the home office and the branch of a business enterprise use the periodic inventory
system, the home office’s Shipments to Branch ledger account:
A. Is a valuation account for the home office’s Investment in Branch account
B. Always should have the same balance as the branch’s Shipments from Home Office
account
C. Is a revenue account
D. Is a valuation account for the home office’s Purchases account.
ANSWER: C
21. If the home office receives debit memo from the branch, the home office shall record it in its
separate statement of financial position by
A. Increasing the investment in branch account
B. Decreasing the investment in branch account
C. Debiting the investment in branch account
D. Disclosure
ANSWER: B
22. Which of the following transactions will decrease the investment in branch’s account in the
home office’s separate statement of financial position?
A. Net income of the branch
B. Payment of branch’s liability by the home office
C. Credit memo received from the branch
D. Return by branch to home office of merchandise shipped
ANSWER: D
23. Which of the following is the only reason why a home office cannot report inventory
shipments to a branch as sales?
A. The inventory transfer is a transaction with a related party.
B. There is no practicable means of determining whether the transfer prices
approximate those that would occur in an arms-length transaction between
independent parties
C. Only inventory transaction between the company and outside third parties can be
considered sales
D. The principles of conservatism
ANSWER: C
ANSWER: B
25. The home office bills its branch for merchandise transfers at a price in excess of cost. In the
home office separate financial statements, the allowance for unrealized profit in branch
inventory account would appear in the financial statements of the home office as
A. An operating expense of the current period
B. Deduction from the cost of goods sold
C. Addition to the cost of goods sold
D. Deduction from the investment in branch account
ANSWER: D
(mavy)
All sales, collections, and expenses are handled at the branch. All cash received
from sales and collections are sent directly to the Home Office. Expenses are paid by the
branch from the fund and immediately reimbursed by the Home Office and credited to the Home
Office account. All expenses paid by the branch are recorded in the books of the branch.
1. Compute the balance of the Home Office account in the books of Branch on January 1,
202020x4
A B
A. 163,000 67,000
B. 64,000 78,000
C. 139,000 111,000
D. 78,000 64,000
ANSWER: D
Solution
Branch Books
Branch A Branch B
Inventory, beg. 21,000 19,000
Branch Fund 2,000 1,500
A/Receivable, beg. 55,000 43,500
Home Office 78,000 64,000
account, Jan. 1
2. Compute the balance of the Home Office account on December 31, 20x4.
A B
A. 110,000 152,000
B. 91,000 67,000
C. 139,000 111,000
D. 78,000 64,000
ANSWER: B
Solution
Branch A Branch B
Branch Fund 2,000 1,500
Inventory, end 19,000 12,000
A/Receivable,end 70,000 53,500
Home Office 91,000 67,000
account, Dec. 31
3. Changi Trading Corp. operates a branch in Dagupan City. At the close of business on
December 31, 20x4. Dagupan Branch account in the home office books showed a debit balance
of P225,770. The interoffice accounts were in agreement at the beginning of the year. For
purposes of reconciling the interoffice accounts, the following facts were ascertained:
Office equipment costing the home office P3, 500 was picked UP by the branch as P350.
Insurance premium of P675 charged by the home office was taken up twice by the
branch
Freight charges on merchandise made by the home office for P1,125 were recorded in
the branch books as P1,215.
Home office credit memo representing a discount on merchandise for P800 was not
recorded by the branch.
The branch failed to take up a P700 debit memo from the home office representing the
share of the branch in advertising.
The home office inadvertently recorded a remittance for P3,000 from the Cebu
branch as remittance from its Dagupan branch.
Compute the balance as of Dec. 31, 20x4.
A. 226,485 225,770
B. 228,485 228,770
C. 225,770 226,485
D. 226,485 228,770
ANSWER: D
Solution
H. O. error 3,000
4. Luzon Corporation starts a branch operation in a nearby town. Merchandise costing 80,000 is
shipped to this branch along with equipment costing 50,000. During the initial year, the home
office assigns 8,000 in expenses to the branch. The branch sells 70% of the inventory that it
received for 80,000 and remits 40,000 in cash to the Home Office. What is the correct Home
Office account balance on the records of the branch? Closing entries have not been made.
A. 98,000
B. 104,000
C. 122,000
D. 178,000
ANSWER: A
Solution
5. Tillman Textile Company has a single branch in Bulacan. On March 1, 2016 the home office
accounting records included an allowance for overvaluation of inventories –Bulacan
Branch ledger account with a credit balance of P 32,000. During March,
merchandise costing P 36,000 was shipped to Bulacan branch and billed at a
p[ricerepresenting 40% mark up on the billed price. On March 31,2016 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 adjustment for the allowance for overvaluation of inventories to
reflect the true branch net income?
A. P 39,257 dr
B. P 46,000 cr
C. P 39,333 dr
D. P 46,000 dr
ANSWER: D
Solution
Add: Shipments (36,000/60%= 60,000*40%- note: markup is based on billed price) 24,000
6. The Gift Co, has a branch in Dipolog City. During 2016 the home office shipped to the branch
merchandise billed at P 150,000 including a markup of 20% on cost. The branch reports
opening and closing inventories of P 90,000 and P 120,000 respectively, while the home office
has closing inventories of P 210,000 which includes merchandise held on consignment values
at P 10,000. Both locations use the periodic inventory system. What Closing inventory would be
reported in the combined income statement for the year 2016?
A. P 296,000
B. P 300,000
C. P 320,000
D. P 330,000
ANSWER: B
Solution
Ending Inventory:
Branch (120,000*100/120) 100,000
Home office (210,000-10,000) 200,000
300,000
7. Fisher Company opened its Tuguegarao Branch on January 1, Merchandise shipments from
home office during the month billed at 120% of cost, is P 125,000. Branch returned damaged
merchandise worth P 15,620. On January 31, the branch reported a net loss of ofP 84,000.
What is the net income or loss of the branch to be taken up in the books of the home office?
A. (P 1,490)
B. 6,500
C. (P 2,270)
D. 1,960
ANSWER: D
Solution
Beginning inventory -
ANSWER: B
Solution
The Home Office in Obrero bills its Catitipan branch for shipments of goods at 25% above cost.
At the close of the business on April 27, 2016, a fire gutted the branch warehouse and
destroyed 70% of the merchandise stock stored therein. Thereafter, the following data were
gathered:
9. What is the amount of inventory destroyed by the fire per home office records at cost?
A. P 178,500
B. P 273,000
C. P 441,000
D. P 892,500
ANSWER: C
Solution
Undamaged Merchandise Inventory (30%) 378,000
ANSWER: B
Solution
Sales 1,428,000
11. A reconciliation of the investment in Tarlac branch account of Manila Company and the
Home Office account carried in the books of the branch shows the following discrepancies at
December 31, 2013:
A credit from merchandise allowance for 3,000 was taken by the branch as 3,600.
A charge by the branch of 5,500 for an advance taken by the president when he visited
the branch has not yet been recorded by the Home Office.
The branch has not taken up 9,000 covered by a debit memo from the Home Office as
share in advertising expenses
The investment in the Tarlac branch account in the Home office books had a debit balance of
430,000 at December 31, 2013. The reciprocal accounts were in agreement at the beginning of
the year. What is the unadjusted balance of the Home Office account in the books of the branch
on December 31,2013?
A. 414,900
B. 419,900
C. 429,500
D. 404,900
ANSWER: A
Solution
12. The Robert Company established its Bulacan branch in January 2016. During its first year of
operations, home office shipped to its Bulacan Branch merchandise worth P 130,000 which
included a mark–up of 15% on cost. Sales on account totaled P 250,000 while cash sales
amounted to P 80,000. Bulacan reported operating expenses P 38,000 and ending inventory P
15,000 at billed price. In so far as the home office is concerned, the real net income of Bulacan
is:
A. 82,000
B. 147,000
C. 177,000
D. 192,000
ANSWER: D
Theories
ANSWER: A
ANSWER: C
ANSWER:D
ANSWER: A
5. As per AICPA SOP 98-5, start-up costs an entity undertakes when it introduces a
new product or service, conducts business in a new territory or with a new class of
customer or beneficiary, initiates a new process in an existing facility or commences
some new operation:
a. Must be expensed as the entity incurs them.
b. Must be deferred as charges.
c. Either A or B.
d. Neither A nor B.
ANSWER: A
ANSWER: B
7. In accounting for branch transactions, it is improper for the home office to:
a. Credit cash received from a branch to the Investment in Branch ledger
account.
b. Maintain Common Stock and Retained Earnings ledger accounts for only
the home office. c. Debit shipments of merchandise to the branch from the
home office to the Investment in Branch ledger account.
d. Credit shipments of merchandise to the branch to the Sales ledger
account.
ANSWER: D
ANSWER: A
9. For a home office that uses the periodic inventory system of accounting for
shipments of merchandise to the branch, the credit balance of the Shipments to
Branch ledger account is displayed in the home office separate:
a. Income statement as an offset to purchase
b. Balance sheet as an offset to Investment in Branch
c. Balance sheet as an offset to inventories
d. Income statement as revenue.
ANSWER: A
10. A branch journal entry debiting Home Office and crediting Cash may be
prepared for:
a. The branch’s transmittal of cash to the Home Office
b. The branch’s acquisition for cash of plant assets to be carried in the home
office accounting records only
c. Either (a) or (b)
d. Neither (a) nor (b)
ANSWER: C
11. In a working paper for combined financial statements of the home office and the
branch of a business enterprise, an elimination that debits Shipments to Branch and
credits Shipments from Home Office is required under:
a. The periodic inventory system only
b. The perpetual inventory system only
c. Both the perpetual inventory system and the periodic inventory system
d. Neither the perpetual inventory nor the periodic inventory system
ANSWER: A
12. A journal entry debiting Cash in Transit and crediting Investment in Branch is
required for:
a. The home office to record the mailing of a check to the branch early in the
accounting period.
b. The branch to record the mailing of a check to the home office early in the
accounting period.
c. The home office records the mailing of a check by the branch on the last
day of the accounting period.
d. The branch to record the mailing of a check to the home office on the last
day of the accounting period
ANSWER: C
ANSWER: A
ANSWER: C
15. The appropriate journal entry for the home office to recognize the branch’s
expenditure of P10,000 for equipment to be carried in the home office accounting
records is:
a. Equipment 10,000 Inv in Branch 10,000
b. Home Office 10,000 Equipment 10,000
c. Investment in branch 10,000 Cash 10,000
d. Equipment-Branch 10,000 Inv in Branch 10,000
ANSWER: A
16. Does the branch use a Shipments from Home Office ledger account under the:
Perpetual Inventory Periodic Inventory Method Method
a. Yes Yes
b. Yes No
c. No Yes
d. No No
ANSWER: C
17. If the home office maintains in its general ledger accounts for a branch’s plant
assets, the branch debits its acquisition of office equipment to:
a. Home Office
b. Office Equipment
c. Payable to Home Office
d. Office equipment carried by home office
ANSWER: A
18. May be Investment in Branch account of a home office be accounted for by the
Cost Method Equity Method of accounting of accounting
a. Yes Yes
b. Yes No
c. No Yes
d. No No
ANSWER: C
19.If Jibs Branch ships merchandise with a cost of $400 to Tibs Branch and the
periodic inventory system is used, the following journal entries are required except:
a. Home office 400 Shipments from Home Office 400
b. Shipments from Home Office 400 Home Office 400
c. Investment in Tibs Branch 400 Investment in Jibs Branch 400
d. All are correct.
ANSWER: D
ANSWER: B
21. Among the interoffice transactions in the accounting records of the home office
of Sand Company was the following: Investment in Box Branch 10,000 Shipment to
Box Branch 10,000 This journal entry indicates:
a. A transfer of merchandise from the home office at cost.
b. A payment by home office of branch expenses.
c. A transfer of merchandise from the home office at above cost.
d. A transfer of cash from the home office
ANSWER: A
22. The home office ledger account in the accounting records of a branch is best
described as as:
a. A revenue account
b. An equity account
c. A deferred revenue account
d. None of the foregoing
ANSWER: B
23.If both the home office and the branch of a business enterprise use perpetual
inventory system, a Shipment to branch ledger account appears in the accounting
records of:
a. The home office only
b. The branch only
c. Both the home office and the branch
d. Neither the home nor the branch
ANSWER: D
24.In preparing the financial statements of the home office and its various
branches:
a. Nonreciprocal accounts are eliminated but reciprocal accounts are
combines
b. Both reciprocal and nonreciprocal accounts are eliminated
c. Both reciprocal and nonreciprocal accounts are combined
d. Reciprocal accounts are eliminated and nonreciprocal accounts are
combined
ANSWER: D
ANSWER: C
Problems
1. Cebu branch submitted the following data to its home office in Manila for 2016,
its first year of operation:
Sales P 2,300,000
Shipments from home office 1,850,000
Operating expenses 235,000
Home Office 480,000
Shipments to the branch are billed at cost. The December 31 inventory of the
branch was P255,500.
What is the balance of the Investment in Branch account on December 15, 2016 on
the home office books?
a. P 950,500
b. P 470,500
c. P 950,000
d. P 480,000
Answer: A
Solution
Since the balance of the reciprocal accounts “Home Office” account and
“Investment in Branch”account are equal, then the balance of the Home Office
account after closing the branch profit is to be computed. The computation is:
2. The following data pertains to the shipments of merchandise from Home Office to
Branch during 2016:
Home office’s cost of merchandise P 350,000`
Inter-office billings 420,000
Sales by branch to outsiders 520,000
Merchandise inventory on December 31, 2016 50,000
In the combined statement of comprehensive income of the Home Office and the
Branch for the year ended
December 31,2016, what amount of the above transactions should be included as
sales?
a. P 570,000
b. P 520,000
c. P 470,000
d. P 350,000
Answer: B
Solution:
In the preparation of combined statements of the home office and the branch, all
inter-office transactions are eliminated as if it had never occurred. Therefore, the
only transactions that should be presented are transactions to outsiders, which is in
this problem, the P 520,000 sales by branch to outsiders.
3. The home office in Quezon City ships and bills merchandise to its provincial
branch at cost. The branch
carries its own accounts receivable and makes its own collections. The branch also
pays its expenses.
The transactions for 2016 are reflected in the branch trial balance that follows:
Cash P 20,000
Accounts Receivable 80,000
Home Office P 180,000
Shipments from Home Office 250,000
Sales 225,500
Expenses 55,500
Assuming all the transactions are properly recorded, what is the balance of the
Investment in Branch account in the
Home office books?
a. P 180,000
b. P 195,000
c. P 165,000
d. P 175,000
Answer: C
Solution
Assuming all cash collected by the branch is remitted to Tower Cosmetics home
office, the remittances for the period amounted to:
a. P 187,860
b. P 189,780
c. P 195,120
d. P 198,720
Answer: A
Solution
5. On December 31, the Investment in Branch account in the home office books
shows a balance of P 50,000. The following facts are ascertained:
1. Merchandise billed at P 12,500 is in transit on December 31 from the home
office to the branch.
2. The branch collected home office accounts receivable for P 3,500. The
branch did not notify the home office of such a collection.
3. On December 30, the home office sent cash of P 7,500 to the branch, but
this was charged to General Expense; the branch has not received the cash
as of December 31.
4. Branch profit for December was recorded by the home office at P 2,400
instead of P 2,040.
5. The branch returned supplies of P 1,500 to the home office but the home
office hasn't yet recorded the receipt of the supplies.
What is the unadjusted balance of the Home Office account on the branch books on
December 31?
a. P 64, 140
b. P 39, 140
c. P 14, 000
d. P 13, 000
Answer: B
Solution
The Investment in Dagupan Branch account in the home office books had a debit
balance of P 43,000 at December 31,2016. The reciprocal accounts were in
agreement at the beginning of the year.
The unadjusted balance of the Home Office account in the branch’s books at
December 31,2016 was:
a. P 43, 500
b. P 42, 950
c. P 41, 990
d. P 41, 490
Answer: D
Solution
The P 41, 490 unadjusted balance of Home Office account is computed as follows:
7. The following were found in your examination of the interplant accounts between
the Home Office and theButuan Branch:
a. Transfer of fixed assets from the Home Office amounting to P53,960 was
not booked by the branch.
b. P10,000 covering marketing expense of another branch was charged by
Home Office to Butuan
c. Butuan recorded a debit note on inventory transfers from the Home Office
of P75,000 twice.
d. Home Office recorded a cash transfer of P65,700 from Butuan Branch as
coming from Davao Branch
e. Butuan reversed a previous debit memo from Cagayan de Oro Branch
amounting to P10,500. The Home Office decided that this charge is
appropriately Davao Branch’s cost.
f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560
The net adjustments DR (CR) to the Investment in Butuan Branch account to the
Home Office account are:
Investment in Butuan Home Office
a. P (75,700) P20,950
b. 75,700 ( 20,950)
c. ( 55,700) 75,000
d. ( 65,700) ( 74,000)
Answer: A
Solution
On June 30, 2016, the unadjusted balance of the Investment in Branch account on
the Home Office books showed P175,520. At the beginning of the year, the
interoffice accounts were in balance.
What is the unadjusted balance of the Home Office account on the branch books on
June 30, 2016?
a. P184,279.50
b. P160,725.50
c. P18,729.00
d. P165,279.50
Answer: A
Solution
Unadjusted balance of investment in branch account, 6/30
P175,520.00
(a) Charge for labor 500.00
(b) Charge for freight ( 805.50)
(c) Purchase of furniture and fixture ( 90.00)
(d) Merchandise allowance ( 50.00)
(e) Charge for interest ( 425.00)
(f) Proceeds from sales of truck 5,000.00
(g) Charge for truck repairs ( 370.00)
(h) Proceeds from sales of truck 5,000.00
Unadjusted balance of Home Office account, 6/30 P184,279.50
9. Rustans, Philippines has two merchandise outlets, its Home Office in Manila and
its Cebu City branch. For control purposes, all purchases are made by the Home
Office and shipped to the Cebu City branch at cost plus 10%. On January 1, 2016
the inventories of the Home Office in Manila and the Cebu City branch were P13,600
and P3,960 respectively. During 2016, the Home Office purchased merchandise
costing P40,000 and shipped 40% of it to the Cebu City branch. At December 31,
2016, the following journal entry to prepare the books for the next accounting
period was prepared by the branch”
Sales 32,000
Inventory, December 314,840
What was the actual branch income for 2016 on a cost basis assuming the use of
the provisions of the Statement of
Financial Accounting Standards?
a. P4,800
b. P6,320
c. P6,480
d. P6,840
Answer: B
Solution
Sales P32,000
Cost of sales:
Inventory, Jan. 1 3,960
Shipment from Home Office 17, 600
Inventory, Dec. 31 (4,840) 16,720
Gross Profit 15,280
Expenses 10,480
Net income per branch books 4,800
Add: Overvaluation of cost of sales
Billed Price (above) 16,720
Cost to H.O ( 16, 720 / 110%) 15,200 1,520
Actual branch income at cost basis P 6,320
Answer: A
Solution
11. The Binondo branch of China Products Inc. buys merchandise from third
parties and receives merchandise from the home office for which it is billed at 20%
above cost. Below are excerpts from the trial balances and data on the home office
and Binondo branch for the month just ended.
Home Office
Allowance for overvaluation of branch merchandise P370,000
Shipments to Branch 850,000
Branch
Beginning inventory 1,440,000
Shipments from home office 1,020,000
Purchases 410,000
Month end additional data:
Ending inventory of branch P1,460,000
From home office at Billed Price P1,170,000
From outsiders (at cost) 290,000
The total cost of goods sold of the Binondo branch at cost (net of overvaluation) for
the month just ended amounted to.
a. P1,410,000
b. P1,385,000
c. P1,235,000
d. P1,850,000
Answer: C
Solution
12. Shopper Company started a branch office in Iloilo City on June 1,2016. On this
date, the company shipped to its Branch merchandise billed at P90,000. On June 15,
another shipment was made at billed prices of P36,000. During the month, the
branch was credited for P2,520 for the damaged goods returned by the branch. On
June 30,2016, branch reported the following:
Shipments to and from the branch were uniformly billed at 120% of cost.
Answer: B
Solution
According to the Home Office books, Iloilo branch will have a P4,30 net income as
computed below:
Branch net loss (P7,800)
Add: Overvaluation of Cost of Sales of branch –
Total shipment to Branch:
Billed price(90,000+P36,000) P126,000
Cost (P126,000 120%) 105,000 P21,000
1. A branch that maintains a general ledger is said to use a (n) accounting system?
a. Centralized c. Athoritarian
ANSWER: B
2. The Investment in Branch accounting has a balance that equals the account of the
branch?
b. Asset .
c. liability
3. 0n the home office's books, the earnings of a branch are recorded in an account
called?
ANSWER: A
4. Income taxes pertaining to · branch earnings are usually recorded on the books of the
ANSWER: A
Statement 2: A debit to the Home office ledger account and a credit to the Trade
Accounts Receivable account in the accounting records of a branch indicate that the
home office collected accounts receivable of the branch.
a. S1-True S2-True
b. S 1-True S2-False
c. S1-False S2-True
d. S 1-False; S2-False.
ANSWER: A
statement 2 : If the home office carries branch equipment in its accounting records, an
acquisition of equipment by the branch is recorded in the home office accounting
records by a debit to the Investment in Branch ledger account and a credit to the
Equipment Branch Account
ANSWER: D
7. Statement 1: separate financial statements of home office and branch do not meet the
needs of investors, creditors, or other outside users of financial statements.
Statement 2 : In a working paper for combined financial statements of home office and
branch, the balance of the Shipments to Branch ledger account is eliminated against the
balance of the Investment in Branch account.
a. S1-True S2-True
b. 51-True 52-False
c.S1-False : S2-True
d. S1-False: S2-False
ANSWER: B
8. statement 1 : If the perpetual inventory system is used by both the home office and
the branch, the reciprocal ledger accounts used by the branch are the Home Office and
Shipments from Home Office accounts.
Statement 2 : The shipments to the branch account are added to the home office's
purchases account in determining home office Cost of goods sold.
ANSWER: D
9. Statement 1 : when inventory is received from the home office, a branch increases its
home office account.
Statement 2 : Reciprocal home office and branch accounts are eliminated when home
office and branch financial statements are combined for external reporting.
ANSWER: D
10. Statement 1 :. The branch office account on the home office's books and the Home
office account on the branch's books are examples of nonreciprocal accounts whose
balances would be combined when the home office is preparing a balance sheet for all
its combined operations.
ANSWER: B
Statement 2 : There are three ways to reconcile the balance in the home office's would
be to reconcile from the home office balance to the branch balance. A second way would
be to reconcile from the branch balance to the home office balance. A final home office
balance to the adjusted true balance, way would be to reconcile both the home office’s
branch balance and the branch's
ANSWER: B
12. Statement 1 : The incremental profitability of a branch office may be hidden if the
home office allocates too many fixed costs to the branch office.
ANSWER: C
13. Statement 1: Home office allocations to a branch are not required under current
standards.
ANSWER: D
14. Statement 1 : Branch fixed assets can be carried on the home office's books under a
decentralised accounting system.
ANSWER: C
15. Which of the following accounts is a reciprocal account to the Investment in Branch
account?
ANSWER: C
16. In preparing combined financial statements, which of the following accounts are
eliminated (brought to a zero balance) in the combining process
a Yes Yes
b. No Yes
C. No No
d. Yes No
ANSWER: A
a. The balance in the Investment in Branch account must equal the balance in the Home
Office Capital account.
b. The balance in the Investment in Branch account must equal the balance in the Home
Office Capital account less the branches cumulative unremitted
profits.
d. The balance in the Investment in Branch account must equal the balance in the Branch
Income account.
ANSWER: A
18. Which of the following would explain why the investment in the branch account is
less than the Home office capital account?
ANSWER: D
Debit Credit
ANSWER: A
Debit Credit
21.The Shipments to Branch ledger account in the accounting records of the home office
of a business enterprise
b. Indicates that the home office uses the periodic inventory system
ANSWER: B
22.The Western Branch of Rivas Company reported a net income of P60, 000 tor the
month
of January, The-appropriate journal entry (explanation omitted). For the home office of
Rivas Company is :
ANSWER: C
23.Both a home office and a branch use the periodic inventory system. If at the end of an
accounting period the balance of the branch's Home Office ledger account does not
agree with the balance of the home office's Investment in Branch account because of a
shipment of merchandise in transit from the home office to the branch
a. The home office debits Investment in Branch and credits Shipments in Transit to
Branch.
b. The branch debits Home office and credits shipments in Transit from Home Office.
c. the home office debits Shipments in Transit to Branch and credits Investment
d. The branch debits Shipments in transit from Home Office and credit Home Office.
ANSWER: D
24.On September 30, 20×4, the home office of King company shipped merchandise
costing Branch did not receive the merchandise on that same clay. Both the home office
and P8, 000 to Rizal Branch and prepared an appropriate entry for the shipment. The
Rizal Branch did not receive the merchandise on that same day. Both the home office
and the branch use the perpetual inventory system
a. A debit to Inventories and a credit to Home office current in the branch accounting
records.
b A debit to Branch current and-a credit to Inventories in the home office accounting
records.
C. A debt to Home Office current and a credit to Inventories in the branch accounting
records.
ANSWER: A
25. Among the journal entries'(explanation omitted) in the accounting records of the
home
c. The branch acquired office equipment, which is carried in the accounting records of
the home office
d. None of the foregoing occurred
ANSWER: C
PROBLEM (ANNIE)
1. Tarlac Branch of Quezon City Company, at the end of its first quarter of
operations, submitted the following statement of comprehensive income:
Sales P300,000
Cost of Sales:
Total 310,000
Expenses 35,000
Shipments to the branch were billed at 140% of cost. The branch inventory as at
September 30 amounted to P50,000 of which P6,600 was locally purchased. Markup on
local purchases, 20% over cost. Branch expenses incurred by the Head Office amounted
to P2,500.
On September 30, the branch inventory at cost and the net income realised by the home
office from the Tarlac branch operation are:
a. P37,600 P72,600
b. P50,000 P55,000
c. P31,600 P5,000
d. P37,600 P70,100
ANSWER: D
SOLUTION
(50,000-6,600)
The branch inventory at cost and the gross profit of the branch as far as the home office is
concerned are:
a. P92,000 P22,000
b. P22,000 P92,000
c. P22,000 P70,000
d. P20,000 P90,000
ANSWER: B
Total P22,000
ANSWER: B
Net sales P180,000
(P98,000/140%)
40,000
Purchases
Inventory, at cost
12/31: 15,00
0
Acquired from
HO
(P21,000/140
%)
The branch submitted the following report summarizing its operations for the period ended
December 31, 2013.
Sales on account P74,000
Collections of 60,000
account
The branch 12/31 inventory at cost and the branch net income (loss) as far as the home
office is concerned are:
a. P26,00 (P1,000)
b. P25,000 (P4,000)
c. P26,000 P1,000
d. P20,000 P 800
ANSWER: C
(54,000/120%)
Purchases 26,000
4. 1. Trial balances before adjustments for the home office and the branch of the King Company
show the following items on December 31. The home office bills the branch at 20% above cost.
Purchases P2,500
What part of the branch inventory as of December 1 represented purchases from outsiders?
a. P3,000
b. P5,000
c. P2,000
d. P1,800
ANSWER: A
5. .The Manila Sales Co. established a branch in San Pablo City early last year. It shipped
merchandise and billed the branch for P300,000 prior to its opening. For the year, it made
additional shipments at billed price of P120,000. Within the year, the branch shipped
backP7,500 inventory and got the credit memo for the said returns. On the last working day of
the year, an inventory count was made. Ending inventory of P185,000 was established
consisting of purchases from third parties at P20,000 with the balance coming from home office
shipments at billed price.. The home office billed the branch at 20% above cost. The total
purchases of the branch from outside suppliers amounted to P72,500. The total goods available
for sale by the branch at cost (net of overvaluation and returns) amounted to:
a. P416,250
b. P485,000
C. P422,500
d. P435,250
ANSWER: A
7. The income statement submitted by the Bulacan Branch to the Home Office for the
month of December,2013 is shown below. After affecting the necessary adjustments the
true net income of the Bulacan Branch inventories were
12/01/201 12/31/2011
1
Merchandise from P70,000 P84,000
Home Office
Sales 600,000
Cost of Sales:
Inventory, December
1 80,000
What is the balance of the “Allowance for Overvaluation in Branch Inventory” account
at December 31, 2013?
a. P10,000
b. P16,000
C. P24,000
d. P34,000
ANSWER: C
The Neneng Corporation established its San Pedro branch in March 201. During the
first year of operations, the home office shipped to the branch merchandise which had
cost of P120,000. Three- fourths of these merchandise was sold by the branch for
P141,000. Operating expenses of the branch amounted to P27,000.
How much total comprehensive income will the branch report if merchandise is billed
by the home office to the branch at 25% above cost?
a. P800
b. P1,200
C. P1,500
d. P8,000
ANSWER: C
Sales P141,000
Expenses (27,000)
Total comprehensive income to be reported by the Branch P1,500
Schedule 1
Portion sold x¾
March 5 120,000
March 10 50,000
March 20 35,000
On March 24, the branch returned defective merchandise worth P3,050 and on March
31, it reported a net loss of P6,200 and merchandise inventory of P85,000.
In the home office books, the branch total comprehensive income (loss) is:
a. (P6,200)
b. P17,190
c. P20,240
d. P23,390
ANSWER: B
P17,19
Branch total comprehensive 0
income, per HO books
10 The Chivas Regal owns the Royal Crown in Quezon City and a branch in Davao City.
During 2013, the home office shipped to the branch supplies costing P120,000 at a billed
price of 20% above cost. The inventories of supplies at the branch were as follows:
January 1,2013, P90,000; December 31,2013, P108,000. On December 31,2013, the home
office holds inventories of P160,500 which includes P10,500 held in consignment.
a. P210,000
b. P240,000
c. P270,000
d. P300,000
ANSWER: B
Home office (P160,500 – P10,500) P150,000
11 The Iloilo Company operate a branch in Davao, and the profit and loss data for the
home office and the branch for 2013 follows:
Home office Branch
Sales P250,000 P75,000
Purchases from outsiders 200,000 15,000
Shipments to branch:
Cost to home office 30,000
Billing price to branch 37,500
Expenses 40,000 10,000
Inventories, Jan. 1,2013:
Home office, at cost 80,000
Branch:
The combined total comprehensive income (loss) of the home office and the branch on
December 31,2013 is:
a. P30,800
b. P(30,800)
c. P33,800
d. P27,000
ANSSWER: C
Sales P325,000
Less: cost of sales
Jan. 1 inventories, at cost (sch 1 ) 107,500
Purchases 215,000
Merchandise available for sale P322,500
Less: dec. 31 inventories, at cost (sch 1 ) 81,300 241,200
Gross profit on sales P83,800
Less: expenses 50,000
Total comprehensive income P33,800
Schedule 1:
Inventories Jan.1 Dec. 31
Home office P80,000 55,000
Branch, at cost
Acquired from outsiders
7,500
5,500
Acquired from HO:
Jan. 1 (P24,000/120%)
20,000
Dec. 31 (P26,000/125%) 20,800
Combined P107,500 P81,300
12 . Manila Inc. established a branch in Cebu to distribute part of the goods purchased
by the home office. The home office process inventory shipped to the branch at 20%
above cost. The following account balances were taken from the ledger maintained by
the home office and the branch:
The combined total comprehensive income of the home office and the branch is:
a. P170,000
b. P70,000
c. P278,000
d. P132,000
ANSWER: A
Sales
Cost of sales Beg. Inventory P810,000
HO P120,000
Branch, at cost
(P60,000/120%)
Purchases 50,000 P170,000
500,000
Total 670,000
Ending inventory: HO 98,000
Branch, at cost 40,000 138,000 532,000
(P48,000/120%)