BADVAC1X – ACCOUNTING FOR BUSINESS COMBINATIONS

1. Which of the following generally is not a method of billing merchandise shipments by a home office to a branch?
a. Billing at cost c. Billing at a percentage above cost
b. Billing at a percentage below cost d. Billing at retail selling prices
2. 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 only
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
3. A home office’s Allowance for Overvaluation of Inventories: Branch ledger account, which has a credit balance,
is:
a. An asset valuation account c. An equity account
b. A liability account d. A revenue account
4. Does a branch use a Shipments from Home Office ledger account for Inventory under the:
Periodic System Perpetual System Periodic System Perpetual System
a. Yes Yes c. No Yes
b. Yes No d. No No
5. 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 to record 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
6. 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’s separate:
a. Income statement as an offset to Purchases
b. Balance sheet as an offset to Investment in Branch
c. Balance sheet as an offset to Inventories
d. Income statement as revenue
7. If the home office maintains accounts in its general ledger for a branch’s plant assets, the branch debits its
acquisition of office equipment to:
a. Home Office c. Payable to Home Office
b. Office Equipment d. Office Equipment Carried by Home Office
8. 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 periodic inventory system and the perpetual inventory system
d. Neither the periodic inventory system nor the perpetual inventory system
9. The appropriate journal entry (explanation omitted) for the home office to recognize the branch’s expenditure of
$1,000 for equipment to be carried in the home office accounting records is:
a. Equipment 1,000 c. Investment in Branch 1,000
Investment in Branch 1,000 Cash 1,000
b. Home Office 1,000 d. Equipment: Branch 1,000
Equipment 1,000 Investment in Branch 1,000
10. On January 31, 2005, East Branch of Lyle Company, which uses the perpetual inventory system, prepared the
following journal entry:

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 Inventories in transit 10,000
Home office 10,000

When the merchandise is received on February 4, 2005, East Branch should:

a. Prepare no journal entry
b. Debit Inventories and credit Home Office, $10,000
c. Debit Home Office and credit Inventories in Transit, $10,000
d. Debit Inventories and credit Inventories in Transit, $10,000
11. The appropriate journal entry (explanation omitted) in the accounting records of the home office to record a
$10,000 cash remittance in transit from the branch at the end of an accounting period is:
a. Cash 10,000 c. Cash 10,000
Cash in Transit 10,000 Home Office 10,000
b. Cash in Transit 10,000 d. Cash in Transit 10,000
Investment in Branch 10,000 Cash 10,000

On December 31, 2019, the branch manager of Rachelle Company in Marikina City submitted the following data to the
home office:

Petty cash fund P10,000

Sales 564,000
Sales returns 4,000
Accounts written off 10,000
Shipments from home office 300,000
Accounts receivable, 1/1, 2019 90,000
Accounts receivable, 12/31/2019 100,000
Inventory, 1/1/2019 60,000
Inventory, 12/31/19 70,000
Expenses (charged by Home office) 120,000

All cash collected on accounts receivable are remitted to the home office

Determine:

12. The balance of the Home Office – Current account on January 1, 2019
a. P 0 b. P160,000 c. P180,000 d. P300,000
13. The net income of the Marikina Branch for the year ended December 31, 2019 is
a. P 140,000 b. P144,000 c. P 150,000 d. P270,000
14. The total remittance for the year 2019 is
a. P540,000 b. P544,000 c. P550,000 d. P560,000
15. On December 31, 2019, the Branch Current account on the Home office books is
a. P 0 b. P160,000 c. P180,000 d. P300,000

16. 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

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 17. What is the main difference between the branch’s reported net income against the true net income of the
branch?
a. Overstatement of the cost of goods sold from outside purchases
b. Allowance for overvaluation branch inventory before adjustment
c. Overstatement of the cost of goods sold from home office merchandise
d. Understatement of the beginning inventory coming from outside purchases

Pasig Garment Company operates a branch in Cabanatuan City. At the end of the year, the Branch account in the books
of the home office at Manila shows a balance of P150,000. The following information are ascertained:
• The home office billed the branch the amount of P37,500 for the merchandise, which was in transit on December
31.
• A home office accounts receivable for P10,500 was collected by the branch. Said collection was not reported to
the home office by the branch.
• Supplies of P4,500 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.
• The branch made profit of P10,100 for the month of December but the home office erroneously recorded it as
P11,180.
• The branch has not received the cash in the amount of P25,000 sent by the home office on December 31. This
was charged to General Expense account.
All accounts are presumed to have been properly recorded.

18. What is the balance of the Home Office account on the books of the branch as of December 31, before
adjustments?
a. 106,920 c. 121,920
b. 117,420 d. 123,000
19. What is the adjusted balance of the reciprocal accounts?
a. 96,420 c. 117,420
b. 106,920 d. 179,920

Selected information from the trial balances for the home office and the branch of Psalm Company at December 31, 2017
is provided. These trial balances cover the period from December 1 to December 31, 2017. The branch acquires some of
the merchandise from the home office (the branch is billed at 20% above the cost of the home office) and some of it
from outsiders. Differences in the shipments accounts result entirely from the home office policy of billing the branch at
20% above cost.

Accounts Home Office Branch

Sales P60,000 P30,000
Shipments to branch 8,000 0
Shipments to branch - loading/Unrealized profit in Branch inventory 3,600 0
Purchases (outsiders) 35,000 5,500
Shipments from home office 0 9,600
Merchandise inventory, December 1, 2017 20,000 15,000
Expenses

Additional information:
Merchandise inventory, December 31, 2017:
Home office P20,000
Branch (outsiders, P1,600) 10,000

20. How much is the beginning inventory of the branch acquired from home office?
a. P12,000 b. P10,000 c. P15,000 d. P12,500
21. How much is the overvaluation of cost of cost good sold of the branch?

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 a. P1,933 b. P2,200 c. P2,000 d. P2,500

The Dasmarinas Corporation operates a branch in Calamba City. The home office ships merchandise to the branch at
more than cost. Selected information Selected information from the December 31, 2022 trial balances are as follows:

Accounts Home Office Books Branch Office Books

Sales P600,000 P300,000
Shipment to Branch 200,000
Purchases 350,000 --
Shipment from Home office 250,000
Inventory, January 1 100,000 40,000
Allowance for overvaluation of branch inventory 50,000
Expenses 120,000 50,000
Inventory at December 31, 2022
Home office P30,000
Branch office P60,000
Merchandise shipment in transit at December 31, 2022 is P20,000 at billed price.

22. The net income reported by the home office for its 2022 operation is:
a. P260,000 b. P38,000 c. P20,000 d. P200,060
23. The net income reported by the branch for its 2022 operation is
a. P20,000 b. P200,060 c. P260,000 d. 38,000
24. How much is the overstatement of the cost of sale in the branch 2022 income statement resulting from the home
office billing policy?
a. P46,000 b. P38,000 c. P20,000 d. P 0
25. How much net income was reported in the company’s 2022 income statement?
a. P362,000 b. P263,000 c. P236,000 d. P326,000

END