UNIVERSITY OF SANTO TOMAS

AMV College of Accountancy Home Office

Current
Unadjusted balance, 12/31/21 P 39,140
ACC5116 - ACCOUNTING FOR SPECIAL TRANSACTIONS Merchandise in transit 12,500
Home Office and Branch Accounting – Additional Exercises Cash sent by home office still in transit 7,500
Adjusted balance, 12/31/21 P 59,140
PROBLEM 1:

On December 31, 2021, the Branch Current in the Home Office books shows a balance
of P50,000. The following facts were ascertained:

1. Merchandise billed at P12,500 is in transit on December 31 from the home PROBLEM 2:

office to the branch.
2. The branch collected home office accounts receivable for P3,500. The branch Moderna Trading Co. operates a branch in Dagupan City. At close of business on
did not notify the home office of such a collection. December 31, 2021, Dagupan Branch account in the home office books showed a debit
3. On December 30, the home office sent cash of P7,500 to the branch, but this balance of P225,770. The interoffice accounts were reconciled at the beginning of the
was charged to general expense; the branch has not received the cash as of year. For purposes of reconciling the interoffice accounts, the following facts were
December 31. ascertained:
4. Branch profit for December was recorded by the home office at P2,400 instead
of P2,040. 1. An office equipment costing the home office P3,500 was picked up by the
5. The branch returned supplies of P1,500 to the home office but the home office branch as P350.
has not yet recorded the receipt of the supplies. 2. Insurance premium of P675 charged by the home office was taken up twice by
the branch.
Assume all other transactions have been properly recorded. Compute the unadjusted 3. Freight charge on merchandise made by the home office for P1,125 was
balance of the Home Office Current account on the branch books on December 31, recorded in the branch books as P1,215.
2021? 4. Home office credit memo representing a discount on merchandise for P800
a. 64,140 was not recorded by the branch.
b. 39,140 5. The branch failed to take up a P700 debit memo from the home office
c. 14,000 representing the share of the branch in advertising.
d. 13,000 6. The home office inadvertently recorded a remittance for P3,000 from its Cebu
branch as a remittance from its Dagupan branch.

SOLUTION: Compute the balance as of December 31,2021.

Unadjusted Balance Adjusted Balance
Unadjusted balance, 12/31/21 P 50,000
of the Home Office Account of the reciprocal account
Collection of home office receivable by the branch 3,500
Cash sent to the branch which was erroneously charged to Gen. 7,500
a. P 226,485 P 225,770
Exp. b. 228,485 228,770
Erroneous recording of branch profit (2,400 - 2,040) (360) c. 225,770 226,485
Unrecorded supplies returned by the branch (1,500) d. 226,485 228,770
Adjusted balance, 12/31/21 P59,140
SOLUTION: As of December 31, 2021, a shipment with a billing price of P11,000 was in transit to
the branch. Freight cost, typically 5% of the billing price, is inventoriable.
Branch Home Office
Merchandise on hand at year-end were: at home office, P64,000 at cost; at branch,
Current Current
Unadjusted balances, December 31, 2021 P 225,770 P 226,485 P33,000 at billing price.

What is the combined total comprehensive income of J&J Company and its branch for
2021?
a. P77,000 b. P84,900 c. P 76,000 d. P 76,100

SOLUTION:
Erroneous recording of branch equipment 3,150
Insurance premium recorded trice by the branch (675) Sales (P310,000+ P280,000) P 590,000
Erroneous recording of freight charge (P1,215 - P1,125) (90) Cost of sales:
Discount on merchandise not yet recorded by the (800) Inventory, 1/1 (Schedule 1) P 67,100
branch Purchases P 380,000
Failure by the branch to record share in advertising 700 Freight in [(P209,000 + P11,000) x 5%] 11,000 391,000
Error by the home office to record remittance of Cebu 3,000 . Goods available for sale P 458,100
Adjusted balance(s), December 31,2021 P 228,770 P 228,770 Inventory, 12/31 (Schedule 1) P 104,000
Freight in (P44,000x 5%) 2,200 106,200 351,900
Gross profit P 238,100
Expenses (P104,000 + P58,100) 162,100
Combined total comprehensive income P 76,000

Schedule 1: Combined inventories - at cost:

PROBLEM 3: Inventories
January 1 December 31
Selected accounts from the December 31, 2021 trial balances of J&J Co. and its Home office, at cost P 46,000 P 64,000
branch follow:
Branch, at cost:
Inventory, January 1:
Heart Branch Billed price P 23,100
Inventory, Jan. 1 P 46,000 P 23,100 Mark-up (Schedule 2) 2,000 21,100
Investment in Branch 116,600 - Inventory, December 31:
Purchases 380,000 At cost [(P33,000 + P11,000) ÷ 110%*] 40,000
Shipments from home office - 209,000 Combined P 67,100 P 104,000
Freight in - 10,450 *Billing %: (P209,000 + P11,000) / P200,000 = 110%
Expenses 104,000 58,100
Home Office - (106,600) Schedule 2: Mark-up on Branch beginning inventory
Sales (310,000) (280,000)
Shipments to branch (200,000) Branch merchandise markup before adjustment P 22,000
Less: overvaluation of shipments [(P209,000 + P11,000)-P200,000] 20,000
Branch merchandise markup (22,000)
Mark up of branch beginning inventory P 2,000
 2)
PROBLEM 4:
NOTE:
Generally, the branch accounting system is maintained at the branch. Branch's cash,
The Astra Company ships and bills merchandise to its provincial branch at cost. The
merchandise, and other assets, as may be needed, are supplied by the home office. The
branch carries its own accounts receivable and makes its own collections. The branch
branch may purchase merchandise from outsiders to satisfy certain local needs for goods not
also pays its expenses. The transactions for 2021 are reflected in the branch trial available from the affiliated unit. In this case, since no purchases were recorded by the
balance that follows: branch, the entire goods available for sale were provided by the home office itself.

DEBIT CREDIT Normally, the reciprocal accounts Home Office Current in the Branch books and the Branch
Cash P 11,900 Current in the Home Office books show identical balances after adjustments. In the
Home Office Current P 90,000 foregoing problem, the information provided is somewhat misleading, because the problem
Shipments from Home Office 120,000 failed to specify, whether the balance of the Branch Current account in question is before or
Accounts receivable 62,500 after the reported branch net income. Since the trial balance provided therein contains
Expenses 8,100 nominal accounts, it is assumed that the home office has not yet taken up the branch net
income. When the branch reports net income for the period, the home office debits the
Sales . 112,500
branch account and credits Branch income, therefore, the balance of the Branch Current
Total P 202,500 P 202,500
account after closing should be P104,400 (90,000 + 14,400).
December 31 inventory P 30,000

1. The net profit of the branch was: PROBLEM 5:

a. 22,500
b. 14,400 The Sinovac Company, Inc. opened an agency in Makati in 2021. The following is a
c. 21,900 summary of the transactions of the agency:
d. Answer not given
Sales orders sent to home office P 66,000
2. In the home office books, the Branch Current account should be: Sales orders filled by home office in 2021 55,800
a. 134,400 Freight on shipment to agency 1,320
b. 90,000 Collections, net of 2% discount 47,628
c. 104,400 Selling expenses paid from the agency working fund 3,384
d. Answer not given Administrative expenses charged to agency 5% of gross sales
Samples shipped to agency:
Cost P 3,600
SOLUTION:
Inventory, December 3, 2021 1,320
1)
Sales P 112,500 The company maintains its gross margin on agency gross sales at 30% excluding the
Cost of sales: freight cost on shipments to the agency.
Shipments from H.O. P 120,000
Inventory, Dec. 31 30,000 90,000 The agency's cost of sales including freight and agency's net income would amount to:
Gross profit P 22,500 Cost of Sales Net Income
Expenses 8,100 a. P 39,000 P 5,994
Net profit P 14,400 b. 47,520 7,668
c. 40,380 5,994
d. 40,380 7,320
SOLUTION:

Sales P 55,800 SOLUTION:

Less: Sales Discount (P47,628 ,98% x 2%) 972
Net Sales P 54,828 Accounts receivable, end 100,000
Less: Cost of goods sold [(P55,800 x 70%) + P1,320 freight] 40,380 Add: Receipts from sales 350,000
Gross profit P 14,448 Sales on account 450,000
Less: Expenses:
Selling expenses P 3,384 Accounts payable, end 50,000
Administrative expenses (5% x P55,800) 2,790 Add: Disbursements for purchases 400,000
Samples expense (P3.600-P 1,320) 2,280 8,454 Total purchases 450,000
Net Income P 5,994
Disbursements for advertising supplies 10,000
Less: Unused advertising supplies on hand 6,000
Advertising supplies expenses 4,000

PROBLEM 6: Sales 450,000

Less Cost of goods sold:
Delta Corp. established an agency in Baguio City. For the first month of operation, the Purchases 450,000
agency transactions were summarized as follows: Less Inventory, end 90,000 360,000
Gross profit 90,000
Less Expenses:
Receipts from sales P 350,000
Rent 20,000
Disbursements for: Advertising supplies 4,000
Purchases 400,000 Salaries and commissions 70,000
Rent 20,000 Other expenses 5,000 99,000
Advertising supplies 10,000 Net loss 9,000
Salaries and commissions 70,000
Other expenses 5,000 NOTE: Under the accrual basis, the amount paid is not necessarily the expense
recorded
At the end of that month, the agency had P100,000 of receivables and P50,000 of
payables. Also, there were P90,000 of unsold merchandise and P6,000 of unused
advertising supplies on hand. The Baguio City agency was conceived as an experiment
and it is the intention of management to close it if its operations prove to be
unprofitable. PROBLEM 7:

What is the result of operations of the Baguio City agency? The home office of Pfizer Co. ships goods to the Iloilo branch, billing the branch for
a. No profit, no loss. the goods at P45,000, excluding freight of P6,000. Upon receipt of the goods, the
b. P 25,000 profit Iloilo branch was instructed by the home office to transfer these goods to the Cagayan
c. P 9,000 loss de Oro branch. The Iloilo branch ships the goods and pays P4,500 for the transfer. If
d. P155,000 loss the goods had been shipped by the home office directly to the Cagayan de Oro
branch, the freight would have been P6,500.
1. What is the journal entry to record receipt of shipment in the books of the Cagayan b. Shipment to Iloilo 45,000
de Oro branch? Excess freight on inter-branch
transfer of merchandise 6,000
a. Shipment from home office 45,000 Iloilo branch current 51,000
Home office current 45,000 c. Shipment to Iloilo 45,000
b. Shipment from home office 45,000 Excess freight on inter-branch
Freight in 6,000 transfer of merchandise 6,000
Home office current 51,500 Cagayan de Oro branch current 45,000
c. Shipment from home office 45,000 Iloilo branch current 51,000
Freight in 6,500 Shipment to Cagayan de Oro 45,000
Home office current 51,500 d. Cagayan de Oro branch current 51,500
d. Shipment from home office 45,000 Shipment to Iloilo 45,000
Freight in 4,500 Excess freight on inter-branch
Home office current 49,500 transfer of merchandise 4,000
Iloilo branch current 55,500
Shipment to Cagayan de Oro 45,000

2. What is the adjusting journal entry to be recorded by the Iloilo branch?

NOTE:
a. Home office current 51,500
Shipment from home office 45,000 As a general rule, the branch acquiring the goods shall record the merchandise
Freight in 6,000 received from the home office for an amount equal to the cost of merchandise (in the
b. Home office current 47,000 absence of any mark ups) plus the freight. In case of inter-branch transfer of
Shipment from home office 45,000 merchandise, a branch is properly charged with the cost of freight on goods it
Freight in 2,000 receives. However, a branch should not be charged with excessive freight when,
c. Home office current 55,500 because of indirect routing, excessive costs are incurred. Thus, the freight is P6,500
Shipment from home office 45,000 only.
Freight in 6,000
Cash 4,500 The branch where the goods were erroneously shipped shall eliminate all entries
d. Shipment from home office 45,000 made in its books, as if no inter-branch transactions occurred. And should record the
Freight in 6,000 freight incurred in shipping the goods to Cagayan de Oro, as if remitted to the home
Home office current 51,000 office.

3. What is the adjusting entry to be recorded by the home office? In case of indirect routing of inter-branch transfer of merchandise, a branch should
not be charged with excessive freight. Under such circumstances, the branch
a. Shipment to Iloilo 45,000 acquiring the goods should be charged for no more than the normal freight from the
Excess freight on inter-branch usual shipping point. The office directing the inter-branch transfer and responsible for
transfer of merchandise 2,000 the excessive cost should absorb the excess as expense.
Cagayan de Oro branch current 45,000
Freight in 4,000
Shipment to Cagayan de Oro 45,000 -end of handouts-
Iloilo branch current 51,000