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P2.706
1. May be Investment in Branch account of a home office a. Income statement as an offset to purchase
be accounted for by the b. Balance sheet as an offset to Investment in
Cost Method Equity Method Branch
of accounting of accounting c. Balance sheet as an offset to inventories
a. Yes Yes d. Income statement as revenue.
b. Yes No
c. No Yes 8. If the home office maintains in its general ledger
d No No accounts for a branch’s plant assets, the branch debits
its acquisition of office equipment to:
2. Which of the following generally is not a method of a. Home Office
billing merchandise shipments by a home office to the b. Office Equipment
branch? c. Payable to Home Office
a. Billing at cost d. Office equipment carried by home office
b. Billing at a percentage above cost
c. Billing at a percentage below cost 9. In a working paper for combined financial statements
d. Billing at retail selling price of the home office and the branch of a business
enterprise, an elimination that debits Shipments to
3. A branch journal entry debiting Home Office and Branch and credits Shipments from Home Office is
crediting Cash may be prepared for: required under:
a. The branch’s transmittal of cash to the a. The periodic inventory system only
Home Office b. The perpetual inventory system only
b. The branch’s acquisition for cash of plant c. Both the perpetual inventory system and
assets to be carried in the home office accounting the periodic inventory system
records only d. Neither the perpetual inventory nor the
c. Either (a) or (b) periodic inventory system
d. Neither (a) nor (b)
10. The appropriate journal entry for the home office to
recognize the branch’s expenditure of P10,000 for
4. A Home Office ‘s Allowance for Overvaluation of
equipment to be carried in the home office accounting
Inventories: Branch ledger account, which has a credit
records is:
balance, is
a. Equipment 10,000
a. an asset valuation account c. an equity account
Inv in Branch 10,000
b. a liability account d. a revenue account
b. Home Office 10,000
Equipment 10,000
5. Does the branch use a Shipments from Home Office
c. Investment in branch 10,000
ledger account under the:
Cash 10,000
Perpetual Inventory Periodic Inventory
d. Equipment-Branch 10,000
Method Method
Inv in Branch 10,000
a. Yes Yes
b. Yes No 11. On January 31, 2009, East Branch of Far Company,
c. No Yes which uses the perpetual inventory system, prepare
d. No No the following journal entry.
Inventories in transit 10,000
6. A journal entry debiting Cash in Transit and crediting Home Office 10,000
Investment in Branch is required for: To record merchandise shipment in transit from home
a. The Home Office to record the mailing of a office.
check to the branch early in the accounting period.
b. The branch to record the mailing of a check When the merchandise is received on February 4,
to the home office early in the accounting period. 2009, East Branch should:
c. The home office to record the mailing of a a. Prepare no journal entry
check by the branch on the last day of the b. Debit Inventories and credit Home Office, P10,000
accounting period. c. Debit Home Office and credit Inventories in transit,
d. The branch to record the mailing of a check P10,000
to the home office on the last day of the d. Debit inventories and credit Inventories in transit,
accounting period. P10,000.

7. For a home office that uses the periodic inventory 12. If a Home Office bills merchandise shipments to the
system of accounting for shipments of merchandise to branch at a markup of 20% on cost, the markup on
the branch, the credit balance of the Shipments to billed price is:
Branch ledger account is displayed in the home office a. 16.67% c. 25%
separate: b. 20% d. Some other percentage

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