HOME OFFICE, BRANCH AND AGENCY PAUL ANTHONY DE JESUS

Problem 1. Good Buy Trading Co. operates a branch in Bacolod. At close of the business on
December 31, 2022, the Home Office account in the books of the Bacolod branch showed a
credit balance of P2,784,300. The interoffice accounts were in agreement at the beginning of
the year. For purposes of reconciling the interoffice accounts, the following facts were
ascertained:

a. On December 29, 2022, the branch sent a check for P13,500 to its suppliers. The
branch erroneously recorded the transaction as a remittance to the home office and sent
a copy of the debit memo to the home office. The home office recorded this upon
receiving the debit memo on January 4, 2023.

b. The home office allocated promotions and insurance expense totaling P18,000 to
Bacolod branch. The home office inadvertently charged the said expense to Davao
branch. Bacolod branch had not entered the allocation at year-end.

c. Home office debit memo for P20,700 regarding transfer of funds was recorded twice by
the branch by debiting its reciprocal account.

d. A branch customer remitted P15,000 to the home office. The home office recorded this
as a cash collection of its own receivable on December 23, 2022. Upon notification on
the same year, the branch debited the amount to Receivable from Home Office and
credited its reciprocal account.

e. A P105,000 shipment, charged by home office to Bacolod branch, was actually sent to
and retained by Leyte branch.

f. The home office failed to take up a P12,000 credit memo from the branch.

g. Branch store insurance premiums of P9,600 were paid by the home office. The home
office debited Insurance expense and credited Cash in its books. The branch recorded
the amount of P96,000 as a liability.

h. Inventory costing P39,000 was sent to the branch by the home office on December 12,
2022. The branch recognized a liability by crediting Accounts Payable upon the receipt
of the inventory.

i. Freight charge of P12,600 on merchandise shipped to the branch was paid by the home
office and was recorded in the branch books as P1,260.

j. A branch customer remitted P63,000 to the home office. The home office recorded this
cash collection on December 28, 2012. Upon receiving a credit memo, the branch
recorded the transaction twice on December 30, 2022.

The unadjusted balance of the branch current account as of December 31, 2022 is:
A. P2,970,840
B. P3,075,240
C. P3,051,240
D. P2,962,140

Problem 2. On October 1, 2022, the Eastwood Main Office established a sales agency in
Pasay City.

 The main office sent samples of its merchandise amounting to P42,000 and a working
fund amounting to P360,000 to be maintained on the imprest basis.

 The samples sent were intended to last until June 1, 2023. During the first two months of
operations, the agency transmitted to the home office sale of goods costing P1,458,000,
but the home office were not able to fill-up 25% of the said transmitted sales orders.

 Collections from customers amounted to P369,705, net of 2% sales discount.

 Payments made by the agency during October and November were as follows: annual rent
of P288,000, advertising expense worth P28,000 and utilities amounting to P36,000.
  It also purchased an equipment worth P45,000 which will be depreciated at 20% per
annum.

 The gross profit rate on sales agency order is 20% of sales.

Net income of the agency for the two months ended November 30, 2022 is
A. P149,375
B. P134,330
C. P87,155
D. P141,830

Problem 3. Taguig Head Office opened a sales agency in Vigan on January 1, 2022. The
following is a summary of the transactions of the sales agency:

o Volume discount 1.5% and 2.5%

o Invoice price P 642,000

o Freight on shipment of agency 10,500

o Collections, 20% of which were able to avail of the 5% discount 420,375

o Selling expenses paid from the agency fund 22,500

o Administrative expenses allocated to agency 4% of net sales

o Samples shipped to the agency amounting to P33,000 are to be properly depreciated to

its carrying amount of P28,617 as of December 31, 2012.

o Remaining receivables are estimated to be 95% collectible.

o The company’s gross profit rate based on invoice price is 30% excluding the freight cost
on shipments to agency.

What is the net income of the agency for 2022?

A. P124,929
B. P114,429
C. P118,854
D. P115,467

Problem 4. Home office bills its branch for merchandise shipments at 30% above cost.

The following are some of the account balances on the books of home office and its branch as
of December 31, 2022:
Home Office Books Branch Books

Inventory, January 1 P 35,000 P101,500

Shipments from Home Office 263,900
Purchases 1,575,000 350,000
Shipments to Branch 253,750
Branch Inventory Allowance 91,875
Sales 2,100,000 1,260,000
Operating Expenses 507,500 192,500

Per physical count, the ending inventory of the branch is P73,500 including goods from outside
purchases of P48,475; the ending inventory of the home office is P210,000.

(a) The amount of the unrealized profit in the separate books of the home office on
January 1, 2023 ;
(b) The branch beginning inventory in 2022 that came from outside purchases ;
(c) Cost of goods available for sale of the branch
0 A. P21,000 ; P48,475 ; P715,400
0 B. P15,750 ; P33,250 ; P781,375
1 C. P21,000 ; P33,250 ; P781,375
2 D. P15,750 ; P48,475 ; P715,400
(a)The total ending inventory to be shown on the combined financial statements;
(b)The combined net income for the year
A. P277,725 ; P957,950
B. P328,475 ; P942,725
C. P277,725 ; P942,725
D. P328,475 ; P957,950

Problem 5. On September 1, 2022, Alabang Main Office established two branches: Ortigas
and Makati branches.

 The home office transferred P320,000 worth of cash and P1,400,000 worth of inventory
to its Ortigas branch. The home office transfers merchandise to its branch at a mark-
up of 25% above cost.

 The home office instructed Ortigas to transfer 75% of the goods and cash received to
Makati.

 In addition, on October 1, 2022, shipments from home office were received by Ortigas
amounting to P500,000 at cost and the branch paid freight costs amounting to
P26,000.

 60% of the said shipments were sold to outsiders.

 On November 1, 2022, Ortigas transferred 50% of the remaining October shipments

from Alabang to Makati, with Makati branch paying freight costs of P10,000.

 Had the merchandise been shipped from Alabang to Makati City branch, only P7,600
worth of freight would have been incurred.

How much is the balance of the Makati branch account on the Home Office books?
A. P1,675,100
B. P1,012,300
C. P1,387,600
D. P1,395,200

Problem 7. Romblon Trading Co. operates a branch in Dagupan City. On December 31, 2022,
the Home Office Current account in the branch books showed a credit balance of P1,045,824.
The interoffice accounts were in agreement at the beginning of the year. For purposes of
reconciling the interoffice accounts, the following facts were determined:

o Dagupan branch paid P65,000 representing registration and seminar fee of the senior
vice president for marketing of the company, when the vice president attended a
convention. Of the amount paid, 2/5 was charged to Romblon Trading, 1/5 to
Dagupan, and the remaining amount to Romblon’s other branch located in Tacloban
City. Dagupan recorded a receivable from the home office at the said amount and
credited Cash. Romblon Trading was not yet notified of the said event.

o Total general expenses were P173,100. Romblon Trading allocated 40% of the expenses
to Dagupan City branch. The branch erroneously debited 40% of the allocated amount
to its reciprocal account twice.

o Romblon Trading transferred inventory costing P90,000 to Dagupan and the branch
paid the corresponding freight of P5,000. Dagupan was instructed by Romblon to
transfer 75% of the said inventories to Tacloban branch and to shoulder the freight
costing P7,000. Dagupan made the transfer on its books but it recorded the transfer at
25% of the original inventories and credited the payment for freight at P700 by mistake.

o Dagupan branch recorded a machinery costing P42,464 which it purchased for its own
use on December 31, 2022. The machinery will be recorded in the books of the home
office. Romblon Trading recorded the memo received from the branch by debiting its
reciprocal account and crediting liability account to Dagupan in the amount P42,644.

What is the unadjusted balance of the Investment in Branch account on Dec. 31, 2021?
A. 1,161,068
B. P1,132,524
 C. P1,174,068
D. P1,201,764
Self- Test
During 2016, goods billed at P3,250,000 were shipped to the branch at 130% of cost. The
account Loading in Branch Inventory has a balance of P1,225,000 before adjustment.

The beginning inventory of the branch from the home office at cost is P2,375,000, the
beginning inventory of the branch from outsiders is P540,000 and the amount of purchases
from outsiders is P1,450,000.

How much is the total goods available for sale of the branch from the home office?
A. 5,308,335
B. 6,337,500
C. 8,090,000
D. 6,100,000