Advanced accounting herera, Summaries of Advanced Accounting

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ADVANCED

ACCOUNTING 2:

HOME OFFICE, BRANCH AND

AGENCY –

GENERAL PROCEDURES

Submitted by: Alcantara, Jiezelle D. Baldueza, Jaciel B. Milan, Joymee M. Sicam, Coleen S. Tiongco, Helen Grace V. A3B - BSA

1. Papa Inc. of Makati opens a sales agency in Bacolod city and a working fund of P50,00 in establish on imprest basis. The first payment from the fund is P5,000 for rent of the store space. What is the entry in the books of the home office to record this transaction? a. Rent expense-Bacolod agency 5, Cash 5, b. Bacolod Agency 5, Cash 5, c. Rent expense-Bacolod agency 5, Working fund 5, d. No Entry ANSWER: D. No Entry, because this is recorded when the working fund is replenished.
2. QC Company had an agency in Iloilo City. During the year, the transaction of the agency are summarize below: Sales 868, Disbursement: Purchases 800, Salaries 140, Rent 40, Supplies 20, Other Expenses 10, The agency had 200,000 receivables and 100,000 payables as of the end of the period. Also, there are inventories on hand of 180,000 and unused supplies of 12,000. The agency was set- up as an experiment for 1year and would be closed if losses were incurred. The agency should be: a. Reviewed again, because it was a break-even operation. b. Closed with the period’s operational loss of 310, c. Closed with the period’s operational loss of 118, d. Continued with the periods profit of 50, ANSWER: C. Closed with the period’s operational loss of 118, Sales P 700, Cost of goods sold: Purchases P800, Merchandise inventory, end 180,000 620, Gross profit P 80, Expenses 198, Net income (loss) P (118,000)

d. 14, ANSWER: A. 14, Sales P 100, Cost of goods sold 72, Gross profit P 28, Expenses (P9,000 + P4,500) 13, Net income P 14,

5. If all fixed assets are kept on the home office books, and the branch purchased equipment for 50,000 cash, the appropriate journal entry for the branch is a debit to: a. Home Office account and a credit to Cash for 50,000. b. Investment in branch account and a credit to Cash for 50,000. c. Equipment and a credit to Cash for 50,000. d. Equipment and a credit to Home Office account for 50,000. ANSWERS: A. Home Office account and a credit to Cash for 50,000.
6. The Home Office allocates monthly depreciation to the branch on the branch’s fixed assets kept on the Home Office books. The April depreciation amounts to 7,500. The branch should this allocation by the following entry: a. Depreciation expense 7, Home Office 7, b. Depreciation expense 7, Accumulated Depreciation 7, c. Depreciation expense 7, Investment in branch 7, d. Home Office 7, Depreciation expense 7, ANSWER: A. Depreciation expense 7, Home Office 7,
7. The collection of a 5,000 branch receivable by the Home Office should be recorded by the branch with the following entry: a. No Entry is necessary, since the branch was not involved in the transaction. b. Cash 5, Home office 5,

c. Home office 5, Accounts Receivable 5, d. Cash 5, Accounts Receivable 5, ANSWER: C. Home office 5, Accounts Receivable 5,

8. 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 branched. 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, b. 104, c. 122, d. 178, ANSWER: A. 98, Shipment of merchandise to home office P 80, Equipment sent to home office 50, Expenses assigned to branch by the home office 8, Cash remittance to home office (40,000) Home office account balance P 98,
9. Just before the books are closed on December 31, 2013, the trial balances for the Home Office and branch contained the following account balances: Investment in Branch 38, Home office 21, Your examination of accounts revealed the following information:
10. On December 26, the branch remitted 10,400 in cash to the Home Office that was not received until January 3.
11. Merchandise that was billed to the branch at 7,280 was in transit at December 31.
12. A cash payment of 400 on an open accounts receivable was received by the Home Office. The account, however, was carried on the books of the branch, the Home Office did not notify the branch of the cash collections.

Net income (loss)

Shipment to Branch account has no beginning balance, because this was closed at the end of 2008.

11. On December 31, 2013 the branch manager of Jenna Company in Iloilo city submitted the

All cash collected on accounts receivable amounting to 378,000 were remitted to the Home

 - Home Office account balance before closing, Dec. 32, 1008P 35, - Sales P147, - Shipment to branch P135, Cost of cost goods sold - Inventory, 12/31 18,500 116, - Gross profit P 30, - Expenses 13,500 17, 

• Home Office account balance (Investment in Branch account balance) P 52, - Petty Cash Fund 6, following data to the Home office in Manila: - Sales 390, - Shipments from Home office 270, - Accounts receivable, January 1, 2013 86, - Inventory, January 1, 2013 74, - Inventory, January 1, 2013 82, - Expenses 96,
  • January 1, 2013 January 1, Office. What is the balance of the Home Office account on:
• a. 270,000 186,
• b. 166,000 186,
• c. 166,000 88,
• d. 270,000 88,
  • ANSWER: B. January 1, 2013 January 1, - 166,000 186, - Jan. 1, 2008 Jan. 1,
• Petty cash fund P 6,000 P 6,
• Accounts receivable 86,000 98,
• Inventory 74,000 82,
• Home Office account balance P166,000 P186,

12. 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:
13. A credit from merchandise allowance for 3,000 was taken by the branch as 3,600.
14. A charge by the branch of 5,500 for an advance taken by the president when he visited the branch as not yet been recorded by the Home Office.
15. 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 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, b. 419, c. 429, d. 404, ANSWER: A. 414, Unadjusted balance – Investment in Branch account, 12/31 P430, Charge for advances by president (5,500) Erroneous entry for merchandise allowance ( 600) Share in advertising expense (9,000) Unadjusted balance – Home Office account, 12/31 P414,
16. A reconciliation of the investment in branch account in the Home Office of Makati Company and the Home Office account carried on the branch books showed the following discrepancies at December 31, 2013: a. Collections of branch accounts receivables by the Home Office 8,000 the branch were not notified. b. Shipment in transit to branch in December 31,2013, 32,000. c. Acquisition of the furniture by the branch 12,000. The fixed assets account to be maintained on the Home office books. The home office had not been notified as such acquisition. d. Return of excess merchandise by the branch but not received yet by the home office, 15,000. e. Cash remittance by the branch on December 31, 2013 was in transit, 5,000.

Compute the following balances as of December 31,2013: Unadjusted balance Adjusted Balances Of the Home Office Account a. P64,000 P95, b. P26,000 P16, c. P44,000 P75, d. P44,000 P78, ANSWER: C. Unadjusted balance Adjusted Balances Of the Home Office Account P44,000 P75, Unadjusted balance- Investment in Branch account P 85, Remittance in transit (10,000) Shipment in transit (20,000) Expenses allocated ( 5,000) Error in recording remittance 3, Error in recording shipments ( 9,000) Unadjusted balance – Home Office account P 44, ( Branch Books) (HomeOffice Books) Home Office Investment in Branch Unadjusted balances, P 44,000 P 85, Remittance in transit (10,000) Shipment in transit 20, Expenses allocated 5, Unrecorded HO collection of AR (3,000) Error in recording shipments 9, Adjusted balances P 75,000 P 75,

15. Miguel Corporation operates a branch in Cebu. In October, the home office shipped P34,000 merchandise to this branch. Although the home office made the correct journal entry, the branch credited its Home Office account for P43,000. In November, the branch collected P1,000 on an accounts receivable for the home office. The home office was properly notified but debited Investment in Branch account for P4,000. At the end of the year, the home office paid and recorded a P6,000 expense for the branch but the branch as not yet made the appropriate entry. Also, at year’s end, the branch conveyed P25,000 in cash to the home office but the home office has not yet made the necessary entry. What corrections are needed?

a. The home office needs to credit its Investment in Branch account for P24,000 and the branch needs to debit its Home Office account for P9,000. b. The home office needs to credit its Investment in Branch account for P30,000 and the branch needs to debit its Home Office account for P3,000. c. The home office needs to credit its Investment in Branch account for P22,000 and the branch needs to debit its Home Office account for P15,000. d. The home office needs to credit its Investment in Branch account for P28,000 and the branch needs to debit its Home Office account for P3,000. ANSWER: D. The home office needs to credit its Investment in Branch account for P28,000 and the branch needs to debit its Home Office account for P3,000.

16. Candy Corporation, operates a number of branches in Metro Manila. On June 30,2013,its Nova branch showed a Home Office account balance of P27,350 and the home office books showed Investment in Nova Branch account balance of P25,550. The following data were discovered in reconciling the two reciprocal accounts:
17. A P12,000 shipment, charged by the home office to Nova Branch, was actually sent to and retained by QC branch.
18. A P15,000 shipment, intended and charge to Bulacan branch was shipped to Nova branch.
19. The home office collects a Nova branch accounts receivable of P3,600 and fails to notify the branch.
20. The home office was charged for P1,200 for merchandise returned by Nova branch on June
21. The merchandise is in transit.
22. The home office erroneously recorded Nova branch’s net income for May at P16,275. The branch reported a net income of P12,675. What is the reconciled amount of the Home Office and Investment in Nova Branch accounts? a. P23, b. P21, c. P27, d. P20, ANSWER: A. P23, (Branch Books) (Home Office Books) Home Office Investment in Branch Unadjusted balances P25,550 P27,

18. Best By Ventures operates a branch in Cebu, City. Selected accounts taken from the May 31,2016 statements of Best Buy and its branch follow: H/Office Branch Sales P380,000 P353, Shipments to branch 150,000 - Shipments to branch—loading 39,500 - Inventory, June 1,2015 24,000 16, Purchases 300,000 60, Shipments from home office - 187, Inventory, May 31,2016 28,000 20, The branch ending inventory included items costing P8,700 that were acquired from outside supplies. The realized markup on branch merchandise that would be recognizes by the home office is: a. P36, b. P36, c. P37, d. P37, ANSWER: C. P37, Shipments to branch- loading/allowance for overvaluation of merchandise before adjustments 39, Less: Allowance for overvouchers of ending inventory (after adjustment): (P20,700- p8,700) x 25/125* 2, Realized mark up on branch merchandise 37,
19. The Bicol Corporation operates a branch in Naga City. The information from the December 31,2016 trial balance are as follows: Home Office Naga Branch Sales P840,000 P420, Shipments to branch 280, Purchases 490, Shipments from home office 350, Inventory, January 1,2016 140,000 56, Inventory at December 31, Home Office P42,000: Branch, P84,

Compute the realized inventory profit of home office from sales made by the branch (the overvaluation of cost of goods sold)? a. P56, b. P120, c. P64, d. P80, ANSWER: C. 64, Inventory, January 1,2016 56, Add: Shipments from home office 350, Cost of goods available for sale 406, Less: Inventory, December 31,2016 84, Cost of goods sold at billed price 322, Multiplied by: Mark-up on cost (P350,000- P280,000)/P350,000 20% Overvaluation of cost of goods sold P64,

20. The Quezon City branch of Asser Enterprises, Manila was billed for merchandise shipments from home office at cost plus 25% in 2015 and cost plus 20% in 2016. Other pertinent data for 2016 show: Quezon City Branch Home Office Sales P63,000 P212, Inventory beginning at cost 23, at billed price 8, Purchases 164, Inventory transfers To Quezon City, at cost 42, From Manila, at billed price 50, Inventory, end At cost 28, At billed price 11, Expenses 20,300 76, Compute the (1) realized inventory profit from branch sales (or overvaluation) of cost of goods sold, and (2) The ending inventory that should be presented in the combined income statement.

Less: Inventory December 31 30,000 90, Gross Profit 22, Less: Expenses 6, Net Income 14, (2) Branch Current Account 12-31- National Home Company Current before Net income of the branch 90, Add: Net Income of the branch as reported 14, National Home Company Current/Branch Current 104,

22. 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, 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, b. 147, c. 177, d. 192, Answer: D. Sales (250,000+80,000) 330, Less: COGS at cost: 130, Shipments from home office 15, Cost of goods sold at billed price 115, Multiplied by: Cost ratio 100/115 100, Gross Profit 230, Less: operating expenses 38, Net Income of the branch in so far as the Home office is concerned 132,
23. The Clark Branch of Freeport Corporation submitted the following trial balance as of June 30 2016 Debit Credit Cash P 28, Accounts Receivable 173, Shipments From home office 462, Home Office Current 324, Sales 369, Expenses 29,700 _______

Total 694,100 694, Clark reported an ending inventory of P 138,600. Shipments are billed at a mark up of 40% on cost. What is the real net income clark beanh? a. 70, b. 92, c. 100, d. 108, Answer: D. Sales 369, Less: COGS Shipments from home office, at cost (462,000100/140) 330, Less: ending inventory, at cost (138,600100,140) 99,000 231, Gross Profit 138, Less: expenses 29, Real net income of the branch 108,

24. 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[rice representing 40% mark up on the billed price. On March 31,2016 the branch prepared an income statement indicating a net loss 0f mP 11,500 for March and ending inventories at billed prices of P 25,000. 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. P39,333 dr d. P 46,000 dr Answer: D. Merchandise Inventory, March 1, 2016 32, Add: Shipments (36,000/60% = 60,00040%- note: markup is based on billed price) 24, Cost of goods sold: 58, Less: Merchandise inventory March 31, 2016 (25,00040%) 10,

Home office (210,000-10,000) 200, 300,

27. Lacoste Philippines has two merchandise outlets, its main store in Manila and its Cebu City Branch. For control purposes all purchases are made by the main store and shipments to the Cebu City branch are at cost plus 10%. On January 1, 2016 the inventories of the main store and the Cebu city branch were P 13,600 and P 3,960 respectively. During 2016 the main store purchased merchandise P 40,000 and shipped 40% of these to the Cebu City branch. At December 31, 2016 the following journal entry was made to prepare the Cebu City branch books for the next accounting period. Sales 32, Inventory 4, Inventory 3, Shipments from main store 17, Expenses 10, Main Store 4, What was the actual net income of 2016 on a cost basis, assuming the use of the provisions of the PAS? a. 4, b. 6, c. 6, d. 6, Answer: C. Actual Branch Income: Sales 32, Less: cogs Inventory Jan. 1 at billed price 3, Shipments from main store at billed price 17, Cost of goods available for sale At billed price 21, Less: inventory December 31, At billed price 4, Cogs at billed price 16, Multiplied by: cost ratio 100/110 15, Gross Profit 16, Less: expenses 10, True branch net income 6,
28. Using problem no. 27, If the main store has P 11,200 worth of inventory that should appear on the combined balance sheet at December 31, 2016? a. 15, b. 15,

c. 15, d. 16, Answer: C. Ending inventory at cost: Home office 11, Branch: (4,480*100/110) 4, Combined ending inventory 15,

29. Best Buy Ventures operates a branch in Cebu City. Selected accounts taken from the May 31, 2016 statements of best buy and its branch follow: Home Office Branch Sales 380,000 353, Shipments to branch 150,000 ----- Shipments to branch – loading 39,500 ----- Inventory, June 1, 2015 24,000 16, Purchases 300,000 60, Shipments from home office ----- 187, Inventory, May 31, 2016 28,000 20, The branch ending inventory included items costing P 8,700 that were acquired from outside suppliers. The realized markup on branch merchandise that would be recognized by the home office is: a. 36, b. 36, c. 37, d. 37, Answer: C. Shipments to branch-loading/allowance for overvaluation Of merchandise before adjustments 39, Less: allowance for overvaluation of ending inventory (after adjustments) : (20,700-8,700) * 25/125 2, Realized markup on branch merchandise 37,
30. 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 of P 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, c. (P 2,270)