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 5,000

Cash 5,000
b. Bacolod Agency 5,000
Cash 5,000
c. Rent expense-Bacolod agency 5,000
Working fund 5,000
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 868,000
Disbursement:
Purchases 800,000
Salaries 140,000
Rent 40,000
Supplies 20,000
Other Expenses 10,000

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 310,000
c. Closed with the period’s operational loss of 118,000
d. Continued with the periods profit of 50,000

ANSWER: C. Closed with the period’s operational loss of 118,000

Sales P 700,000
Cost of goods sold:
Purchases P800,000
Merchandise inventory, end 180,000 620,000
Gross profit P 80,000
Expenses 198,000
Net income (loss) P (118,000)
3. On June 1, 2013, Makati Company established a sales agency in Fairview, QC. Upon the
establishment of the sales agency the Makati office sent merchandise samples costing
8,000 and a cash working fund of 3,000 to be maintained on the imprest basis. During the
month of June, the sales agency reported to the home office sales order. These were billed
at 70,000 of which 40,000 was collected. That the sales agency paid expenses of 2,800 but
was reimbursed by the home office.

On June 30, 2013, the sales agency samples were valued at 6,000. It was estimated that the
gross profit on good ships to fill agency sales orders averaged 40% of cost. What is the net
income of sales agency for the month ended June 30, 2013?

a. 10,400
b. 15,200
c. 10,000
d. 23,200

ANSWERS: B. 15,200

Sales P 70,000
Cost of goods sold (P70,000 / 140%) 50,000
Gross profit P 20,000
Less: Samples (P8,000 – P6,000) P 2,000
Expenses 2,800 4,800
Net income P 15,200

4. On January 2, 2013, Jose Company established a sales agency in Pasig City. During the
year the following transactions occurred:
1. Transfer of 10,000 worth of merchandise to Pasig agency to establish a working fund.
2. Receipts of sales orders from the agency, 100,000.
3. Collections of agency accounts by the Home office, 70,000.
4. Home office disbursements representing agency expense, 9,000.
5. Replenishment of the agency working fund upon receipts of expense vouchers for 4,500.
6. Cost of goods sold indentified with the agency sales, 72,000.

What is the net income (loss) of the agency for the year, 2013?

a. 14,500
b. 4,500
c. (14,500)
d. 14,000

ANSWER: A. 14,500

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

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 7,500

Home Office 7,500
b. Depreciation expense 7,500
Accumulated Depreciation 7,500
c. Depreciation expense 7,500
Investment in branch 7,500
d. Home Office 7,500
Depreciation expense 7,500

ANSWER: A. Depreciation expense 7,500

Home Office 7,500

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 5,000
Home office 5,000
c. Home office 5,000
Accounts Receivable 5,000
d. Cash 5,000
Accounts Receivable 5,000
ANSWER: C. Home office 5,000
Accounts Receivable 5,000

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. 98,000
b. 104,000
c. 122,000
d. 178,000

ANSWER: A. 98,000

Shipment of merchandise to home office P 80,000

Equipment sent to home office 50,000
Expenses assigned to branch by the home office 8,000
Cash remittance to home office (40,000)
Home office account balance P 98,000

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 38,600

Home office 21,320

Your examination of accounts revealed the following information:

1. On December 26, the branch remitted 10,400 in cash to the Home Office that was not
received until January 3.
2. Merchandise that was billed to the branch at 7,280 was in transit at December 31.
3. 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.
What is the adjusted balance of the reciprocal accounts on December 31,2013?

a. 29,000
b. 49,000
c. 39,000
d. 28,200

ANSWER: D. 28,200

(Branch Books) (Home Office Books)

Home Office Investment in Branch
Unadjusted balances, Dec. 31 P 21,320 P 38,600
Remittance in transit (10,400)
Shipment in transit 7,280
Cash collections of home office ( 400)
Adjusted balances, Dec. 31 P 28,200 P 28,200

10. Manila Company, Inc. has been operating a branch in Cavite for a year. Shipments are
billed to the branch at cost. The branch carries its own accounts receivable, makes its own
collections, and pays its own expenses. On December 31, 2013, the branch books shows
the following balances:

Cash 8,500
Home office 35,000
Shipments from Home Office 135,000
Accounts receivable 25,000
Sales 147,000
Expenses 13,500

The branch inventory on December 31,2013 is 18,500. On January 1, 2014, what are the
balances of the following accounts in the books of the Home Office?

Investment In Branch Shipments to Branch

a. 52,000 0
b. 52,000 135,000
c. 35,000 0
d. 35,000 135,000

ANSWER: A. Investment In Branch Shipments to Branch

52,000 0
 Home Office account balance before closing, Dec. 32, 1008P 35,000
Net income (loss)
Sales P147,000
Cost of cost goods sold
Shipment to branch P135,000
Inventory, 12/31 18,500 116,500
Gross profit P 30,500
Expenses 13,500 17,000
Home Office account balance (Investment in Branch account balance) P 52,000

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
following data to the Home office in Manila:

Petty Cash Fund 6,000

Sales 390,000
Shipments from Home office 270,000
Accounts receivable, January 1, 2013 86,000
Inventory, January 1, 2013 74,000
Inventory, January 1, 2013 82,000
Expenses 96,000

All cash collected on accounts receivable amounting to 378,000 were remitted to the Home
Office. What is the balance of the Home Office account on:

January 1, 2013 January 1,2014

a. 270,000 186,000
b. 166,000 186,000
c. 166,000 88,000
d. 270,000 88,000

ANSWER: B. January 1, 2013 January 1,2014

166,000 186,000
Jan. 1, 2008 Jan. 1, 2009
Petty cash fund P 6,000 P 6,000
Accounts receivable 86,000 98,000
Inventory 74,000 82,000
Home Office account balance P166,000 P186,000
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:
1. A credit from merchandise allowance for 3,000 was taken by the branch as 3,600.
2. 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.
3. 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. 414,900
b. 419,900
c. 429,500
d. 404,900

ANSWER: A. 414,900

Unadjusted balance – Investment in Branch account, 12/31 P430,000

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 P414,900

13. 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.
f. The balance of the Home Office account in the books of the branch on December 31, 2013
is 440,000.
Compute the following balances on December 31,2013:

Unadjusted balance of Adjusted balances

Investment in Branch Account
a. 464,000 464,000
b. 496,000 472,000
c. 474,000 474,000
d. 501,000 472,000

ANSWER: A. Unadjusted balance of Adjusted balances

Investment in Branch Account
464,000 464,000

(Branch Books) (Home Office Books)

Home Office Investment in Branch
Unadjusted balances P 440,000 P 496,000
Branch AR collected by Home Office ( 8,000)
Shipments in transit 32,000
Acquisition of furniture (12,000)
Merchandise returns (15,000)
Cash remittance in transit ( 5,000)
Adjusted balances P 464,000 P 464,000

14. On December 31,2013, the Investment in branch account on the home office’s books has a
balance of 85,000. In analyzing the inter-company transactions recorded in each of these
accounts for December, you discover the following discrepancies:
1. A P10,000 branch remittance to the home office initiated on December 27,2013, was
recorded on the home office books on January 4,2014.
2. A home office merchandise shipment to the branch on December 29,2013 was recorded
by the branch on January 5,2014. The cost of this merchandise is P20,000.
3. The home office incurred P12,000 of advertising expenses and allocated P5,000 of this
amount to the branch on December 15,2013. The branch has not recorded this transaction.
4. A branch customer erroneously remitted P3,000 to the home office. The home office
recorded this cash collection on December 23,2013. Meanwhile, back at the branch, no
entry has been made yet.
5. Merchandise costing P43,000 was sent to the branch by the home office on December
10,2013. The billing was at cost, but the branch recorded the transaction at P34,000.
 Compute the following balances as of December 31,2013:
Unadjusted balance Adjusted Balances
Of the Home Office Account
a. P64,000 P95,000
b. P26,000 P16,000
c. P44,000 P75,000
d. P44,000 P78,000

ANSWER: C. Unadjusted balance Adjusted Balances

Of the Home Office Account
P44,000 P75,000

Unadjusted balance- Investment in Branch account P 85,000

Remittance in transit (10,000)
Shipment in transit (20,000)
Expenses allocated ( 5,000)
Error in recording remittance 3,000
Error in recording shipments ( 9,000)
Unadjusted balance – Home Office account P 44,000

( Branch Books) (HomeOffice Books)

Home Office Investment in Branch
Unadjusted balances, P 44,000 P 85,000
Remittance in transit (10,000)
Shipment in transit 20,000
Expenses allocated 5,000
Unrecorded HO collection of AR (3,000)
Error in recording shipments 9,000
Adjusted balances P 75,000 P 75,000

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:
1. A P12,000 shipment, charged by the home office to Nova Branch, was actually sent to and
retained by QC branch.
2. A P15,000 shipment, intended and charge to Bulacan branch was shipped to Nova branch.
3. The home office collects a Nova branch accounts receivable of P3,600 and fails to notify the
branch.
4. The home office was charged for P1,200 for merchandise returned by Nova branch on June
28. The merchandise is in transit.
5. 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. P23,750
b. P21,750
c. P27,350
d. P20,150

ANSWER: A. P23,750

(Branch Books) (Home Office Books)

Home Office Investment in Branch
Unadjusted balances P25,550 P27,350
Error in recording shipment to Cavity branch (12,000)
Error in recording shipment to Tagaytay branch 15,000
Branch AR collected by home office (3,000)
Merchandise returns in transit ( 1,200)
Error in recording branch profit ( 3,600)
Adjusted balances P23,750 P23,750

17. On December 31,2013 the Investment in Branch account on the home office books of the
Lady Company shows a balance of P84,000, and the Home Office account on the books of
the branch shows a balance of P97,350. The following data are determined in accounting
for the difference.
1. Merchandise billed at P6,150 was shipped by the home office to the branch on December
28. The merchandise is in transit and had not been recognized on the books of the branch.
2. The branch collected a home office accounts receivable of P25,000, but failed to notify the
home office of this collection.
3. The home office recorded incorrectly the branch net income at P11,250. The branch
reported net income of P12,150.
4. The home office was charged P6,400 when the branch returned merchandise to the home
office on December 31. The merchandise is in transit.
What is the reconciled amounts of the reciprocal accounts on December 31?
a. P103,500
b. P102,600
c. P78,500
d. P97,350

ANSWER: A. P103,500

(Branch Books) (Home Office Books)

Home Office Investment in Branch
Unadjusted balances, 12/31 P 97,350 P 84,000
Shipment in transit 6,150
Collection of HO A/R by branch 25,000
Error in recording of branch profit 900
Returns of merchandise in transit ( 6,400)
Adjusted balances, 12/31 P103,500 P103,500
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 P353,000
Shipments to branch 150,000 -
Shipments to branch—loading 39,500 -
Inventory, June 1,2015 24,000 16,000
Purchases 300,000 60,000
Shipments from home office - 187,500
Inventory, May 31,2016 28,000 20,700

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. P36,000

b. P36,700

c. P37,100

d. P37,500

ANSWER: C. P37,100

Shipments to branch- loading/allowance for overvaluation

of merchandise before adjustments 39,500

Less: Allowance for overvouchers of ending inventory

(after adjustment): (P20,700- p8,700) x 25/125* 2,400

Realized mark up on branch merchandise 37,100

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 P420,000
Shipments to branch 280,000
Purchases 490,000
Shipments from home office 350,000
Inventory, January 1,2016 140,000 56,000

Inventory at December 31, Home Office P42,000: Branch, P84,000

 Compute the realized inventory profit of home office from sales made by the branch (the
overvaluation of cost of goods sold)?

a. P56,000
b. P120,400
c. P64,400
d. P80,000

ANSWER: C. 64,400

Inventory, January 1,2016 56,000

Add: Shipments from home office 350,000

Cost of goods available for sale 406,000

Less: Inventory, December 31,2016 84,000

Cost of goods sold at billed price 322,000

Multiplied by: Mark-up on cost (P350,000- P280,000)/P350,000 20%

Overvaluation of cost of goods sold P64,400

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 P212,000
Inventory beginning
at cost 23,000
at billed price 8,900
Purchases 164,000
Inventory transfers
To Quezon City, at cost 42,000
From Manila, at billed price 50,400
Inventory, end
At cost 28,500
At billed price 11,700
Expenses 20,300 76,400
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.
a. (1) 8,230; (2) 40,200
b. (1) 8,230; (2) 38,250
c. (1) 7,933; (2) 38,250
d. (1) 9,520; (2) 37,860

ANSWER: B. (1) 8,230; (2) 38,250

1. Realized profit from branch sales:

Inventory, beginning (8,900 x 25/125) 1,780
Add: Shipments (50,400 x 20/120) 8,400
Total 10,180
Less: Inventory, ending (11,700 x 20/120) 1,950
Realized Inventory profit from branch sales 8,230
2. Ending Inventory in the Income Statement
Home Office 28,500
Branch: (11,700 x 100/120) 9,750
38,250

21. The National Home Company ships and bills merchandise to its provincial branch at cost.
The branch carries its own accounts receivable and makes its own collections. The branch
also pays its expenses.

The transactions for 2016 are reflected in the branch trial balance that follows:

Debit Credit
Cash P 11,900
National Home Co. Current P 90,000
Shipments from National Home Co. 120,000
Accounts Receivable 62,500
Expenses 8,100
Sales 112,500
Total 202,500 202,500
Compute the (1) net profit of the branch, and (2) the branch current account in the home
office books.
a. (1) 22,500 (2) 90,000
b. (1) 21,300 (2) 134,400
c. (1) 14,400(2) 104,400
d. (1) 14,400 (2) 90,000
Answer: C.
(1) Net profit of the branch:
Sales 112,500
Less: COGS
Shipments from home office 120,000
 Less: Inventory December 31 30,000 90,000
Gross Profit 22,500
Less: Expenses 6,100
Net Income 14,400
(2) Branch Current Account 12-31-16
National Home Company Current before
Net income of the branch 90,000
Add: Net Income of the branch as reported 14,400
National Home Company Current/Branch
Current 104,400

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 130,000
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. 82,000
b. 147,000
c. 177,000
d. 192,000
Answer: D.
Sales (250,000+80,000) 330,000
Less: COGS at cost: 130,000
Shipments from home office 15,000
Cost of goods sold at billed price 115,000
Multiplied by: Cost ratio 100/115 100,000

Gross Profit 230,000

Less: operating expenses 38,000
Net Income of the branch in so far as the
Home office is concerned 132,000

23. The Clark Branch of Freeport Corporation submitted the following trial balance as of June
30 2016
Debit Credit
Cash P 28,600
Accounts Receivable 173,800
Shipments From home office 462,000
Home Office Current 324,500
Sales 369,600
Expenses 29,700 _______
 Total 694,100 694,100
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. 70,600
b. 92,400
c. 100,000
d. 108,900
Answer: D.
Sales 369,600
Less: COGS
Shipments from home office, at cost
(462,000*100/140) 330,000
Less: ending inventory, at cost
(138,600*100,140) 99,000 231,000

Gross Profit 138,600

Less: expenses 29,700

Real net income of the branch 108,900

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 32,000
Add: Shipments (36,000/60% = 60,000*40%-
note: markup is based on billed price) 24,000

Cost of goods sold: 58,000

Less: Merchandise inventory March 31, 2016
(25,000*40%) 10,000
Overvaluation of CGS/ Realied the gross profit on branch sales 46,000

25. Jaimee Marketing co, opened a branch in san Fernando City at the beginning of 2016. The
branch extends credit, makes collections, pays expenses from cash receipts and acquires
goods exclusively from home office. During 2016, goods shipped by the home office to
the branch at the billing price of 125% of cost amounted to P 104,000 of which P 12,500
remained in the branch’s year end inventory. Other branch transaction in 2016 were as
follows: sales, all on credit, P 117,430, expenses of which P1,500 are unpaid at year end,
P 20,000, collections on account after deducting P 1,480, P 84,000, and total remittances
to the home office P 62,500. As far as the home office is concerned, the operations of the
branch resulted into:
a. P 4,450 net income
b. P 9,550 net loss
c. P 18,300 net income
d. P 22,750 net income
Answer: D.
Sales 117,430
Less: Sales Discount 1,480
Net Sales 115,950
Less: Cogs:
Shipments from home office, at cost
(104,000*100/125) 83,200
Less: ending inventory, at cost
(12,500*100/125) 10,000 73200
Gross Profit 42,750
Less: Expenses 20,000
Branch results of operation in so far as the Ho is concerned 22,750

26. The Gift Co, has a branch in Dipolog City. During 2016 the home office shipped to the
branch merchandise billed at P 150,000 including a markup of 20% on cost. The branch
reports opening and closing inventories of P 90,000 and P 120,000 respectively, while the
home office has a closing inventories of P 210,000 which includes merchandise held on
consignment valueds at P 10,000. Both locations use the periodic inventory system. What
closing inventory would be reported in the combined income statement for the year 2016?
a. P 296,000
b. P 300,000
c. P 320,000
d. P 330,000
Answer: B.
Ending inventory:
Branch (120,000*100/120) 100,000
Home office (210,000-10,000) 200,000
300,000

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 32,000
Inventory 4,840
Inventory 3,960
Shipments from main store 17,600
Expenses 10,480
Main Store 4,800

What was the actual net income of 2016 on a cost basis, assuming the use of the provisions of
the PAS?
a. 4,800
b. 6,330
c. 6,320
d. 6,480
Answer: C.
Actual Branch Income:
Sales 32,000
Less: cogs
Inventory Jan. 1 at billed price 3,960
Shipments from main store at billed price 17,600
Cost of goods available for sale
At billed price 21,560
Less: inventory December 31,
At billed price 4,840
Cogs at billed price 16,720
Multiplied by: cost ratio 100/110 15,200
Gross Profit 16,800
Less: expenses 10,480
True branch net income 6,320
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. 15,630
b. 15,160
 c. 15,600
d. 16,040
Answer: C.
Ending inventory at cost:
Home office 11,200
Branch: (4,480*100/110) 4,400
Combined ending inventory 15,600
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 380,000 353,000
Shipments to branch 150,000 -----
Shipments to branch – loading 39,500 -----
Inventory, June 1, 2015 24,000 16,000
Purchases 300,000 60,000
Shipments from home office ----- 187,500
Inventory, May 31, 2016 28,000 20,700

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. 36,000
b. 36,700
c. 37,100
d. 37,500

Answer: C.
Shipments to branch-loading/allowance for overvaluation
Of merchandise before adjustments 39,500
Less: allowance for overvaluation of ending inventory
(after adjustments) : (20,700-8,700) * 25/125 2,400
Realized markup on branch merchandise 37,100

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. 6,500
c. (P 2,270)
 d. 1,960
Answer: (D.)
Net income (loss) per branch books (2,270)
Add: Realized Profit from sales made by the branch/
Overvaluation of cost of goods sold:
Beginning Inventory -
Add: Shipments 125,000
Less: Returns 15,620

Cost of good available for sale at billed price 109,380

Less: Ending Inventory, at billed price 84,000

Cost of goods sold at billed price 25,380

Multiplied by markup 20/120 4,230
Adjusted Branch net income 1,960

31. The Aparri branch of Cagayan Products, Inc. buys merchandise from third parties and
receives merchandise from the home office for which it is billed at 20% above cost. Below
are excerpts from the trial balances and data on the home office and Aparri branch for the
month just ended:

Home Office books:

Cr. Allowance for overvaluation of branch merchandise………… P 740, 000

Cr. Shipment to branch…………………………………………….1, 700, 000

Branch books:

Dr. Beg. Inventory…………………………………………………2, 880, 000

Shipments from home office……………………………………2, 040, 000

Purchases……………………………………………………….. 820, 000

Month-end additional data:

Ending inventory of branch………………………………………...2, 920, 000

From home office at BP…………………………………….2, 340, 000

From outsiders, at cost……………………………………... 580, 000

For the month just ended:

The total cost of goods sold of The amount of allowance for

 Aparri branch at cost overvaluation that was realized
(net of overvaluation) from branch sales
a. P 2, 820, 000 P 400, 000
b. 2, 470, 000 350, 000
c. 2, 770, 000 740, 000
d. 2, 470, 000 390, 000
ANSWER: B
SOLUTION:
Cost of goods sold at cost:
Beginning inventory…………………………………………….. P2, 880, 000
Add: Shipment from home office……………………………….... 2, 040, 000
Purchases…………………………………………………. 820, 000
Cost of goods sold available for sale……………………………………… P5, 740, 000
Less: Ending Inventory……………………………………………………. 2, 920, 000
Cost of goods sold with intercompany profit……………………………… P2, 820, 000
Less: Realized profit from sales made by branch/ overvaluation
Of cost of goods sold:
Allowance for overvaluation before adj………….. P740, 000
Less: Allowance for ending inventory
P2, 340, 000 x 20/120……………………… 390, 000 350, 000 (b)
Cost of goods sold at cost…………………………………………………..P2, 470, 000 (b)

32. The Quezon City Sales Company established a branch in Dumaguete City early last year.
It shipped merchandise and billed the branch for P300, 000 prior to its opening. For the
year, it made additional shipments at billed price of P120, 000. Within the year, the branch
shipped back P7, 500 inventories and got the credit memo for said returns. On the last
working day of the year, an inventory count was made. Ending inventory of P185, 000
was established consisting of purchases from third parties at P20, 000, with the balance
coming from home office shipments at billed price. The home office billed the branch at
20% above cost. The total purchases at the branch from outside suppliers amounted to
P72, 500. The total goods available for sale by the branch at cost net of overvaluation and
returns amounted to:
a. P416, 250
 b. 422, 500
c. 435, 200
d. 485, 000
ANSWER: A
SOLUTION:
Cost of goods available for sale at cost:
Shipments from home office………………………………………….. P300, 000
Additional shipments…………………………………………………. 120, 000
Returns to home office………………………………………………… (7, 500)
Shipments from home office at billed price (net of returns)………….. P412, 500
Multiplied by: Cost Ratio……………………………………………… 100/120
Shipments from home office at cost……………………………………P343, 750
Purchasers from outsiders at cost………………………………………. 72, 500
Cost of goods available for sale, at cost………………………………... P416, 250 (a)

33. The home office of Glendale Company, which uses the perpetual inventory system, bills
shipments of merchandise to the Montrose branch at a markup of 25% on the billed price.
On August 31, 2016, the credit balance of the home office’s allowance for overvaluation
of inventories – Montrose branch le4dger account was P60, 000. On September 17, 2016,
the home office shipped merchandise to the branch at a billed price of P400, 000. The
branch reported on ending inventory, at billed price, of P160, 000 on September 30, 2016.
Compute the realized gross profit.
a. P20, 000
b. 28, 000
c. 120, 000
d. 160, 000
ANSWER: C
SOLUTION:
Merchandise inventory, August 31, 2016…………………………………… P60, 000
Add: shipments (P400, 000 X 25% - note: markup is based on
billed price)…………………………………………………………… 100, 000
Cost of goods available for sale……………………………………………….P160, 000
Less: Merchandise inventory, Sept. 30, 2016
(P160, 000 x 25%)…………………………………………………….. 40, 000
Overvaluation of CGS / Realized the gross profit on branch sales…………… P120, 000 (c)

34. Charity, Inc. established first branch on May 1, 2016. During the first month of
operation, the home office shipped merchandise to the branch worth P138, 000 which
included a markup of 15% on cost. Sales for cash were P80, 000 while sales on account
were P250, 000. At month’s end, the branch reported operating expenses of P38, 000 and
a closing inventory of P23, 000 at billed price. As for as the home office is concerned, the
true branch net income for May 2016 is:
a. P82, 000
b. 147, 000
c. 177, 000
d. 192, 000
ANSWER: D
SOLUTION:
Sales (P80, 000 + P250, 000)……………………………………………………. P 330, 000
Less: Cost of goods sold:
Shipment from home office, at cost
(P138, 000 x 100 / 115)…………………………….P120, 000
Less: Ending inventory, at cost
(P23, 000 x 100 / 115)……………………………… 20, 000 100, 000
Gross Profit………………………………………………………………………...P230, 000
Less: Operating expenses………………………………………………………..... 38, 000
True Branch Income………………………………………………………………..P192, 000 (d)

35. The account balances shown below were taken from the trial balances submitted to Bon-Apetit
Corporation by its Alabang branch:

2015 2016

Petty Cash Fund………………………………………………P1, 500 P1, 500

Accounts Receivable………………………………………….43, 800 49, 140

Inventory……………………………………………………… - 37, 170

Sales………………………………………………………….173, 180 195, 120

Shipments from home (140% at cost)………………………..107, 450 136, 080

Expenses……………………………………………………... 51, 260 57, 930

Accounts written off………………………………………….. 1, 220 1, 920

All ranch collections are remitted to the home office. All branch expenses are paid out of the petty
cash fund. When the petty cash fund is replenished, the branch debits appropriate expense accounts
and credits home office current. The petty cash is counted every December 31, and its composition
was as follows:

12/31/15 12/31/16

Currency and coins…………………………………………….P580 P860

Expense vouchers……………………………………………… 920 640

The branch inventory in December 31, 2016 was P41, 370. The correct of branch net income for 2016
was:

a. P3, 390
b. 3, 670
c. 41, 070
d. 41, 350

ANSWER: D

SOLUTION:

Sales………………………………………………………………………………P195, 120

Less: Cost of goods sold, at cost:

Inventory 1/1/16 at cost (P37, 170 x 100/140)…………………………… P26, 550

Add: Shipments at cost (P136, 080 x 100/140)………. 97, 200

Cost of goods available for sale……………………...P123, 750

 Less: Inventory, 12/31/16, at cost

(P41, 370 x 100/140)…………………………. 29, 550 94, 200

Gross Profit………………………………………………………………………...P100, 920

Less: Expenses (P57, 930 + P1, 920* + P280**)…………………………………. 59, 570

Correct branch net income………………………………………………………….P41, 350 (d)

*Direct write off was used in recording doubtful accounts since there is no allowance account given
in the trial balance.

**There as a P280 reduction on unreimbursed petty cash expense vouchers, incidentally, the entry
for the adjustment would be:

Petty cash………………………………………. 280

Expense……………………………………………….. 280

36. Hope Corporation started operating a branch on May 1, 2016 with a shipment of
merchandise billed at P250, 000. Additional shipments during the month were billed at P125,
000. The branch returned damaged merchandise worth P10, 000. Interoffice shipments are
billed uniformly at 125% of cost. On May 31, 2016, the branch reported a net loss of P52, 500
and an inventory of P150, 000. What is the branch net income (loss) reflected in the combined
income statement for May, 2016?
a. P(9, 500)
b. 43, 000
c. (52, 500)
d. 95, 000

ANSWER: A

SOLUTION:

Branch reported net loss……………………………………………………. P(52, 500)

Add: overvaluation of cost of goods sold/realized

profit from sales made by branch:

Shipments at cost (P250, 000 + P125, 000

- P10, 000) x 25/125…………………….. P73, 000

 Less: Inventory, 5/31/2004

(P150, 000 x 25/125)…………………….. 30, 000 43, 000

True branch net loss………………………………………………………….P(9, 500) (a)

37. The Best Co. bills merchandise shipments in its Cavite City branch at 125% of cost. The
branch, in turn, sells the merchandise it receives from the home office at 25% above the
billing price. On August 1, 2016, all the branch’s merchandise stock was destroyed by fire.
The branch records that were recovered showed the following:

Inventory, January 1, 2016 (at billed price)…………………………………P165, 000

Shipments received from home office, January to July (at billed price)…… 110, 000

Purchases at cost, from outside sources, all re-sold at a 20% markup……… 7, 500

Sales………………………………………………………………………….. 169, 000

Sales returns and allowances…………………………………………………. 3, 750

The Best Co. will file an insurance claim. How much is the estimated cost of the merchandise
destroyed by fire?

a. P120, 000
b. 130, 000
c. 140, 000
d. 150, 000

ANSWER: A

SOLUTION:

Inventory, Jan. 1, at billed price…………………………………………… P165, 000

Shipments received from home office at billed price……………………… 110, 000

Cost of goods available for sale at billed price…………………………….. P275, 000

Less: Cost of goods sold from home office at billed price:

Sales………………………………………….. P169, 000

Less: Sales of returns and allowances……….. 3, 750

Sales price of merchandise purchased

 from outsiders (P7, 500 x 120%) 9, 000

Net sales of merchandise acquired from

home office…………………………….. P156, 250

Multiplied by: Intercompany cost ratio……….. 100/125 125, 000

Inventory, Aug. 1, 2016, at billed price……………………………………...P150, 000

Multiplied by: Cost Ratio……………………………………………………. 100/125

Merchandise inventory at cost destroyed by fire…………………………….P120, 000 (a)

38. On August 31, 2016, a fire destroyed totally the rented “bodega” or stockroom of Isabela
Company. The following are some of the data of the company:

Merchandise inventory, Dec. 31, 2015……………………………………….P110, 000

For the period Jan. 1 – Aug. 31, 2016:

Purchases……………………………………………………………… 560, 500

Freight In………………………………………………………………. 5, 600

Purchases returns………………………………………………………. 10, 200

Sales……………………………………………………………………..695, 000

Sales returns and allowances…………………………………………… 7, 500

Using a profit of gross profit rate, the cost of the merchandise lost in the fire was:

a. P90, 700
b. 115, 900
c. 88, 400
d. 63, 200

ANSWER: B

SOLUTION:

Merchandise inventory, Dec. 31, 2015……………………………………….P110, 000

Add: Net Purchases:

Purchases……………………………………..P360, 500
 Add: Freight In……………………………….. 5, 600

Total…………………………………………..P566, 100

Less: Purchase returns……………………….. 10, 200 555, 900

Cost of goods available for sale………………………………………………...P665, 900

Less: Cost of goods sold:

Net sales (P695, 000 – P7, 500)………………P687, 500

Multiplied by: Cost Ratio…………………….. 80% 550, 000

Merchandise Inventory, Aug. 31, 2016, loss due to fire…………………………P115, 900 (b)

39. 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:

H/Office Branch

Sales……………………………………………… P380, 000 P353, 000

Shipments to branch……………………………… 150, 000 -

Shipments to branch – loading…………………… 39, 500 -

Inventory, June 1, 2015…………………………... 24, 000 16, 000

Purchases…………………………………………. 300, 000 60, 000

Shipments from home office……………………… - 187, 500

Inventory, May 31, 2016…………………………. 28, 000 20, 700

The branch ending inventory included items costing P8, 700 that were acquired from outside
suppliers. The realized markup on branch merchandise that would be recognized by the home office
is:

a. P36, 000
b. 36, 700
c. 37, 100
d. 37, 500

ANSWER: C

SOLUTION:
Shipments to branch – loading / allowance for overvaluation

of merchandise before adj……………………………………………………… P39, 500

Less: Allowance for over vouchers of ending inventory

(after adjustments): (P20, 700 – P8, 700) x 25/125*…………………… 2, 400

Realized markup on merchandise………………………………………………. P37, 100 (c)

*Since there are no shipments in transit and there was no error in recording shipments, therefore, the
shipments from office account was correctly recorded, so, to compute for the billing price would be:
P187, 500/P150, 000 = 25%. Markup on cost would be 25%.

40. On December 31, 2016, the following data are in the records of the Cebu City branch of the
Claire Company:

Petty cash ……………………………………………………………… P 94, 500

Account Receivable, Dec. 31, 2015 …………………………………… 85, 200

Merchandise Inventory, Dec. 31, 2015………………………………… 75, 500

Accounts Receivable, Dec. 31, 2016…………………………………… 88, 800

Merchandise Inventory, Dec. 31, 2016……………………………….... 81, 000

Sales……………………………………………………………………. 272, 700

Sales Returns…………………………………………………………… 4,800

Accounts Receivable written off……………………………………….. 2, 000

Shipments from Home Office………………………………………….. 220, 600

Expenses (Paid by Home Office)……………………………………….. 22, 500

If all cash collection in 2016 were remitted to Home Office, the total remittances amounted to:

a. 262, 300

b. 266, 800

c. 264, 300

d. 267, 100

ANSWER: A
SOLUTION:

Accounts Receivable, 12/31/15…………………………………………. P85, 200

Add: Sales on account………………………………………………….... 272, 700

Total……………………………………………………………………... P357, 900

Less: sales returns……………………………….. P4, 800

Accounts receivable written off…………. 2, 000

Accounts receivable, 12/31/16………….. 88, 800 95, 600

Collections remitted to home office…………………………………….. P262, 300 (a)

41. A branch store in Caloocan was established by Carlo Company on March 1. Merchandise
was billed to the branch at 125% of cost. Shipments of merchandise were as follows:

March 5 ……………………………………… P 120,000 (at billed price)

March 10 …………………………………….. 50,000 (at billed price)
March 20 …………………………………….. 35,000 (at billed price)

On March 22, the branch returned defective merchandise worth P3,050. On March 31, the
branch reported a net loss of (P6,200 and merchandise inventory of P85,000.

In the home office books, the cost of merchandise sold by branch was:

A. P 161,560
B. P116,950
C. P93,560
D. P 161,950

ANSWER: B. 93,560

Shipments from office (P120000 + P50,000 + P35,000) …………….. P205000

Less: Returns …………………………………………………………. 3050
Shipments from office (net of returns) ……………………………….. P201950
Less: Inventory 3/3 …………………………………………………… 85000
COGS at billed price …………………………………………………. P116950
Less: Allowance for mark-up included in the cost of goods sold
Of realized profit from branch sale (P116950 x 25/125) ……. 23390
COGS sold made by branch …………………………………………. P 93650 (b)

42. Leila Co.’s Clark branch submitted the following data for 2016, its first year of operation:
 Sales ………………………………………… P203,500 Cr.
Shipments from home office …………………. 186,120 Dr.
Operating Expenses ………………………….. 18755 Dr.
Home Office –current ………………………… 48,125 Cr.

Shipments to the branch are billed at cost. The December 31 inventory of the branch was
P25,245. What is the correct balance on December 31, 2016 at the branch Account- current as
per home office books?

A. P46,750
B. P65,505
C. P48,125
D. P71,995

ANSWER: D P71,995
Home Office Current Account before branch
Net income ……………………………………… P48, 125
Add: Net Income of the branch as reported:
Sales …………………………………… P203,500
Less: COGS
Shipments from HO……………… P186,120
Less: Inventory, 12/31 ………….. 25,245 160,875
Gross profit …………………………… P 42,625
Less: Operating Expenses …………… 18,755 23,870
HO Current Account/Branch Current. 12/31…………………………….. P71,995 (d)

43. The following information pertains to shipments of merchandise from home office to
branch during 2016:

Home office cost of merchandise ………………….. P160,000

Intracompany billing ………………………………. 200,000
Sales by branch ……………………………………. 250,000
Unsold merchandise at Branch on
Dec 31, 2016 ……………………………… 20,000
In the combined income statement of Home office and branch for the year ended December
31, 2016, what amount of the above transactions should be included in sales?
A. 250,000
B. 230,000
C. 200,000
D. 18,000

ANSWER: A. P250,000

In the preparation of combined income statement of home office and branch, all intercompany
transactions should be eliminated as if it had never occurred. Therefore, the only transaction
that should remain are transaction to unrelated customer, i.e, P250,000 sales by branch to
outsider.

44. Barros Corporation’s shipments to and form its Brazil City branch are billed at 120% cost.
On December 31, Brazil branch reported the following data, at billed prices: inventory,
Januray 1, of P33,600; shipments received from home office of P840,000; shipments
returned of P48,000; and inventory. December 31, of P36,000. What is the balance of the
allowance for overvaluation of branch inventory on December 31 before adjustments?
A. P5,600
B. P137,600
C. P6,000
D. P145,600

ANSWER: B. P137,600

Inventory, January 1 ………………………………….. P 33,600

Add: Shipments from office, net of returns
(P840,000 – P48,000) ………………………... 792,000
Cost of good available for sale ………………………. P 825,600
Multiplied by mark-up ………………………………. 20/120
Allowance for overvaluation before adjustments……. P137,600 (b)

45. The Cindy owns the Highest crown in Dipolog City and a branch in Dapitan City. During
2016, the home office shipped to the branch supplies costing P120,000 at a billed price of
20% above cost. The inventories of supplies at the branch were as follows: January
1,2016.P90,000; December 31,2016, P108,000. On December 31,2016 the home office
holds inventories of P160,500 which includes P10,500 held on consignment. Both
locations use the periodic inventory method.

How much is the inventories in a combined balance sheet as of December 31 2016?

ANSWER: B. P240,000

Inventory, Dec. 31,2016 in the Combine balanaced sheet (at cost):

Branch: (108,000 x 100/120) ………………………….. P 90,000
HO: (P160-500 – P 10,500) …………………………….. 150,000
Inventory, 12/31/16 at cost ……………………………... P240,000

46. The home office of Irby Company bills merchandise to branches at 25% above home
office cost. Information taken from the accounting records of Kipp Branch is as follows:

Beginning inventories (at billed prices)…………………………. 17,000

Shipments from home office (at billed prices)………………….. 42,500
Ending inventories (at billed prices) ……………………………. 20,000
Net loss for accounting period ………………………………….. 1,500
The net income or net loss of Kipp Branch, based on home office cost of branch merchandise,
is:
a. P7,900 net income
b. 9,400 net loss
c. 6,400 net income
d. 7,000 net income

ANSWER: C. 6,400 net income

Beg. Inventories ………………………………………. P17,000

Shipments from HO…………………………………… 42,500
Less: Ending Inventories………………………………. 20,000
39,500
X .20
7900
Less: Net loss for accounting period ……………….. 1500
6,400

47. Espana Branch was billed by home office for merchandise at 140% of cost. At the end of
its first month, Espana branch submitted among other things the following data:

Merchandise from HO @ billed price P98,000

Merchandise purchased by branch 40,000
Inevnotry, December 31 of which P7,000 are of local purchase 28,000
Net sales for month 180,000

The branch inventory at cost and the gross profit of the branch as far as the home office is
concerned are:
Gross Profit End. Inv. Of Branch at Cos
A. 22,000 92,000
B. 92,000 22,000
C. 70,000 22,000
D. 90,000 20,000

ANSWER: B. P92, 000

Net Sales ………………………………………………… P180,000

Less: COGS:
Purchases …………………………………………. P 40,000
Shipments from home office, at cost
(P98,000 x 100/140) ……………………………. 70,000
Cost of goods available for sale ………………… P110,000
Less: Inventory, December 31
[(P28,000 – P7000) x 100/140 + P7,000 ……….. 22,000 (b) 88,000
Gross Profit …………………………………………….. P92,000 (b)
48. The manila branch of the Great Company is billed for merchandise by the home office at
20% above cost. The branch in turn prices merchandise for sale purposes at 25% above
billed price. On February 16 all of the branch merchandise is destroyed by fire. No
insurance was maintained. Branch accounts show the following information:

Merchandise inventory, Jan. 1 @ billed price 26,400

Shipments from HO (Jan. 1 – Feb. 16) 20,000
Sales 15,000
Sales Returns 2,000
Sales Allowances 1,000

ANSWER: D. P30,00

Merchandise Invenotry January 1, @ billed price …………………. P26, 400

Shipment from home office @ billed price ………………………… 20,000
Cost of goods available for sale @ billed price …………………….. P46,400
Less: COGS, @ billed price
(P15,000 – P 2000) x 100/125 ……………………………… 10,400
Merchandise Inventory, Feb 16 @ billed price …………………… P36,000
Multiplied by cost ratio …………………………………………… 100/120
Merchandise Inventory destroys by fire, at cost ………………………… P30,000 (d)

49. The home office bills its Aklan branch at 15% of cost. During the year 2016, goods
costing P300,000 were shipped to the branch. The account “allowance for overvaluation
of branch inventory, after adjustment, shows a balance of P14,000 at the end of the year.

Compute the amount of ending inventory at:

Cost Billed Price
A. 56,000 56,000
B. 300,000 375,00
C. 56,000 70,000
D. 70,000 56,000

ANSWER: C
Allowance for overvaluation of branch inventory
after adjustment* ..................................................................... P14,000
Divided by Mark up on Cost ………………………………… 25%
Cost ………………………………………………………….. P56, 000 (c)
Add: Allowance for overvaluation of branch inventory * …… 14,000
Billed Price …………………………………………………… P 70,000 (c)
 50. Lobster Trading bills its Iloilo City branch for shipments of goods at 25% above cost. At
the close business on October 31, 2016, a fire gutted the branch warehouse and destroyed
60% of the merchandise stock stored therein. Thereafter, the following data were gathere:

Jan. 1 inventory @ billed price P 50,000

Shipment from HO to Oct 31 130,000
Not sales to Oct 31 225,000

If undamaged merchandise recovered are marked to sell for P30,000, the estimated cost of the
merchandise destroyed by the fire was:
A. P14,400
B. 21,600
C. 24,000
D. 27,500

ANSWER: B. P21,600

Inventory, January 1 @ billed price P50,000

Add: Shipments from home office @ billed price 130,000

Cost of goods available for sale @ billed price. = P180,00

Divided by: Cost of goods available for sale at sales price:

Net Sales P225,000

Add: Inventory before the fire:

Undamaged merchandise 30,000

Divided by: Recovery % 40% 75,000 = P 300,000

Percentage of Billing Price ton Selling Price 60%

*Since 60% of the inventory was destroyed by fire, therefore 40% was recovered.

Eliminated of merchandise destroyed by fire:

Inventory before the fire at selling price (P30,000 / 40%) 75,000

Multiplied by: % of damaged merchandise 60%

Damaged merchandise of selling price = P45,000

 Multiplied by: % of Billing Price of Selling Price 60%

Damaged merchandise @ billed price =P27,000

Multiplied by: Cost Ratio 100/125

COST OF MERCHANDJSE DESTROYED BY FIRE P21,600

(b)

SOURCES:

A) PRACTICAL ACCOUNTING 2; VOLUME 2 - 2015 EDITION; ANTONIO J. DAYAG

B) PRACTICAL ACCOUNTING 2; VOLUME 2 – 2013 EDITION; PEDRO P. GUERRRERO
AND JOSE F. PERALTA