San Mateo Municipal College Integration: Advanced Accounting & Reporting

Guitnang Bayan I, San Mateo, Rizal Nilo N. Iglesias, CPA, MBA, REA

Home Office and Branch Accounting-General Procedures

Problem 1
The Quest Corporation located in San Mateo, Rizal, opened a branch on January 1, 2022 in
Bacolod City. The transactions of the branch are summarized as follows:

1. Received cash of P 30,000 from the home office.

2. Received merchandise in the amount of P75,000 from home office.
3. Purchased merchandise on account from a local vendor in the amount of P10,000
4. Sales on account amounted to P125,000
5. Returned merchandise in the amount of P2,000 to the home office
6. Collected P105,000 from sales on account.
7. Paid P7,000 on account for the purchases in (3) above.
8. Incurred the following expenditures during the year (all paid in cash)
a) Salaries, P10,000
b) Rent, P5,000
c) Utilities, P 2,000
d) Other operating expenses, P12,500
9. Received a journal voucher from home office for the following charges:
a) Depreciation Expenses, P 1,500
b) Rent, P 5,000
c) Insurance, P 1,000
10. Remitted P65,000 to the home office for merchandise shipment
11. A customer paid P3,000 directly to home office. The home office is keeping the funds.
12. Closed the income summary accounts. The closing inventory amounted to P5,000.

Required: Prepare the necessary journal entries on the books of the branch and the home office.

Problem 2
Montalban Sales decided to create a branch in San Pablo City at the start of 2021. The
branch operation had the following transaction during 2021:

1. Merchandise costing P 350,000 and cash of P200,000 were transferred from the home
office.
2. The branch purchased on account additional merchandise inventory of P400,000 from other
distributors.
3. Sales of P650,000 were made by the branch during the period. The cost of these sales was
P425,000. Cash of P600,00 was collected from sales during the year.
4. Advertising costs of P40,000, sales commissions of P65,000, and other operating costs of
P45,000 were incurred and paid by the branch.
5. The branch paid P370,000 on account to other distributors and remitted P120,000 to the
home office.
Required:
1) Record each of the transactions on the books of the branch
2) Prepare an income statement for the branch for 2021.
3) Prepare a statement of financial position as of December 31, 2021, for the branch.

Problem 3
On January 7, 2021, Golden Company opened its first branch with instructions to its branch
manager that the branch performs the functions of granting credit, billing customers, accounting of
receivables, and making cash collections. The branch pays its operating expenses by check drawn on
its bank account. The branch obtains its merchandise solely from the home office; billings for the
shipments are at cost to home office.

The adjusted trial balance of the home office and the branch on December 31, 2021 are as
follows:
Debit Credit Debit Credit
Cash 63,000 21,900
Notes Receivable 10,500
Accounts Receivable (net) 120,600 55,950
Inventories 143,700 36,300
Furniture & Equipment (net) 72,150
Branch Current 124,050
Accounts Payable 61,500
Common Stock, P 2 par 300,000
Home Office Current 124,050
Retained Earnings 37,500
Sales 540,000 151,650
Cost of Goods Sold 300,750 128,700
Operating Expenses 104,250 32,850 _______
Totals 939,000 939,000 275,700 275,700

The physical inventories on December 31, 2021 are in agreement with the perpetual records
of the home office and the branch. The shipment to branch during the year amounts to P135,000.

Required:
1. Prepare the working papers for the combine financial statements of the home office and the
branch.
2. Prepare the closing journal entries on December 31, 2021 for the branch
3. Prepare the closing journal entries on December 31, 2021 pertaining to branch operations
for the home office.

Problem 4
At the end of 2021, the following records were taken from the books of the home office and
the branch:
Home Office (Branch Books)
2021 | 2021
Dec. 1 Cash remitted to HO 80,000 | Jan. 1 Balance
60,000
28 Cash Remitted to HO 30,000 | Dec. 5 Shipment from HO
120,000
28 Merchandise returned to HO 12,000 | 28 Expenses from HO
45,200
Investment in Branch (HO Books)
2021 | 2021
Jan. 1 Balance 60,000 | Dec. 3 Cash received from branch
80,000
Dec. 4 Shipment to Branch 120,000 | 28 Collection from branch
28 Expense Allocation 52,400 | customer
18,000
28 Shipment to branch 24,000 |
28 Supplies purchased for |
branch and shipped directly |
to branch 8,000 |

Except for the error by the branch in recording its share of allocated expenses, all
differences are timing differences.
Required:
a) Compute the correct balances of the reciprocal accounts.
b) Prepare the entries necessary to bring the reciprocal accounts into balances for a working
paper used to prepare the home office’s combined financial statements.

Home Office and Branch Accounting – Special Problems

Problem 1

The home office ships merchandise to its branch at 25% above cost. If the balance before
closing in the Intracompany Inventory profit if P66,000 and Shipments from Home Office
amounted to P 300,000, what was the cost of branch’s beginning inventory?

a) 30,000 b) 24,000 c) 80,000 d) 96,000

Problem 2

The home office ships merchandise to its branch at 20% above cost. The branch’s books
show a beginning inventory of home office merchandise of P30,000 and shipments from
home office of P180,000. What is the balance before closing in the Allowance for
Overvaluation of Branch Inventory account?

a) 35,000 b) 36,000 c) 42,000 d) 52,500

Problem 3

Small Corporation shipped inventory to its Roxas Branch, costing P375,000 plus freight.
Small bills inventory to its branches at 120% of original cost, plus the actual amount of
shipping charges. At the end of the year, the Roxas Branch had resold 50% of the inventory
from the home office. Shipping costs paid by Small were P2,000.

What amount should the inventory be reported in the branch’s statement of financial
position?

a) 187,500 b) 188,500 c) 226,000 d) 377,000

Problem 4

Gold Corporation has a branch in Dipolog. The branch reported income of P130,000 for
2021. The branch has a balance in its Home Office account at the end of the year, after
closing, of P765,000. Branch income has not been recorded by Gold’s home office. During
the year, Gold shipped inventory to the branch at a price of P160,000; Gold’s original cost
was P90,000. All but 45% of the inventory has been resold to unrelated parties by year-end.

What is the balance in Gold’s Investment in Branch account?

a) 594,500 b) 603,500 c) 635,000 d) 765,000

Problem 5

The following balances are from the books of Albay Co. and its Malinao branch as of
December 31, 2021:
Debit Credit
Sales 270,000
Shipments from Home Office 151,200
Inventory, January 1 28,350
Expenses 90,000

Malinao branch purchases all its merchandise from the home office. Its December 31
inventory was P25,200. The home office bills the branch at 40% above cost. Before closing,
what is the balance of the Shipment to Branch Account on the Home Office Books?

a) 128,250 b) 108,000 c) 99,900 d) 90,720

Using data in Problem 5, what is the branch profit as far as the home office is concern?

a) 28,800 b) 31, 950 c) 69,750 d) 76,950

Problem 6

Presented below are items taken from the unadjusted trial balances of Daet Company and
its branch on December 31, 2021.

H.O. Books Branch Books

Shipments to branch 300,000
Allowance for overvaluation of branch inventory 99,900
Shipments from home office 390,000
Merchandise Inventory, January 1 54,600
Merchandise Inventory, December 31 48,750
Sales 540,000
Expenses 51,000
It is the company’s policy to bill all branches for merchandise shipments at 30% above cost.

How much of the branch inventory on January 1 represents purchases from outsiders?

a) 11,700 b) 42,000 c) 42,900 d) 11,000

Problem 7

The Benhur Corporation decided to open a branch store in Dagupan. Shipments of

merchandise to the branch totaled P108,000 which included a 20% mark-up on cost. All
accounting records are to be kept at the home office.

The branch submitted the following report summarizing its operations for the period ended
December 31, 2021.

Sales on Account 148,000

Sales on cash basis 44,000
Collections of accounts 120,000
Expenses Paid 76,000
Expenses unpaid 24,000
Purchase of merchandise for cash 52,000
Inventory on hand, December 31 (80% from HO) 60,000
Remittance to home office 110,000

How much is the ending inventory at cost?

a) 40,000 b) 50,000 c) 52,000 d) 51,000

Using the data in Problem 7, what is the branch income under the generally accounting
principles?

a) 1,600 b) 2,000 c) 8,000 d) 5,000

Problem 8

The following information are taken from the books and records of Digos Company and its
branch. The balances on December 31, 2021, the second year of the company’s operations
are:
HO Books Branch Books
Sales 400,000
Expenses 100,000
Shipments to branch 200,000
Allowance for overvaluation of Branch inventory 57,500

The branch obtains all of its merchandise from the office. The home office ships the
merchandise at 125% of its cost. The ending inventory of the branch is P40,000 at the billed
price.

What was the billed price of the branch beginning inventory?

a) 30,000 b) 37,500 c) 22,500 d) 32,500

Using the data in Problem 8, the branch net income as far as the home office is concern is?

a) 110,000 b) 102,000 c) 112,500 d) 112,000

Problem 9

The following partial transactions took place between the home office and its two branches,
Talisay Branch and Ormoc Branch.

• Upon instruction of the home office, Ormoc Branch affected a fund transfer of
P25,000 to Talisay Branch.
• Talisay Branch collected a Ormoc Branch’s accounts receivable of P35,000 les 2%
discount.
• Ormoc Branch paid P250,000 representing the traveling expenses of Mr. De Guzman,
a senior vice-president, when the latter attended the regional conference in Canada.
Of the amount paid, 60% was charged to the home office, 25% to Talisay Branch and
the balance to Ormoc Branch.
• Home office shipped merchandise costing P200,000 to Ormoc Branch. Freight of
P3,000 was paid by the home office. It is the policy of the company to bill its
branches at 25% above cost.
• Upon the instruction of the home office, Ormoc reshipped the above merchandise to
Talisay Branch. Freight of P1,500 was paid by Talisay Branch. Had the goods been
shipped directly to Talisay Branch, the freight would have been only P4,200.

What is the balance of the Investment in Ormoc Branch account in the home office
books?

a) 524,000 b) 520,000 c) 271,800 d) 527,800

Using the data in Problem 9, what is the balance of the Home Office account in the
books of Talisay branch?

a) 374,500 b) 378,700 c) 312,000 d) 370,300

“The best way to predict your future is to create it.”