UNIVERSITY OF MINDANAO - MAIN

COLLEGE OF ACCOUNTING EDUCATION

Advanced Financial Accounting and Reporting

Accounting for Special Transactions
Home Office, Branch and Agency Accounting
Discussion Problems:
Problem 1
The following were found in your examination of the interplant accounts between the Home Office and
Branch A.
a. Transfer of equipment from the Home Office amounting to P50,000 was not booked by the branch.
b. P20,000 covering advertising expenses of Branch B was charged by the Home office to Branch A.
c. Branch A recorded a debit note on inventory transfers from the Home Office of P15,000 twice.
d. The Home Office recorded a cash transfer of P30,000 from Branch A coming from the Branch C
branch.
e. Branch D reversed a previous debit memo from Branch E amounting to P21,000. The Home Office
decided this charge was appropriate for Branch F’s cost.
f. Branch A recorded a credit memo from the Home Office of P8,000 as P800.
1. The net adjustment in the Home Office books related to the Investment in Branch A account is
A. 50,000 credit
B. 10,000 credit
C. 10,000 debit
D. 30,000 credit
2. The net adjustment in Branch A’s books related to the Home Office Account is
A. 50,000 credit
B. 42,200 credit
C. 27,800 credit
D. 12,800 credit
Problem 2
The main office of Ceres Inc. is stationed in Manila but has branches in Bacolod City and Silay City. The
main office shipped goods costing P215,000 to its Bacolod branch with freight-prepaid of P10,000 for the
shipment. Out of this shipment, only 70% was meant for Bacolod, and the rest were to be shipped again
to the Silay branch with a freight collect of 7,500 for the reshipping of goods to the Silay branch.
1. Assume it would have cost the main office P8,000 to ship the goods intended for the Silay branch
directly to its location. How much is the loss to be recognized by the main office?
A. 6,500
B. 7,500
C. 2,500
D. 0
2. Assume it would have cost the main office P15,000 to ship the goods intended for the Silay
branch directly to its location. How much is the debit to freight-in in the Silay branch books?
A. 7,500
B. 17,500
C. 15,000
D. 10,500

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Problem 3
For the year 2025, the Home Office billed its branch for merchandise shipments at 30% above cost.
The following were some of the account balances on the books of the home office and its branch as of
December 31, 2025:
Home Office Books Branch Books
Inventory, January 1 P 35,000 P 101,500
Shipments from Home Office 263,900
Purchases 1,575,000 350,000
Shipments to Branch 253,750
Branch Inventory Allowance 91,875
Sales 2,100,000 960,000
Operating Expenses 507,500 92,500
The beginning inventory from home office merchandise at cost was P39,375. Per physical count, the
ending inventory of the branch was P314,125, including goods from outside purchases of P48,475. The
ending inventory of the home office is P210,000.
1. What is the amount of the unrealized profit in the separate books of the home office on January
1, 2026?
A. 30,975
B. 15,750
C. 76,625
D. 72,490
2. What is the branch beginning inventory in 2025 that came from outside purchases?
A. 46,375
B. 62,125
C. 9,625
D. 0
3. What is the Cost of goods available for sale of the branch?
A. 385,000
B. 781,375
C. 396,375
D. 715,400
4. What is the total ending inventory to be shown on the combined financial statements?
A. 303,475
B. 513,475
C. 590,100
D. 462,821
5. What is the combined net income for the year?
A. 912,475
B. 927,821
C. 894,975
D. 927,725

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Problem 4
On November 1, 2024, BBB Inc. established a sales agency in Pasay by sending cash to be
maintained at a P100,000 imprest balance and shipping a year’s worth of samples costing
P312,000. During the month, the agency submitted sales orders to the home office amounting to
P528,000, but only 80% of them were approved and invoiced by the end of the calendar year.
Expense vouchers for the 2 months were as follows: meal allowance P8,000, rent P18,000,
transportation allowance P4,000. The gross profit rate of the company is 40% based on sales.
How much is the net income to be reported by the sales agency for the year ended December
31, 2024?
A. 129.200
B. 138,960
C. 181,200
D. 86,960
Theory of Accounts:
1. If the home office receives a debit memo from the branch, the home office shall record it in
its separate statement of financial position by
A. Increasing the investment in the branch account
B. Decreasing the investment in the branch account
C. Disclosure only
D. None of the above
2. If the branch receives a credit memo from the home office, the branch shall record it in its
separate statement of financial position by
A. Increasing the home office account
B. Crediting the home office account
C. Debiting the home office account
D. Disclosure
3. Which of the following transactions will increase the home office account in the branch’s
separate statement of financial position?
A. Net loss of the branch
B. Collection by the home office of the branch’s receivable
C. Debit memo received from the home office
D. Payment by the branch of home office’s liability
4. Which of the following transactions will decrease the investment in the branch’s account in
the home office’s separate statement of financial position?
A. Net income of the branch
B. Payment of the branch’s liability by the home office
C. Credit memo received from the branch

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D. Return by the branch to the home office of merchandise shipped
5. Which of the following reconciling transactions will require credit to the home office's
current account in Branch A’s book for the adjustment?
A. Collection by Branch A of Branch B’s accounts receivable
B. Payment by branch A of the home office’s accounts payable
C. Credit memo received by branch A from home office
D. Reshipment of goods received by branch A to branch B
6. Statement 1. The required balance of the Allowance for Overvaluation account is the mark-
up in the total ending inventory of the branch.
Statement 2. The combined net income of the home office and its branches is presented in the
separate Statement of Comprehensive Income of the Home office.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

7. Statement 1. Assuming the home office ships merchandise to the branch at a mark-up based
on cost, the account Shipments from Home Office in the published income statement is
reported at billed price.
Statement 2. A credit memo received by the branch may be a notification from the home office
about allocation of expenses incurred by the latter.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

8. Statement 1. The accounts Shipments to Branch and Shipments from Home Office are
eliminated in the working paper and closed in the separate books.
Statement 2. A branch may debit an Investment in “another” Branch account for purposes of
inter branch transactions.
A. Both statements are true
B. Both statements are false
C. Only statement 1 is true
D. Only statement 2 is true

9. Which is the best reason why the net income reported by the branch is less than the net
income computed by the home office concerning the branch operation?

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A. Overstatement of goods in the beginning inventory of the branch for the goods coming
from the home office.
B. Understatement of goods in the beginning inventory of the branch for the goods coming
from the outside supplier.
C. Understatement of cost of goods sold reported by the branch for the goods coming from
the outside supplier.
D. Overstatement of cost of goods sold reported by the branch for the goods coming from the
home office.

10. The unadjusted balance in the allowance for overvaluation account at the end of the year
represents
A. The mark-up on the merchandise shipped to the branch during the year
B. The mark-up on cost of goods sold by the branch for the year
C. The mark-up on the merchandise available for sale by the branch for the year
D. The mark-up on the merchandise shipped to the branch during the year less the mark-up on
the merchandise returned by the branch during the year
11. Which of the following reconciling transactions will require a credit to the home office
account in Branch X's books?
A. Credit memo received by Branch X from the home office
B. Collection by Branch X of Branch Y's accounts receivable
C. Reshipment of goods received by Branch X to Branch Y
D. Payment of Branch X of home office's accounts payable

12. Neither Branch A nor the Home Office had any intracompany transactions for the month of
October. However, the balance of the Home Office Current account in the books of Branch
A was greater than the Investment in Branch account in the books of the Home Office. What
is the most likely reason for the discrepancy?
A. The branch reported a net income for the month of October
B. The home office reported a net loss for the month of October
C. The branch returned merchandise to the home office
D. The branch reported a net loss for the month of October

13. Which of the following statements regarding accounting for the home office and branch is
FALSE?
A. The required balance of the branch inventory allowance account is the markup in the
branch's ending inventory from the home office.
B. The combined net income of the home office and its branches is presented in the separate
Statement of Comprehensive Income of the Home office.
C. The stockholders’ equity of the branch is eliminated in the working paper and not extended
in the combined statement of financial position.
D. The realized markup represents the understatement in the net income per branch books.

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14. Which of the following statements is TRUE regarding accounting for the home office and
branch?
A. Both the Investment in Branch and Home Office Current accounts are eliminated in the
books of the home office and the branch, respectively.
B. A debit memo received by the branch may be a notification from the home office regarding
the payment made by the home office to a branch supplier.
C. A credit memo increases the reciprocal accounts in their respective books.
D. In an interbranch transaction, the branch may use an investment in another branch account.

15. Which of the following is the only reason why a home office cannot report inventory
shipments to a branch as sales?
A. The inventory transfer is a transaction with a related party.
B. There is no practicable means of determining whether the transfer prices approximate those
that would occur in an arms-length transaction between independent parties.
C. Only inventory transaction between the company and outside third parties can be
considered sales.
D. The principles of conservatism.

16. The home office bills its branch for merchandise transfers at a price in excess of cost. In
the home office separate financial statements, the allowance for unrealized profit in branch
inventory account would appear in the financial statements of the home office as
A. An operating expense of the current period.
B. Deduction from the cost of goods sold.
C. Addition to the cost of goods sold.
D. Deduction from the investment in branch account.

17. The home office bills its branch for merchandise transfers at a price in excess of cost. In
the home office separate financial statements, the allowance for unrealized profit in branch
inventory account would appear in the financial statements of the home office as
A. An operating expense of the current period.
B. Deduction from the cost of goods sold.
C. Addition to the cost of goods sold.
D. Deduction from the investment in branch account.

18. The freight on shipments to branch paid by the branch is recorded by the home office as
A. Credit to investment account
B. Credit freight in
C. Debit freight in
D. Not recorded

19. What is a branch’s HOME OFFICE ACCOUNT?

A. Asset account
B. Asset and capital account

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 C. Liability account
D. Equity account

20. The unadjusted balance in the Allowance for Overvaluation account at year end represents
A. The mark-up on the merchandise available for sale by the branch for the year.
B. The mark-up on the merchandise shipped to the branch during the year.
C. The mark-up on the merchandise shipped to the branch during the year less the mark-up
on the merchandise returned by the branch during the year.
D. The mark-up on the cost of goods sold by the branch for the year.
Problem Solving:
Number 1
The home office sends merchandise to the branch at a billed price of 150%. In the separate books
of the home office, the allowance for overvaluation account had a balance of P60,000. In the
combined statement, the ending inventory of the branch was P40,000 of which P10,000 came from
outsiders.
What is the overstatement of the cost of goods sold of the branch from the home office
merchandise?
A. 20,000
B. 50,000
C. 45,000
D. 5,000
Number 2
The Home Office in Manila established a branch in Bacolod. At the end of the year the reciprocal
account in the books of Manila was P175,000, however, the following transactions were not
recorded by the receiving party:
a) A debit memo in the amount of P5,000 was sent by Bacolod
b) A credit memo in the amount of P10,000 was sent by Manila
c) A credit memo in the amount of P15,000 was sent by Bacolod
What is the adjusted balance of the reciprocal account at the end of the year?
A. 175,000
B. 185,000
C. 165,000
D. 195,000
Number 3
On December 31, 2024, the Home Office Current account in the books of Quezon Branch had a
balance of P975,000. In analyzing the activity in each of these accounts for December, you found
the following differences:

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 a. A P20,000 branch remittance to the home office initiated on December 21, 2024 was
recorded twice by the home office on December 26 and 28.
b. The home office incurred P36,000 of advertising expenses and allocated 1/3 of this
amount to the branch on December 20. The branch recorded this transaction on December
22 amounting to P 1,200.
c. Inventory costing P50,300 was sent to the branch by the home office on December 15.
The billing was at cost, but the branch recorded the transaction at P53,000.
The adjusted balance of the reciprocal accounts on December 31, 2024?
A. 966,900
B. 988,500
C. 961,500
D. 983,100
Number 4
The home office in Alabang shipped merchandise costing P55,500 to the Davao branch and paid
the freight amounting to P4,200. The home office transfers merchandise to the branch at a 20%
mark-up based on cost. Davao branch was subsequently instructed to transfer the merchandise to
Cebu branch wherein the latter paid P2,800 freight. If the shipment was made directly from
Alabang to Cebu, the freight cost would have been P6,200.
Compute the amount credited to Home Office Current account in the books of Cebu branch
A. 72,800
B. 61,700
C. 70,000
D. 71,240
Number 5
Phoenix Trading Co. has a branch in Quezon City. On December 31, 2024, Investment in Quezon
City Branch account in the home office books showed a balance of P386,000. The interoffice
accounts were in agreement at the beginning of the year. For purposes of reconciling the reciprocal
accounts, the following facts were ascertained:
a. The home office erroneously recorded a remittance for P4,800 from its Bacolod branch as
a remittance from its Quezon City branch.
b. The branch failed to take up a P1,500 debit memo from the home office representing its
share in marketing expenses.
c. Home office credit memo representing a discount on merchandise for P2,100 was not
recorded by the branch.
Compute the unadjusted balance of the Home Office Current account on December 31, 2024
A. 390,800
B. 391,400
C. 390,200

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 D. 381,800
Number 6
A home office ships inventory to its branch at a mark-up of 125% based on cost. The required
balance of the unrealized intercompany account is P285,000. During the year, the home office sent
merchandise to the branch costing P1,800,000. At the start of the year, the branch's books showed
P360,000 of inventory on hand that was acquired from the home office.
Compute the realized mark-up
A. 2,450,000
B. 2,165,000
C. 237,000
D. 522,000
Number 7
During the year 2024, goods billed at P650,000 were shipped to the branch at 130% of cost. The
account Loading in Branch Inventory has a balance of P245,000 before adjustment. The beginning
inventory of the branch from the home office at cost is P475,000; the beginning inventory of the
branch from outsiders is P108,000; purchases from outsiders is P290,000.
Compute the total goods available for sale of the branch from the home office
A. 1,061,667
B. 1,267,500
C. 1,618,000
D. 1,220,000
Number 8
Roven Co. operates a branch in Pasig. At the end of the year, the home office current account in
the books of the branch shows a balance of P150,000. The following information were ascertained
in reconciling the reciprocal accounts:
a. A Home Office accounts receivable for P10,500 was collected by the branch. The home
office was not yet notified by the branch.
b. Supplies of P4,500 were returned by the branch to the home office but the home office has
not yet reflected in its records the receipt of the supplies.
c. The branch has not received the cash in the amount of P18,000 sent by the home office on
December 31.
Compute the adjusted balance of the Investment in Branch account in the books of the home office
on December 31
A. 168,000
B. 162,000
C. 174,000

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 D. 132,000
Number 9
The Home Office in Makati shipped merchandise costing P280,000 to the Manila branch and paid
for the freight charges of P2,100. The home office bills the branch at 125% of cost. Manila branch
was subsequently instructed to transfer one-half of the merchandise to Quezon City branch wherein
Quezon City branch paid for P700 freight. If the shipment was made directly from Makati to
Quezon City, the freight cost would have been P1,400.
By how much will the Manila Branch charge the Home Office Current account?
A. 179,550
B. 177,100
C. 176,050
D. 176,750
Number 10
The Home Office in Palawan shipped merchandise costing P280,000 to Mindoro branch, the
freight collect amounting to P2,100. Mindoro branch was subsequently instructed to transfer 60%
of the merchandise to Batangas branch wherein Batangas branch paid for P700 freight. Had the
merchandise been shipped directly from Palawan to Batangas, the freight cost would have been
P1,400.
Compute the excess freight chargeable to Palawan
A. 560
B. 0
C. 1,400
D. 280
Number 11
On December 31, 2024, the Branch current account had a balance of P2,625,000. The home office
account had a balance of P2,000,000. The following errors were discovered:
• The home office shipped merchandise to the branch at cost of P750,000 and the
merchandise was still in transit as of December 31, 2024.
• The branch paid the accounts payable of the home office in the amount of P250,000 and the
home office recorded the payment as P25,000.
• The branch collected P350,000 from a home office customer but the home office was not
notified of the said transaction.
What is the adjusted balance of the reciprocal accounts?
A. 2,625,000
B. 2,975,000
C. 3,200,000

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 D. 2,750,000
Number 12
The home office in Makati City 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 branch transactions for 2024 are reflected in the following information:
Home office account 450,000
Shipments from Home Office 625,000
Sales 550,000
Expenses 150,000
December 31, 2024 inventory 162,500

What amount should be reported as balance of the Investment in Branch account in the home
office book?
A. 537,500
B. 512,500
C. 387,500
D. 450,000
Number 13
Bacolod Company decided to open a branch in Iloilo. Shipments of merchandise to the branch
totaled P270,000 which included a 20% markup on cost. All accounting records are kept at the
home office. The branch submitted the following report summarizing the operations for the year
ended December 31, 2024:
Sales on account 600,000
Sales on cash basis 250,000
Collections of accounts receivable 400,000
Expenses paid 140,000
Expenses unpaid 60,000
Purchases from outside suppliers for cash 125,000
Inventory on hand, December 31; 80% from home office 150,000
Remittance to home office 275,000
What amount should Bacolod Company report as Iloilo branch net income for 2024?
A. 430,000
B. 385,000
C. 490,000
D. 300,000
Numbers 14 and 15
During the first year of operations, the books of Bacolod Branch showed the following balances:

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 Sales 1,200,000
Shipments from home office 1,120,000
Purchases 120,000
Ending inventory 200,000
Operating expenses 150,000
Shipments to branch were billed at 140% of cost. The ending inventory of the branch included
P26,400 from outside purchases.
14. What amount should be reported as ending inventory of the Bacolod branch at cost?
A. 200,000
B. 173,600
C. 150,400
D. 269,440
21. What amount should be reported as true net income of Bacolod branch?
A. 280,400
B. 10,000
C. 254,000
D. 270,400
Numbers 16 and 17
On October 1, 2024 the Home Office established a branch and on December 31, 2024, in the books
of the Home Office, the balance of the Investment in Branch account was P132,000. However,
there were some errors in recording the reciprocal accounts. The following were the relevant
transactions that were investigated:
a) The branch purchased for cash P30,000 machine for its use. The policy of the home office
was that the fixed asset accounts were maintained by the home office. Notification was sent
to the home office by the branch, but the home office did not record the transaction.
b) Cash of P4,000 was received by the branch from the home office, and was erroneously
recorded by the branch as P40,000.
c) Notification was sent by the home office to the branch, informing the branch of P10,000
worth of expenses were paid on behalf of the branch. However, the branch did not receive
the said notification and the branch had not recorded the transaction.
d) Merchandise costing P16,000 was sent by the home office to the branch at a billed price of
P18,000. The merchandise is still in transit.
e) Cash of P20,000 was remitted or forwarded to the home office by the branch. However, the
home office did not record the transaction.
22. What is the adjusted balance of the reciprocal accounts?
A. 82,000
B. 182,000
C. 122,000

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 D. 142,000
23. What is the unadjusted balance of the home office account in the branch books?
A. 174,000
B. 82,000
C. 124,000
D. 90,000
Number 18
ABC Trading Co. has a branch in Manila. On December 31, 2024, the Investment in Manila Branch
account in the home office books showed a balance of P3,860,000. The interoffice accounts were
in agreement at the beginning of the year. For purposes of reconciling the reciprocal accounts, the
following facts were ascertained:
a.The home office erroneously recorded a remittance of P48,000 from its Malabon branch
as a remittance from its Manila branch.
b. The branch failed to take up a P15,000 debit memo from the home office representing its
share in training expenses.
c. The branch did not record a Home office credit memo for P21,000 representing collection
from branch customers.
Compute the unadjusted balance of the Home Office Current account on December 31, 2024
A. 3,908,000
B. 3,902,000
C. 3,914,000
D. 3,818,000
Number 19
A home office ships inventory to its branch at a mark-up of 125% based on cost. The required
balance of the unrealized intercompany account is P1,140,000. During the year, the home office
sent merchandise to the branch costing P7,200,000. At the start of the year, the branch's books
showed P1,440,000 of inventory coming from the home office.
The unrealized intercompany account must be decreased by
A. 9,800,000
B. 948,000
C. 2,088,000
D. 8,660,000
Number 20
The Home Office in Ortigas shipped merchandise costing P1,400,000 to the Ayala branch and paid
for the freight charges of P10,500. The home office bills the branch at 125% of the cost. The Ayala
branch was subsequently instructed to transfer one-half of the merchandise to the Pateros branch,

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wherein the Pateros branch paid for the P3,500 freight. If the shipment was made directly from
Ortigas to Pateros, the freight cost would have been P7,000.
By how much will the Ayala Branch charge the Home Office Current account?
A. 880,250
B. 897,750
C. 885,500
D. 883,750
Number 21
On December 31, 2024, the Home Office Current account in the books of the Makati Branch has
a balance of P5,850,000. In analyzing the activity in each of these accounts for December, you
found the following differences:
a. A P120,000 branch remittance to the home office initiated on December 21, 2024, was
recorded twice by the home office on December 26 and 28.
b. The home office incurred P216,000 advertising expenses and allocated 1/3 of this amount
to the branch on December 20. The branch recorded this transaction on December 22,
amounting to P7,200.
c. Inventory costing P301,800 was sent to the branch by the home office on December 15. The
billing was at cost, but the branch recorded the transaction at P318,000.
The adjusted balance of the reciprocal accounts on December 31, 2024
A. 5,801,400
B. 5,931,000
C. 5,898,600
D. 5,769,000
Number 22
The home office in Pasig shipped merchandise costing P333,000 to the Bicol branch and paid the
freight amounting to P25,200. The home office transfers merchandise to the branch at a 20% mark-
up based on cost. The Bicol branch was subsequently instructed to transfer the merchandise to the
Palawan branch, wherein the latter paid for P16,800 freight. If the shipment was made directly
from Pasig to Palawan, the freight cost would have been P37,200.
Compute the amount credited to the Home Office Current account in the books of the
Palawan branch
A. 362,800
B. 420,000
C. 370,200
D. 427,440

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Number 23
A home office ships inventory to its branch and billed 125% of the cost during 2024. The branch
inventory allowance account shall be adjusted downward to P285,000. During the year, the home
office sent merchandise to the branch costing P1,100,000. At the start of the year, the branch's
books showed P105,000 of inventory on hand that was received from the home office. The branch
inventory allowance account was debited to P20,000 in the books of the home office at the end of
2024.
Compute the 2024 ending inventory in the books of the branch
A. 1,140,000
B. 1,425,000
C. 1,410,000
D. 1,125,000
Number 24
The Home Office in Pasay shipped merchandise costing P1,680,000 to the Mandaluyong branch;
the freight collect amounting to P12,600. Mandaluyong branch was subsequently instructed to
transfer P1,008,000 of the merchandise to the Cainta branch, wherein the Cainta branch paid for
P4,200 freight. Had the merchandise been shipped directly from Pasay to Cainta, the freight cost
would have been P8,400.
Compute the excess freight chargeable to Pasay
A. 0
B. 8,400
C. 1,680
D. 3,360

Number 25
On June 1, 2024, Sta. Rosa, a home office, established an agency in Tagaytay, sending samples
costing P490,000, which are useful until the end of May 2025 and have a salvage value of 10% of
cost. A working fund of P398,125 is to be maintained on an imprest basis. In 2024, the agency
submitted to the home office a sales order amounting to P4,134,375. Sales per invoice were
P3,215,625, which the home office duly approved. Collections during the year amounted to
P1,717,021.25 net of a 3% sales discount. The cost of merchandise sold during the year equals
75% of the gross sales. Vouchers for expenses amounted to P214,375.
How much net income would be reported by the Tagaytay agency on December 31, 2024?
A. 315,927.50
B. 508,865
C. 279,177.50
D. (95,427.50)

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Number 26
The Home Office in Manila established a branch in Silay. At the end of the year, the reciprocal
account in Silay's books was P200,000. The following transactions were under examination due to
errors:
a) Manila paid an accounts payable of Silay in the amount of P10,000, but Silay was not
notified.
b) Silay collected from a customer of Manila in the amount of P25,000, but Manila recorded
the transaction in the amount of P20,000.
c) Silay reported a net loss of P15,000. The Manila branch was not notified.
What is the unadjusted balance of the Investment in Silay account in the books of Manila?
A. 220,000
B. 180,000
C. 210,000
D. 200,000
Numbers 27 and 28
The home office consistently sends merchandise to the branch at a billed price of 120%. During
the year, the home office credited Shipments-to-branch with P180,000. The beginning inventory
reported by the branch was P50,000, of which P30,000 came from home office merchandise. In
the combined statement, the branch's ending inventory was P80,000, of which P20,000 came from
outsiders.
27. What is the total goods available for sale from home office merchandise?
A. 205,000
B. 266,000
C. 246,000
D. 210,000
28. What is the additional branch income?
A. 32,333
B. 29,000
C. 31,000
D. 23,000
Number 29
Comparative trial balances of the home office of HOH Corporation and its two branches at
December 31, 2021 were as follows:

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Additional information:
Home Office and branch inventories at December 31, 2021 were:
Home Office P 120,000
CHI Branch (at billed prices) P 72,000
MIN Branch (at billed prices) P 96,000
How much net income will HOH Corporation report for year-ended 2021?
A. P260,000
B. P122,000
C. P220,000
D. P595,000
Number 30
CDO ENTERPRISES operates a branch in ILIGAN CITY. At the close of business on December
31, 2021, the ILIGAN CITY branch account in the home office books showed a debit balance of
P200,000. The inter-office accounts were in agreement at the beginning of the year. For purposes
of reconciling the inter-office accounts, the following facts were ascertained:
a. A machinery costing the home office P17,500 was picked up by the branch as P1,750.
b. The branch did not take up insurance premium of P2,000 charged by the home office.
c. Freight charge on merchandise made by the home office for P9,800 was recorded in the
branch books as P8,900.
d. Home office credit memo representing a discount on merchandise for P1,500 was taken up
twice by the branch.
e. The branch failed to take up a P2,000 debit memo from the home office representing the
share of the branch in advertising.
f. A remittance of P15,000 from the BUKIDNON branch was inadvertently taken up in the
ILIGAN CITY branch account but was corrected before yearend.
g. The home office inadvertently recorded a remittance for P13,500 from its BUTUAN CITY
branch as a remittance from its ILIGAN CITY branch.
Determine the balance in the branch books of the Home Office account (before adjustment)
as of December 31, 2021.

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 A. P191,350
B. P164,350
C. P198,350
D. P209,350
Number 31
On May 1, 2021, the Home Office in BACOLOD CITY establishes a sales agency in SILAY CITY.
The following assets are sent to the sales agency on that date:
Cash (for the working fund to be operated under the imprest system) P100,000
Merchandise samples 240,000
During the month, the sales agency submits sales on account of P1,500,000 which was duly
approved by the home office. Cost of merchandise shipped to fill the orders from customers
obtained by the sales agency is P800,000. Home office disbursements chargeable to the agency are
as follows: Furniture and fixtures, P150,000; manager’s and salesmen’s salaries, P88,000; and rent,
P35,000. On May 31, the sales agency working fund is replenished: paid vouchers submitted by
the sales agency amounted to P42,000. Sales agency samples are useful until December 31, 2021,
which at that time, are believed to have a salvage value of 15% of cost. Furniture are depreciated
at 30% per annum.
What is the net profit of the SILAY CITY AGENCY for the month of May, 2021?
A. P327,250
B. P315,250
C. P463,750
D. P505,750
Number 32
HERITAGE CORPORATION has one branch office, named BLUE Branch. HERITAGE is
performing the end-of-the- period reconciliation of its Branch account whose current balance is P?
and BLUE’s Home Office account whose current balance is P?. The following items are unsettled
at the end of the accounting period (you may assume that the item has been reflected in the accounts
of the underlined entity):
a. HERITAGE has agreed to remove P288 of excess freight charges charged to BLUE when
HERITAGE shipped twice as much inventory as the branch office requested
b. BLUE mailed a check for P4,224 to the Home Office as payment for merchandise
shipments. The home office has not yet received the check.
c. BLUE returned defective merchandise to HERITAGE. The merchandise was billed to the
branch at P1,536 when its actual cost was P1,152.

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 d. Advertising expense attributable to the branch office were paid for by HERITAGE in the
amount of P1,920.
If the adjusted balances for the BLUE’s Home Office Account and HERITAGE’s Branch Account
is P192,000, what unadjusted balance was listed in (1) Heritage’s Branch Account and (2) Blue’s
Home Office Account?
A. (1) P195,936 and (2) P193,920.
B. (1) P197,760 and (2) P190,368.
C. (1) P197,376 and (2) P198,144.
D. (1) P193,536 and (2) P192,288.
Number 33
The SORENTO branch of MAZDA COMPANY, at the end of its first quarter of operations,
submitted the following income statement:
Sales P115,200
Cost of sales:
Shipments from home office P107,520
Local purchases 11,520
Total P119,040
Inventory at end 19,200 99,840
Gross margin on sales P 15,360
Expenses 13,440
Net income P 1,920
Shipments to the branch were billed at 140% of cost. The branch inventory as at September 30
amounted to P19,200 of which P2,534 was locally purchased. Markup on local purchases, 20%
over cost. Branch expenses incurred by home office amounting to P960 were inadvertently omitted
from the branch’s income statement.
On September 30, the branch inventory at cost and net income realized by the home office
from the branch operations, respectively are:
A. P14,438 and P27,878
B. P12,134 and P 1,920
C. P19,200 and P21,120
D. P14,438 and P26,918
Number 34
A HOME OFFICE transfers inventory to its BRANCH at a 20% markup on cost. During 2024,
inventory costing the HOMEOFFICE P30,720 was transferred to the BRANCH. At year-end, the
HOME OFFICE adjusted its Unrealized Intercompany Inventory Profit account downward by
P6,989. The BRANCH’s year-end balance sheet shows P1,843 of inventory acquired from the
HOME OFFICE.

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How much is the beginning inventory of the BRANCH at cost?
A. P 5,760
B. P 6,912
C. P 1,152
D. P 6,144
Number 35
SHERWIN. INC. established a BRANCH in JOLO to distribute part of the goods purchased by
the HOME OFFICE. The HOME OFFICE prices inventory shipped to the BRANCH at 20% above
cost. The following account balances were taken from the ledger maintained by the HOME
OFFICE and the BRANCH:
Sherwin, Inc. Jolo, Branch

Sales P230,400 P 80,640

Beginning inventory 46,080 23,040
Purchases 192,000 -
Shipment to branch 49,920 -
Shipment from home
office 59,904
Operating expenses 27,648 13,824
Ending inventory 37,632 18,432

All of the branch inventory is acquired from the HOME OFFICE.

On the basis of these account balances, the combined net income of the HOME OFICE and
the BRANCH is:
A. P 65,280
B. P 26,880
C. P106,752
D. P 50,688
Numbers 36 and 37
BLAZER COMPANY is engaged in merchandising both at its HEAD OFFICE in MAKATI and a
BRANCH in CEBU.
Selected accounts in the trial balances of the BICOL COMPANY and the CEBU BRANCH at
December 31, 2024 follow:

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Additional information:
a. CEBU BRANCH receives all its merchandise from the HEAD OFFICE. The HEAD
OFFICE bills the goods at cost plus 10% mark-up. At December 31, 2024 a shipment with
a billing price of P1,920 was in transit to the BRANCH. Freight on this shipment was P96
which is to be treated as part of inventory.
b. December 31, 2024 inventories, excluding the shipment in transit was:
Head Office, at cost 11,520
Cebu Branch, at billed value (excluding freight of P199.68) 3,994
36. Net income of the HEAD OFFICE was
A. P 3,840
B. P 5,760
C. P 7,680
D. P 8,448
37. True income of CEBU BRANCH was
A. P 4,021
B. P 4,405
C. P 4,789
D. P 5,173
Number 38
The following data were taken from the records of SHELTER CORPORATION and its
BULACAN BRANCH for 2024:

Home Office Bulacan branch

Sales P 203,520 P60,480
Inventory, Jan. 1 22,080 8,544
Purchases 157,440
Shipment to branch 40,320

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 Shipment from home 48,384
office
Inventory, Dec. 31 27,360 11,232
Expenses 73,344 19,488
In 2024, the HOME OFFICE billed the BRANCH at 120% of cost which was lower by 5% than
last year’s.
The combined net income of the HOME OFFICE and the BRANCH for 2024 was:
A. P18,557
B. P18,653
C. P19,142
D. P21,533
Number 39
BLUEBERRY, INC. has a BRANCH in BORACAY established on April 1, 2024. During the year
2024, the BLUEBERRY shipped merchandise to the BRANCH at billed value of P48,000 which
was 25% above cost. At the end of the year, the BRANCH reported sales of P76,800, operating
expenses of P36,480, and a net income from operations of P5,760.
The true income of the BRANCH was
A. P 5,760
B. P 9,600
C. P 6,912
D. P 12,672
Number 40
STELLAR CORPORATION operates a number of BRANCHES in Metro Manila. On June 30,
2024, its STA. CLARA BRANCH showed a HOME OFFICE account balance of P17,504 and the
HOME OFFICE books showed a STA, CLARA BRANCH account balance of P16,352. The
following information may help in reconciling both accounts:
a. A P7,680 shipment charged by HOME OFFICE to STA. CLARA BRANCH was actually
sent to and retained by STA. INEZ BRANCH.
b. A P9,600 shipment, intended and charged to STO. DOMINGO BRANCH was shipped to
STA. CLARA BRANCH and retained by the latter.
c. A P1,280 emergency cash transfer from STA. INEZ BRANCH was not taken up in the
HOME OFFICE books.
d. HOME OFFICE collects a STA. CLARA BRANCH accounts receivable of P2,304 and
fails to notify the BRANCH.
e. HOME OFFICE was charged for P768 for merchandise returned by STA. CLARA
BRANCH on June 28. The merchandise is in transit.
f. HOME OFFICE erroneously recorded STA. CLARA BRANCH's net income for May,
2024 at P10,416. The BRANCH reported a net income of P8,112.

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What is the reconciled amount of the HOME OFFICE and STA. CLARA BRANCH’s
reciprocal accounts?
A. P13,920
B. P15,200
C. P17,504
D. P12,896
Number 41
The LENARD COMPANY established a BRANCH in MAKATI CITY on June 1, 2024. The
BRANCH is to receive substantially all merchandise from the HOME OFFICE. During the
remainder of 2024, shipments to the branch amounted to P69,120 which included a 20% mark-up
on cost. The BRANCH purchased P17,280 additional merchandise for cash and reported unsold
merchandise of P23,040 at year-end. The BRANCH made sales of P112,320, paid expenses of
P27,648 and remitted to the HOME OFFICE all sales proceeds. The allowance for overvaluation
of branch inventory account on the HOME OFFICE books showed a balance of P2,880 after
adjustment.
Compute the: (1) BRANCH inventory on December 31, 2024 at cost, and (2) the BRANCH net
income as far as the HOME OFFICE is concerned:
A. (1) P17,280; (2) P29,952
B. (1) P20,160; (2) P29,952
C. (1) P19,968; (2) P21,312
D. (1) P24,000; (2) P38,160
Numbers 42, 43, 44, 45, 46, 47, 48, 49, 50 and 51
The pre-closing trial balances of HATCH CORPORATION and its TAYTAY BRANCH for the
year ended December 31, 2024, prior to adjusting and closing entries are as follows:

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Inventory per physical count on December 31, 2024:
Home Office Branch
From vendors 184,320 20,480
From home office - 46,080

Inventory transferred to the branch from the home office is billed at 125% of cost.
42. The merchandise shipment in transit, to the branch, at December 31, 2024 is
A. P15,360
B. P12,288
C. P19,200
D. P0
43. The combined beginning inventory is
A. P303,104
B. P292,864
C. P307,200
D. P228,693
44. The combined ending inventory is
A. P250,880
B. P193,331
C. P241,664
D. P237,568
45. The overstatement of the cost of sales in the branch income statement is
A. P20,480
B. P13,107
C. P0
D. P16,384
46. The net income reported in the branch income statement is
A. P40,960
B. P32,768
C. P51,200
D. P64,000
47. The net income from Home Office operation is
A. P30,720
B. P25,764
C. P24,576
D. P38,400

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48. The combined net income is
A. P102,400
B. P 81,920
C. P128,000
D. P160,000
49. At what amount is the Investment in Branch account shown in the balance sheet of the
Home Office?
A. P133,120
B. P166,400
C. P0
D. P174,080
50. At what amount is the Home Office Equity account shown in the combined balance sheet?
A. P133,120
B. P166,400
C. P0
D. P174,080
51. How much is the true cost of the Home Office investment in the branch as at December
31, 2024?
A. P164,864
B. P133,120
C. P144,686
D. P174,080

Numbers 52, 53 and 54

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, 20X0:
Home Office Books Branch Books
Inventory, January 1 35,000 101,500
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.

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52. What is cost of goods available for sale of the branch?
A. P715,400
B. P781,375
C. P689,500
D. P638,750
53. What is the total ending inventory to be shown on the combined financial statements?
A. P118,475
B. P277,725
C. P328,475
D. P280,000
54. What is the combined net income for the year?
A. P957,950
B. P871,850
C. P891,975
D. P942,725
Numbers 55, 56 and 57
The following information was taken from the books of MAYON COMPANY and its Naga City
branch on December 31, 2023, before adjusting entries were recorded.
Branch books
Sales P300,000
Inventory, January 1 19,000
Purchases 20,000
Shipment from Home Office 180,000
Expenses 80,000
Home Office books
Sales P400,000
Inventory, January 1 40,000
Purchases 210,000
Shipment to Branch 150,000
Expenses 210,000
Allowance for overvaluation of
branch inventory, December 31 31,500
There are no merchandise shipments in transit as at the year-end. The ending inventories are:
Home Office (all from outside suppliers) P50,000
Branch office (40% from outside suppliers, the rest from home office) 40,000
55. Calculate the 2023 net income of the branch that was closed to the reciprocal accounts
A. P 121,000
B. P 41,000

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 C. P 68,500
D. P 140,000

56. Calculate the net income that was closed to the Retained Earnings
A. P 140,000
B. P (160,000)
C. P 181,000
D. P 208,500

57. The amount of branch 2023 net income closed by the home office to its Income Summary
account in its year-end closing entries is
A. P 68,500
B. P 41,000
C. P 140,000
D. P 208,500
Numbers 58, 59 and 60
Home Office Books Branch Books
Cash 2,200,000 132,000
Accounts Receivable 360,000 200,000
Inventory, beginning 600,000
Shipments from HO 912,000
Purchases 2,400,000 80,000
Freight-in 64,000 36,000
Shipments to branch 760,000
Investment in branch 1,200,000
Allowance for markup 152,000
Equipment 1,440,000 800,000
Accumulated depreciation 144,000 80,000
Accounts payable 144,000 80,000
Share Capital 4,000,000
Retained Earnings, beginning 304,000
Home office 1,200,000
Sales 3,200,000 1,000,000
Operating expenses 440,000 200,000

Inventory, end:
From outside purchases 920,000 20,000
From home office 480,000

58. How much is the combined net income?

A. P1,756,000
B. P1,720,000
C. P1,748,000

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 D. P1,648,000

59. How much is the ending inventory in the combined financial statements?
A. P920,000
B. P1,420,000
C. P1,320,000
D. P1,340,000

60. The total home office account in the books of the branch?
A. P0
B. P1,472,000
C. P1,544,000
D. P1,000,000

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