POLYTECHNIC UNIVERSITY OF THE PHILIPPINES PRACTICAL ACCOUNTING 2 2013-2014
AGENCY, HOME OFFICE AND BRANCH ACCOUNTING
P2 - 105
AGENCY ACCOUNTING Problem 1. On December 1, 2013, the IPhone6 Co. established an agency in Laguna, sending its merchandise samples costing P15,750 and a working fund of P9,000 to be maintained on the imprest basis. During the month of December, the agency transmitted to the home office sales orders which were billed at P64,380. A home office disbursement chargeable to the sales agency is the acquisition of furniture and fixtures for Laguna, P25,000 to be depreciated at 24% per annum. The agency paid expenses of P3,815. On December 31, 2013, the agency samples were valued at P10,075. The gross profit rate of the goods shipped to the agency 20% based on selling price. How much is the net income of the agency for the month ended December 31, 2013? a. P -0b. P 2,886 c. P 3,386 d. P 12,876 Problem 2. On June 1, 2013, The Capitol Inc. established an agency in District 12, sending samples costing P4,200,000 which are useful until May 31, 2014 and have a salvage value of P840,000. A working fund of P3,412,500 is to be maintained using imprest basis. During 2013, the agency submitted to the home office sales order amounting to P35,437,500. Sales per invoice were P27,562,500 which were duly approved by the home office. Collections during the year amounted to P14,784,000 net of 4% sales discount. The cost of merchandise sold during the year is 70% of the gross selling price. Vouchers for the expenses amounted to P1,837,500. How much is the net income would be reported by District 12 agency on December 31, 2013? a. P 4,471,250 b. P 4,135,250 c. P 5,535,250 d. P3,855,250 Problem 3. Journalize the following District 2 Agency transactions: (Assume Perpetual Inventory method) a.
b.
Agency Transactions January 1. Receipt of P1,000 revolving fund from home office.
Home office books
January 1 – 31 Orders sent by agency to home office and approved by the home office amounting to P200. (mark-up on cost is 66 2/3 %)
Collection by home office of the P200 agency sales c.
January 1 – 31 P50 disbursement from the revolving fund.
d.
January 31 Replenishment of the revolving fund.
e.
January 31 Closing entry to determine the profit attributable to the agency.
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Problem 4. “The Capitol” Inc. opens a sales agency in District 13 and a working fund of P15,000 is established on
imprest basis. The fund was replenished in the amount of P12,000 (various agency expenses). The entry in the home office books for the replenishment is a. b. c. d.
Dr – Investment in District 13 agency and Cr – Working fund for P12,000. Dr – District 13 agency expenses and Cr – Working fund for P12,000. Dr – District 13 agency expenses and Cr – Cash for P12,000. Dr – Investment in District 13 agency and Cr – Cash for P12,000.
HOME OFFICE AND BRANCH ACCOUNTING Problem 1. A home office ships inventory to its branch at 125% of cost. The required balance of the deferred profit account is P 78,750. During the year, the home office sent merchandise to the branch costing P 784,000. At the start of the year, the branch’s Statement of Financial Position shows P315,000 of inventory on hand that was acquired from the home office. By what amount is the cost of goods sold (COGS) overstated? a. P -0b. P180,250 c. P196,000 d. P1,076,250 Problem 2. A home office ships inventory to its branch at a mark-up of 125% above cost. The required balance of the allowance for overvaluation account is P 1,425,000. During the year, the home office sent merchandise to the branch costing P 9,000,000. At the start of the year, the branch’s Statement of Financial Position shows P1,800,000 of inventory on hand that was acquired from the home office. By what amount will the Allowance for Unrealized Gross Margin in Branch Inventory account be debited at the end of the year? a. P2,610,000 b. P1,185,000 c. P10,825,000 d. P12,250,000 Problem 3. During the year 2013, goods billed at P3,250,000 were shipped to the branch at 130% cost. The account Loading in Branch Inventory has a balance of P1,225,000 before adjustment. The beginning inventory of the branch from the home office at cost is P2,375,000; the beginning inventory of the branch from outsiders is P540,000; purchases from outsiders is P1,450,000. Questions: 1. How much is the total goods available for sale of the branch? a. P5,308,335 b. P6,100,000
c. P6,337,500
2. How much is the total goods available for sale of the branch from the home office? a. P5,308,335 b. P6,100,000 c. P6,337,500
d. P8,090,000 d. P8,090,000
Problem 4. The District 4 branch of The Capitol Inc. submitted trial balance as of December 31, 2013 after the first year of operations: Debit Credit Cash P10,400 Accounts receivable 63,200 Shipments from home office 168,000 Expenses 10,800 Sales P134,400 Home office current 118,000 Merchandise Inventory, December 31 – P50,400 Shipments to the branch are billed at 140% of cost Questions: 1. The adjustment to the cost of goods sold of the Branch account amounts to: a. P -0b. P14,400 c. P33,600
d. P68,600
2. The true net income of the branch during 2013 was a. P -0b. P6,000
c. P33,600
d. P39,600
3. The overstatement in the branch inventory at December 31, 2013 was a. P -0b. P6,000 c. P14,400
d. P29,400
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Problem 5. “The Capitol” Inc. has established a branch in District 5 by sending goods costing P184,900 and P80,000 cash on July 1, 2013. Home office initiated transactions for the remainder of the year are found below. At the end of the year, the company’s controller has found out that Seneca Crane, the accounting staff assigned in recording the transactions between home office and the branches, had failed to record all the transactions initiated by the branch. Because of this, there is a significant discrepancy between the balances of the reciprocal accounts.
The home office acquired computer equipment amounting to P420,000 for the branch on August 1, 2013. As per agreement, the branch will keep all the property, plant and equipment records. Goods costing P320,000 were shipped from the home office to branch on November 9, 2013. Additional cash amounting to P53,000 was transferred to the branch on December 2, 2013. A branch customer has incorrectly paid P25,000 cash to the home office on December 16, 2013. The home office incurred P65,000 o advertising cost and P96,000 of salaries. District 5 branch is to shoulder 30% and 20% of these expenses, respectively.
For purpose of reconciling the reciprocal accounts, the controller has instructed the branch accountant to send a copy of the Home Office Current general leger to the home office. 8/3 11/5 12/20
Equipment acquisition Cash remittance Return of goods to HO
Home Office Current P420,000 7/1 78,000 7/1 49,000 8/15 11/10 12/4
Goods from HO Cash Collection of HO’s AR Goods from HO Cash
P184,900 80,000 113,600 230,000 50,300 P111,800
Determine the following: 1. Unadjusted balance of the Investment in District 5 account: a. P1,142,800 b. P1,044,800
c. P1,071,600
2. Net adjustment in the Home Office Current account. Indicate whether net debit or net credit: a. P946,400 net debit b. P946,400 net credit c. P996,400 net debit
d. P1,058,200 d. P946,400 net credit
Problem 6. Lea Products Corporation has two branches, Kalibo and Altavas, to which merchandise is billed at 20% above cost. Partial trial balance accounts of the three entities at December 31, 2013 are summarized as follows: Home Office Kalibo Branch Altavas Branch Inventory P 800,000 P 180,000 P 240,000 Investment in Kalibo Branch 450,000 Investment in Altavas Branch 420,000 Shipments from Home Office 600,000 360,000 Purchases 1,600,000 Expenses 900,000 250,000 200,000 Home Office 450,000 300,000 Loading – Kalibo Branch 130,000 Loading – Altavas Branch 120,000 Sales 1,950,000 900,000 750,000 Shipments to Kalibo Branch 500,000 Shipments to Altavas Branch 400,000 Additional Information: Physical inventories on hand as counted by the three entities at December 31, 2013 were as follows: Home Office P700,000 Kalibo Branch 210,000 Altavas Branch 150,000 Questions: 1. The ending inventory of Lea Products Corporation must be: 2. The combined net income of home office and branches for 2013 must be: 3. Correct net income of the branches for 2013 must be:
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Problem 7. Home office bills its branch for merchandise shipments at 30% above cost. The following are some of the account balances in the books of home office and its branch as of December 31, 2013: Inventory, January 1 Shipments from Home Office Purchases Shipments to Branch Branch Inventory Allowance Sales Operating Expenses
Home Office Books P5,000 225,000 36,250 13,125 300,000 72,500
Branch Books P14,500 37,700 50,000
180,000 27,500
Per physical count, the ending inventory of the branch is P10,500 including goods from outside purchases of P6,925; the ending inventory of the home office is P30,000. What is the combined net income for the year? a. P136,850 b. P134,675 c. P135,771 d. P124,550 Problem 8. On December 31, 2013, the home office of Rhada Company recorded a shipment of merchandise to its Calamba branch as follows: Calamba branch 30,000 Shipment to Calamba Branch 25,000 Unrealized profit in branch inventory 4,000 Cash (freight charges) 1,000
The Calamba branch sells 40% of the merchandise to outside entities during the rest of December 2013. The books of the home office and Calamba branch are closed on December 31 of each year. At what amount should the 60% of the merchandise remaining unsold at December 31, 2013 should be included in the published statement of financial position of Rhada Company at December 31, 2013? a. P 15,600 b. P 15,000 c. P 18,000 d. P 18,600 Problem 9. During 2013, goods were shipped to the branch at 120% above cost. The reciprocal account in the income statement of the home office amounted to P237,500. The balance of the contra branch current account reports a balance of P375,000 before adjustment. The beginning inventory of the branch from the home office at cost is P360,000 and from outsiders, P93,000. The branch purchased goods from outsiders during the year amounting to P125,200. The ending inventory of the branch as reported in the combined statement of financial position is P345,000. The branch income as reported in the combined
financial statements and as reported in the branch’s books are P201,125 and P120,750, respectively. How much is the cost of goods sold to be reported in the branch’s income statement for the year ended December 31, 2013? a. P 551,075 b. P 514,500 c. P 470,700 d. P 790,500 Problem 10. Rob. Co. operates a branch in Cebu. On December 31, 2013, the Cebu branch in the home office books showed a debit balance of P3,132,660. The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were given: It is the policy of the home office to bill its branches at 20% above cost.
Shipments from home office to Cebu branch costing P435,000 were in transit as of year-end. Cebu branch recorded tha said transfer twice at cost: one on December 31, 2013 and the other on January 1, 2014. The home office allocated to the Cebu branch ¾ of the rent expenses it paid for the year ended 2013. The rent expense was P144,000. The home office sent a debit memo to Cebu branch for the allocated amount, but the branch recorded the said debit memo by debiting the home office – current and crediting rent payable. The branch wrote-off uncollectible accounts amounting to P60,720. The allowance for doubtful accounts is maintained in the books of the home office. The home office recorded the write-off as a write-off of its own accounts receivable. The branch collected accounts receivable from home office’s customers amounting to P317,520, net of 2% cash discount. The branch treated the said transaction as if it was a collection from its own customers. The home office was not yet notified of the said collection
What is the unadjusted balance of the home office – current account in the books of Cebu branch on December 31, 2013? a. P 2,754,420 b. P 2,768,940 c. P 2,781,900 d. P 2,855,940
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Problem 11. Fire Company has a branch in Baguio and Davao. The reciprocal accounts between the home office and the branches were in agreement at the beginning of 2013. However, at December 31, 2013, the following reciprocal balances are found in the home office books: Investment in Baguio Investment in Davao
P186,500 84,000
Data for reconciliation of the reciprocal accounts are as follows: On December 29, 2013, the home office has instructed Baguio to transfer P74,000 cash to Davao. Baguio recorded this transaction immediately. Upon receipt, Davao recorded this transfer at P47,000. The home office however has not yet recorded this inter-branch transaction as of the end of the year. Fire has transferred goods costing P28,900 to Baguio branch and paid P2,500 of shipping cost on December 16, 2013. Baguio shipped all these goods to Davao upon instruction of the home office on December 30, 2013. Shipping cost is P3,600 freight collect. Had the goods were shipped directly to Davao, P5,000 of freight cost should have been incurred. The inter-branch shipment was not recorded by the branches and the home office as well. Baguio has collected cash of P5,750 from Davao’s customers. This transaction is not yet recorded by Davao and the home office. The home office has already allocated P11,000 and P9,000 of administrative expenses to Baguio and Davao, respectively. The branches are not yet notified. Baguio remitted P14,300 cash to the home office on December 12, 2013. The home office has failed to record the said remittance. Davao returned goods costing P6,850 to the home office. The goods were shipped on December 19 and received on December 24 but no entries have been made in the home office books. Compute the following: 1. Adjusted balance of Investment in Baguio account. _______________________ 2. Adjusted balance of Investment in Davao account. _______________________ 3. Unadjusted balance of Home Office Current account in Baguio’s books. _______________________ 4. Unadjusted balance of Home Office Current account in Davao’s books. _______________________ Problem 12. The following transactions were entered in the branch current account of Makati Head Office for the year 2013: Beg. Balance, 1/1/13 Shipments to branch, 4/1/13 Cash forwarded, 6/1/13 Operating expenses charged to the Branch,12/31/13
Investment in Branch – Ortigas 459,258 33,300 212,400 15,000
Collection of AR 9/12/13
2,880
Shipments to branch during the year were made at 20% above cost. The balance of the Allowance for Overvaluation of Branch Inventory was P21,300 at the beginning, and the allowance was written down to P14,700 at year end. On December 10, 2013, the home office purchased a piece of equipment amounting to P36,000 for its branch in Ortigas. The said equipment has a useful life of five years and will be carried in the books of the branch, but the home office recorded the purchase by debiting the Equipment. The branch recorded the depreciation of the equipment by debiting the Home Office Current account and crediting Accumulated Depreciation.
Debit memo regarding the allocation of operating expenses to the Ortigas branch was received by the branch on January 2, 2014.
The Ortigas branch reported net income of P197,730.
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It also remitted cash to the home office on December 31, 2013 amounting to P33,000, which the home office received and recorded on January 1, 2014. The inter-office accounts were in agreement at the beginning of the year. Compute the following: 1. How much is the adjusted balance of Branch Current account on December 31, 2013 before the necessary closing entries were made? _______________________ 2. What is the amount of adjustment in the Allowance for Overvaluation of Branch Inventory account? __________________ 3. How much is the net income of Ortigas branch that will be reported in the combined income statement of Makati Company? _______________________ 4. What is the amount of the Home Office Current account that will be reported in the books of Ortigas branch after closing entries are made?_______________________ Problem 13. The home office transfers inventory worth P600,000 to Branch#1. Freight paid by the home office is P40,000. Later on, the home office instructs Branch#1 to transfer the merchandise to Branch#2. Branch#1 pays freight of P12,000. If the merchandise had been shipped from home office to Branch#2, freight cost would have been P56,000. Entries to record the transactions described includes a. a credit to savings on freight of P 4,000 in the books of Branch#1. b. a credit to savings on freight of P 4,000 in the books of Branch#2. c. a credit to savings on freight of P 4,000 in the books of the home office. d. none of these. Problem 14. Given: Home Office Control (Branch Books) Jan. 1, 2013 Balance Jan. 3, 2013 Cash remitted to home office Jan. 5, 2013 Shipments from home office Jan. 28, 2013 Expenses from home office Jan. 28, 2013 Cash remitted to home office Jan. 28, 2013 Merchandise returned to home office Branch Control (Home Office Books) Jan. 1, 2013 Balance Jan. 3, 2013 Cash received from branch Jan. 4, 2013 Shipments to branch Jan. 28, 2013 Expense allocation Jan. 28, 2013 Shipments to branch Jan. 28, 2013 Collection from branch customer Jan. 28, 2013 Supplies purchased from branch and shipped directly to the branch
60,000 80,000 120,000 45,200 30,000 12,000 60,000 80,000 120,000 52,400 24,000 18,000 8,000
Except for the error by the branch in recording its share of allocated expenses, all differences are timing differences.
The adjusted balance of reciprocal accounts is: a. P 117,200 b. P 103,200
c. P 124,400
d. P 166,400
Problem 15. The Capitol Inc. has two branches to which merchandise is transferred at cost plus 20%, plus freight charges. On November 30, 2013, home office shipped merchandise that cost P5,500 to its District 1 branch, and the P200 shipping charges was paid by the home office. On December 15, 2013, the District 2 branch encountered an inventory shortage , and District 1 branch shipped the merchandise to the District 2 branch at a freight cost of P160 paid by District 1 branch. Shipping charges from the home office to the District 2 branch would have been P175. Question: 1. If merchandise is unsold at year end, the District 2 branch will inventory the merchandise at what amount? 2. If merchandise is unsold at year end, how much would the home office include as inventory in its report to shareholders?
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