Questions 1 & 2 are based on the following information. On February 14, 2012, Therese Company established a sales agency in Tagbilaran. Upon establishment of the sales agency, the home office sent samples costing P8,000 and a working fund of P3,000 to be maintained on the imprest basis. During the six-month period, the sales agency reported to the home office sales orders. These were billed at P70,000 of which of P40,000 was collected) the sales agency paid expenses of P5,800 but was reimbursed by the home office. On August 15, 2012, the sales agency samples were valued at P2,000. It was estimated that the gross profit on goods shipped to fill sales order averaged 40% of cost. 1. The cost of sales of the sales agency for the six-month period is a. P42,000 c. P48,000 b. P44,000 d. P50,000 2. The net income of the sales agency for the six-month period is a. P16,200 c. P10,200 b. P14,200 d. P8,200 3. A branch’s ending inventory of merchandise shipped by the home office and purchased from outside vendors amounts to P 50,000. The post-closing trial balance in the Unrealized Gross Profit in Branch Inventory account is P 6,000 due to the home office practice of shipping merchandise at 20% above cost. The merchandise purchased from outside vendors contained in the ending inventory of the branch amounts to: a. P 38,000 c. P 30,000 b. P 18,000
d. P 14,000
Questions 4 and 5 are based on the following information. The income statement submitted by Loon Branch to the Home Office for the month of December 31, 2013 follows: Sales Cost of Sales: Inventory, December 31, 2013 Shipments from Home office Purchased locally by branch Total Inventory, December 31, 2013 Gross Margin Operating Expenses Net Income for the month
P600,000 P80,000 350,000 30,000 P460,000 (100,000)
360,000 P240,000 (180,000) P 60,000
The Branch inventories consisted of: Merchandise purchased from home Local purchases Total
12/1/2013 P70,000 P10,000 P80,000
12/31/2013 P84,000 P16,000 P100,000
After effecting the necessary adjustments, the Home Office ascertained the true net income of the Branch to be P156,000. 4. At what percentage of cost did the home office bill the branch for merchandise shipped to it? a. 100% c. 120% b. 140% d. 150% 5. What is the balance of the Allowance for Overvaluation in the branch inventory at December 31, 2013? a. P10,000 c. P16,000 b. P24,000 d. P34,000 Questions 6 and 7 are based on the following information. The following information is extracted from the books and records of Elaine Company and its branch. The balances are at December 31, 2012 of the company’s operations. Home Office Branch Sales P260,000 Shipments to branch P 78,000 Shipments from home office 104,000 Purchases 39,000 Expenses 78,000 Inventory, January 1, 2012 26,000 Allowance for overvaluation of branch 31,200 inventory However, no shipments in transit between home office and the branch were made. Both shipments accounts are properly recorded. The ending inventory includes merchandise acquired from the home office in the amount of P26,000 and P7,800 acquired from outsiders acquired from the home office in the amount of P26,000 and P7,800 acquired from outsiders for a total of P33,800. 6. What is the realized profit in branch inventory? a. P21,000 c. P22,533 b. P31,200 d. P24,700 7. What is the amount of branch merchandise beginning inventory that was acquired from the home office? a. P14,000 c. P15,600
b. P19,000
d. P20,800
Questions 8 and 9 are based on the following information. Auto Supply Company is engaged in merchandising both at its home office in Cebu City and its branch in Toledo City. Selected accounts taken from the trial balances of the home office and the branch as of December 31, 2012 follow: Debits
Cebu City
Inventory, January 1, 2012 Toledo Branch Purchases Freight in from home office Sundry Expenses Credits Home Office Sales Sales to branch Allowance for Overvaluation of inventory at January 1, 2012.
P 23,000 58,300 190,000 52,000
P155,000 110,000
Toledo Branch P 11,550 105,000 5,500 28,000 P 53,300 140,000
branch 1,000
Additional information: The Toledo City branch gets all of its merchandise from the home office. The home office bills the goods at cost plus a 10% mark-up. At December 31, 2012, a shipment with a billed value of P5,000 was still in transit. Freight on this shipment was P250 and is to be treated as part of the inventory. Inventories on December 31, 2012, excluding the shipment in transit, follow: Home office, at cost………………………………….……….. P30,000 Branch, at billed price (excluding freight of P520…… 10,000 8. What is the net income of the home office from own operations? a. P30,470 c. P21,000 b. P20,000 d. P30,470 9. What is the net income of the branch in so far as the home office is concerned? a. P870 c. P1,500 b. P10,470 d. P12,000 10.
Durable Textile Company has a single branch in Bohol. On March 1, 2012, the home office accounting records included an Allowance for Overvaluation of Inventories – Bohol Branch ledger account with a credit balance of P32,000. During March, merchandise costing P36,000 was shipped to the Bohol Branch and billed at a price representing a 40% markup on the billed price. On March 31, 2012, the branch prepared an income statement indicating a net loss of P11,500 for March and ending inventories at billed prices of P25,000. What is
the amount of adjustment for allowance for Overvaluation of Inventories to reflect the true branch net income? a. P39,257 debit c. P39,333 debit b. P46,000 credit d. P46,000 debit Questions 11 and 12 are based on the following information. Yul Trading Corp. operates a branch in Talisay City. At the close of business on December 31, 2012, Talisay Branch account in the home office books showed a debit balance of P225,770. The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were ascertained: 1. An office equipment costing the home office P3,5000 was picked up by the branch as P350. 2. Insurance premium of P675 charged by the home office was taken up twice by the branch. 3. Freight charges on merchandise made by the home office for P1,125 were recorded in the branch book as P1,215. 4. Home office credit memo representing a discount on merchandise for P800 was not recorded by the branch. 5. The branch failed to take up a P700 debt memo from the home office representing the share of the branch in the advertising. 6. The home office inadvertently recorded a remittance for P3,000 from the Cebu branch as a remittance from its Talisay branch. 11.
What is the balance of the Home Office account before adjustment as of December 31, 2012? a. P225,000 c. P228,485 b. 225,770 d. 226,485
12.
What is the adjusted balance of the Home Office account as of December 31, 2012? a. P225,000 c. P225,770 b. 226,485 d. 228,770
Questions 13 and 14 are based on the following information. PTT Corporation retails merchandise through its home office store and through a branch store in a distant city. Separate ledgers are maintained by the home office and the branch. The branch store purchases merchandise from the home office (at 120% of home office cost), as well as from outside supplies. Selected information from the December 31, 2012 trial balances of the home office and branch is as follows: Home Office Branch Sales P120,000 P50,000 Shipments to branch 16,000 ---Purchases 70,000 11,000 Inventory, January 1, 2012 40,000 30,000 Shipments from home office ----19,200
Expenses Unrealized profit in branch inventory
28,000 7,200
2,000 -----
Additional information: The entire difference between the shipment accounts is due to the practice of billing the branch at cost plus 20%. The December 31, 2012 inventories are P40,000 and P20,000 for the home office and the branch, respectively. (The branch purchased 16% of its ending inventory from outside supplies.) Branch beginning and ending inventories include merchandise acquired from home office is inventoried at 120% of home office cost. 13.
14.
What is the realized profit in branch inventory? a. P4,000 c. P2,800 b. 7,200 d. 4,400 What is the net income of the branch as far the home office is concern? a. P50,200 c. P10,600 b. 15,000 d. 12,200
Questions 15 and 16 are based on the following information. Kulas Corporation has one branch operation located 500 miles away from the home office. The branch office sales merchandise which is shipped to it from the home office. The merchandise is transferred at cost but the branch pays reasonable freight charges. The branch office makes sales and incurs and pays operating expenses. At the end of the current accounting period the true adjusted balance for the home office account on the branch’s books and the branch office account on the home office’s books is P500,000. The following items may or may not be reconciling items. The current year is 2012. 1) The home office has shipped merchandise to the branch office which cost P10,000 and which incurs P500 freight charges paid by the home office but charged to the branch. This merchandise is received by the branch on January 5, 2012. 2) The branch has transmitted P17,000 in cash back to the home office as a partial payment on such purchased merchandise. This cash is received by the home office on January 6, 2012. 3) The branch office returns some defective merchandise to the home office. The cost of the returned merchandise is P750. The branch office pays P25 of freight costs which will be charged back to the home office. 4) On December 1, 2012, the home office sends a check for P25,000 to replenish the branch’s charged back to the home office. 5) The branch pays an advertising expense of P800 that should have been paid by the home office since it applied to advertising fees incurred by the home office of its own benefit. 6) The home office allocated P12,000 of general and administrative expenses to the branch. The branch had not entered the allocation as of the end of the year.
7) The home office pays insurance premiums on the branch store. The amount paid by the home office is P1,000 but the branch erroneously records it as P776.00 15.
What is the unadjusted balance of the Home Office account? a. P481,425 c. P500,000 b. 452,276 d. 518,575
16.
What is the unadjusted balance of the Branch account? a. P433,701 c. P518,575 b. 500,000 d. 452,276
Questions 17 through 20 are based on the following information. Selected information from the trial balances for the home office and the branch of Lalay Company at December 31, 2012 is provided. The branch acquires merchandise from the home office and outside suppliers. Home Office Branch Sales P60,000 P30,000 Shipments to branch 8,000 Allowance for overvaluation of branch inventory 3,600 Shipments from home office 10,000 Purchase (outsiders) 35,000 5,500 Merchandise inventory 12.01.12 20,000 15,000 Expenses 14,000 6,000 Additional information: Merchandise inventory, December 31, 2012: Home office P20,000 Branch (P7,500 from home office and P2,500 from outsiders) 10,000 17.
18.
The billing rate of home office to branch for merchandise shipments is a. 120% of cost c. 130% of cost b. 125% of cost d. 135% of cost How much of the December 1 inventory of the branch represent purchases from outsiders and goods shipped from home office? a. Home office, P5,000 and Outsiders, P10,000 b. Home office, P8,000 and Outsiders, P7,000 c. Home office, P15,000 and Outsiders, P00,000 d. Home office, P12,000 and Outsiders, P3,000
19.
The net income reported by the branch is a. P4,500 c. P3,500 b. P5,600 d. P2,500
20.
The combined net income for Home office and branch operations is a. P22,500 c. P25,100 b. P24,600 d. P21,500
21.
Clang-clang Corporation’s home office ships merchandise to its Toledo branch at a billing price of 125% of cost. During 2012 the home office makes the following entry: Toledo Branch 75,000 Shipments to Toledo branch 75,000 At year-end 2012, P12,000 of this merchandise remains at Toledo branch inventory. The entry to adjust the branch income in the books of the home office will include a. Debit to Allowance for overvaluation of branch inventory, P12,600 b. Credit to Toledo branch account, P2,400 c. Debit to Shipments to Toledo branch, P12,600 d. Credit to Toledo branch inventory, P2,400 22.
May Corporation operate two stores: The Head Office store and Rose branch. On December 31, 2012, the Rose Branch account in the home office books has a balance of P340,000. Both stores use a standard 120% markup on cost. However, May’s home office ships merchandise to the branches at cost. Rose’s ending inventory includes P20,000 of merchandise received from home office Rose branch remitted P15,000 to home office on December 30, 2012. The Home office will not receive the remittance until January 4, 2013. The Home office allocated P5,000 general expenses to each of the branches but Rose branch have not yet recorded the expenses at year-end) Rose branch paid P2,000 for advertising “after Christmas” sales that were to be allocated equally between the two stores. The Home office has not recorded its share in the expenses. The unadjusted balance of the Home office account in the books of Rose branch
is a. P324,000 b. P319,000
c. P323,000 d. P318,000
Questions 23 & 24 are based on the following information. On December 31, 2012, the home office account on the branch books shows a balance of P9,735. The following reconciling data are determined in accounting for the difference. a. Merchandise billed at P615 shipped by the home office to the branch on December 28 is still in transit. b. The branch collected a home office accounts receivable of P2,500, but failed to notify the home office of this collection. c. The home office recorded the branch net income for November at P1,125. This was in error, as the branch reported net income was P1,215. d. The home office was charged P640 when the branch returned merchandise to the home office on December 31. The merchandise is in transit.
23.
The unadjusted balance of Branch account is a. P9,735 c. P10,990 b. P10,350 d. P8,400
24.
The adjusting entry to correct branch net income for November is a. Debit, Branch profit and loss P90 and Credit, Branch account P90 b. Debit, Home office account P90 and Credit, Branch profit and loss P90 c. Debit, Branch account P90 and Credit, Branch profit and loss P90 d. Debit, Branch profit and loss P90 and Credit, Home office account P90
25.
VERDI, Inc. has several branches. Goods costing P10,000 were transferred by the head office to Cebu Branch with the latter paying P600 for freight cost. Subsequently, the head office authorized Cebu Branch to transfer the goods to Davao Branch for which the latter was billed for the P10,000 cost of the goods and freight charge of P200 for the transfer. If the head office had shipped the goods directly to Davao Branch, the freight charge would have been P700. The P100 difference in freight cost would be disposed of as follows: a. Considered as savings. c. Charged to Davao Branch. b. Charged to Cebu Branch. d. Charged to the Head Office.
26.
During the year 2012 goods billed at P840,000 were shipped to the branch at 125% of cost. The account Allowance in Branch Inventory has a balance of P242,000 before adjustment. The beginning inventory of the branch from home office at cost is P370,000; the beginning inventory of the branch from outsider is P35,000; purchases from outsider is P220,000. Determine the “cost of goods available for sale” of the branch per branch record. a. P1, 297, 000 c. P1, 465, 000 b. P1, 539, 000 d. P1, 757, 000
Use the following information for the next two items: Trial balance for the home office and the branch of Terry Company show the following accounts before adjustments on December 31, 2012. The home office policy of billing the branch for merchandise is 20% above cost. Home Office Branch Allowance for overvaluation 60,000 Shipments to branch 240,000 Purchases (outsiders) 75,000 Shipments from home office 270,000 Merchandise Inventory, 12/01/12 100,000 The branch Merchandise Inventory on December 31, 2012 of P 50,000 includes purchases from outsiders of P 20,000. 27.
The working paper entry to eliminate profit in the beginning inventory includes debit to a. Allowance for overvaluation, P 48,000 b. Allowance for overvaluation, P 46,500
c. Allowance for overvaluation, P 48,500 d. Allowance for overvaluation, P 12,000 28.
The entry on the books of the home office to recognize mark-up includes credit to a. Branch income summary, P 52,000 b. Branch income summary, P 52,400 c. Branch income summary, P 52,500 d. Branch income summary, P 5,000
29.
The Home office in Mandaluyong shipped merchandise costing P 80,000 to Makati branch and paid for the freight charges of P 600. The home office bills the branch at 125% of cost. Makati branch was subsequently instructed to transfer one-half of the merchandise to Bulacan branch wherein Bulacan paid for P 200 freight. If shipment was made directly from Mandaluyong to Bulacan, the freight cost would have been P 400. By how much will the Makati branch charge the Home Office account? a. P50,300 c. P51,300 b. P0 d. P56,000
30.
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 sales 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, January 1 (at billed price) P26,400 Shipments from home office ( Jan.1 – Feb.16) 20,000 Sales 15,000 Sales Returns 2,000 Sales Allowances 1,000 What was the cost of the merchandise destroyed by fire? a. P36,000 b. P30,667 c. P36,800 d. P30,000 31.
Fischer Company opened its Tuguegarao Branch on January 1. Merchandise shipments from home office during the month, billed at 120% of cost, is P125,000. Branch returned damaged merchandise worth P15,620. On January 31, the branch reported a net loss of P2,270 and an inventory of P84,000. What is the net income(loss) of the branch to be taken up in the books of the Home Office? a. (1690)
32.
b. 6,500
c. (2,270)
d. 1,960
Barros Corporation’s shipments to and from its Brazil City Branch are billed at 120% of cost. On December 31, Brazil branch reported the following data, at billed prices: inventory, January 1, of P33,600; shipments received from home office of P840,000; shipments returned of P48,000; and inventory, December
21, of P36,000. What is the balance of the allowance for over – valuation of branch inventory on December 31 before adjustments?
33.
a. P5,600
c. P6,000
b. P137,000
d. P145,000
The Robert Corporation established its Bulacan branch in January 2016. During its first year of operations, home office shipped to its Bulacan branch merchandise worth P130,000 which included of 15% markup on cost. Sales on account totaled P250,000 while cash sales amounted to P80,000. Bulacan reported operating expenses of P38,000 and ending inventory of P15,000, at billed price. In so far as the home office is concerned, the real net income of Bulacan is a. P82,000 b. P47,000 c. P177,000 d. P192,000
34.
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 P7500 inventory 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 the home office shipments at billed price. The home office billed the branch 20% above cost. The total purchases from outside suppliers amounted to P72,500. The total cost of goods available for sale by the branch at cost (net of over valuation and returns) amounted to a. P416,250 b. P422,500 c. P435,200 d. P485,000
35.
The home office of Glendale Company, which uses the perpetual inventory system, bills shipment of merchandise to the Montrose Branch at a markup of 25% on the billed price. On August 21, 2016, the credit balance of the home office’s Allowance for Overvaluation of Inventories – Montrose Branch ledger
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 an ending inventory, at billed price, of P160,000 on September 30, 2016. Compute the realized gross profit. a. P20,000 b. P28,000 c. P120,000 d. P160,000 36.
Tillman Textile Company has a single branch in Bulacan. On March 1, 2016, the home office accounting records included an Allowance of Overvaluation of Inventories – Bulacan Branch ledger account with a credit balance of P32,000. During March, merchandise costing P36,000 was shipped to the Bulacan branch and billed at a price representing 40% markup on the billed price. On March 31, 2016, the branch prepared an income statement indicating a net loss of P11,500 for March and ending inventories at billed prices of P25,000. What is the amount of adjustment for Allowance for Overvaluation of inventories to reflect the true branch net income? a. P39,257 debit b. P46,000 credit c. P39,333 debit d. P46,000 debit
37.
Charity Inc. established its 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 an operating expense of P38,000 and a closing inventory of P23,000 at billed price. As far as the home office is concerned, the true branch net income for May 2016 is a. P82,000 b. 147,000 c. P177,000 d. P192,000
38.
The Gift Co. has a branch in Bacolod City. During 2016, the home office shipped to the branch merchandise billed at P150,000 including a markup of 20% on cost. The branch reports opening and closing inventories of P90,000 and P120,000 respectively, while the home office has a closing inventories of P210,000 which includes merchandise which are held on consignment valued at P10,000. Both location used the periodic inventory system. What closing inventory would be reported in the combined statement of income for the year 2016? a. P296,000 b. P3000,000 c. P320,000 d. P330,000
39.
Hope Co. 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. Inter – office shipments re billed uniformly at 120% 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. P43,000 c. P(52,500) d. P95,000
40.
Lobster Trading bills its Iloilo City Branch for shipments of goods at 25% above cost. At the close of business on October 21, 2016, a fire gutted the branch warehouse and destroyed 60% of the merchandise stock stored therein. Thereafter, the following data were gathered: January 1 Inventory, at billed price
- P50,000
Shipments from Home Office to Oct. 31
- P 130,000
Not sales to Oct.31
- P225,000
If undamaged merchandise recovered are marked to sell for P30,000, the estimated cost of merchandise destroyed by the fire is
a. P14,400 b. P21,600 c. P24,000 d. P27,500 41.
The Bicol Corporation operates a branch in Naga City. The information from the December 31, 2016 trial balance as follows:
Home Office
Naga Branch
Sales
P840,000
P420,000
Shipments to branch
280,000
Purchases
490,000
Shipments from Home Office Inventory, Jan. 1, 2016
350,000 140,000
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. P120,000 c. P64,400 d. P80,000 42.
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 the home office. During
2016, goods shipped by the home office to the branch, at a billing price of 125% of cost, amounted to P104,000, of which P12,500 remained in the branch’s year end inventory. Other branch transactions in 2016 were as follows: sales, all on credit, P117,430: expenses, of which P1,500 are unpaid at year – end, P20,000; collections on account, after deducting discounts of P1,480, P84,000; and, total remittances to the home office, P62,500. As far as the home office is concerned, the operations of the branch in 2016. a. P4,450 net income b. P9,550 net loss c. P18,300 net income d. P22,750 net income 43.
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
- 18, 755 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 of the Branch Account – current as per home office books? a. P46,750 b. P48,125 c. P65,505 d. P71,995 44. 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 cot. 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 ………………………………………………………… Dr. Shipment to Branch …………………………………………….
P 740,000 1,700,000
Branch Books: Dr. Beginning Inventory …………………………………………… Shipments from home office ……………………………… Purchases …………………………………………………………….
P2,880,000 2, 040,000 820,000
Month – end additional data: Ending inventory of branch …………………………………………… From home office at BP ………………………………………. From outsiders, at cost ………………………………………..
P2,920,000 2,340,000 580,000
For the month just ended:
a. b. c. d.
The total cost of goods sold of Aparri Branch at cost (net of overvaluation) P2,820,000 2,470,000 2,770,000 2,470,000
The amount of allowance for overvaluation that was realized from branch sales P400,000 350,000 740,000 390,000
45. The Clark branch of Freeport Corporation submitted the following trial balance as of 30 June 2016: Debit Cash ……………………………………………………. Accounts Receivable ………………………….. P173,800 Shipments from Home Office …………….. 462,000 Home office – Current…………………………. Sales ……………………………………………………. Expenses …………………………………………….. 29,700 Total ……………………………………………………. P694,100
Credit P 28,600 324,000 369,600 P694,100
Clark reported an ending inventory of P138,000. Shipments are billed at a mark – up of 40% on cost. What is the real net income of Clark branch? a. P70,600 b. P92,400 c. P100,000 d. P108,900 46. The account balances shown below were taken from the trial balances submitted to Bon – Apetit Corporation by its Alabang branch:
Petty cash fund Accounts Receivable Inventory Sales Shipments from home(140% of cost) Expenses Accounts written off
2015 P1,500 43,800 173,180 107,450 51,260 1,120
2016 P1,500 49,140 37,170 195,120 136,080 57,930 1,920
All branch 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: Currency and coins Expense vouchers
12/31/15 P580 920
12/31/16 P860 640
The branch inventory on December 31, 2016 was P41,370. The correct branch net income for 2016 was: a. P3,390 b. P3,670 c. P41,070 d. P41,350 47. 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 sales purposes at 25% above billed price. On February 16 all of the merchandise is destroyed by fire. No insurance was maintained. Branch accounts show the following information: Merchandise inventory, January 1 (at billed price) Shipments from home office (Jan.1 – Feb. 16) Sales Sales returns Sales Allowances What a. b. c. d.
P26,400 20,000 15,000 2,000 1,000
was the cost of the merchandise destroyed by fire? P36,000 P30,667 P36,800 30,000
48. 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 selling 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) Shipments received from home office, January to July (at billed price) Purchases, at cost, from outside sources, all re-sold at a 20% mark – up Sales Sales returns and allowances
P165,000 110,000 7,500 169,000 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. P130,000 c. P140,000 d. P150,000 49. The following information are extracted from the books and records of Rona Company and its branch. The balances are at December 31, 2016 of the company’s operations. Home Office Sales Shipments to branch Shipments from home office Purchases Expenses Inventory, January 1,2016 Allowance for overvaluation of branch Inventory
Branch P260,000
P78,000 104,000 39,000 78,000 26,000 31,200
However, no shipments in transit between the home office and the branch were made. Both shipments accounts are properly recorded. The ending inventory includes merchandise acquired from the home office in the amount of P26,000 and P7,800 acquired from outsiders for a total of P33,800. Compute the (1) realized inventory profit of home office from sales made by the branch, and (2) the amount of branch merchandise beginning inventory that was acquired from the home office. a. b. c. d.
(1) (1) (1) (1)
P24,700; P31,200; P22,533; P24,700;
(2) (2) (2) (2)
P15,600 P20,800 P15,600 P20,800
51. The Dumaguete City branch of Silliman Enterprises, Negros, was billed for merchandise shipments from home office at cost plus 25% in 2015 and cost plus 20% in 2016. Other pertinent data for 2012 show: Dumaguete branch
Home Office
Sales Inventory, beginning at cost at billed price Purchases Inventory transfers To Dumaguete,at cost From Negros, at billed price Inventory, end at cost at billed price Expenses
P63,000
P212,000 23,000
8,900 164,000 42,000 50,400 28,500 11,700 20,300
76,400
Compute the (1)net income(loss) of Dumaguete City per branch books and (2) The combined net income(loss) of Silliman Enterprises. a. (1) P(4,900); (2) P18,740 b. (1) P(4,900); (2) P22,430 c. (1) P3,330; (2) P22,430 d. (1) P8,230; (2) P25,270 52. 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: Sales Inventory, beginning at cost at billed price Purchases Inventory transfers To Dumaguete,at cost From Negros, at billed price Inventory, end at cost at billed price Expenses
Quezon City branch P63,000
Home Office P212,000 23,000
8,900 164,000 42,000 50,400 28,500 11,700 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) P8,230; (2) P40,200 b. (1) P8,230; (2) P38,250 c. (1) P7,993; (2) P38,250 d. (1) P9,520; (2) P37,860 53. Selected accounts from the December 31, 2016 trial balances of Betty Star Co. and its branch follow:
Inventory, Jan. 1 Branch Current Purchases Shipments from Home Office Freight In Expenses Home Office Current Sales Shipments to branch Branch merchandise markup
5-star P46,000 116,000 380,000 104,000 (310,000) (200,000) (22,000)
Branch P23,100 209,000 10,450 58,100 (106,000) (280,000) -
As of December 31, 2016, a shipment with a billing price of P11,000 was in transit to the branch. Freight cost, typically 5% of the billing price, is inventoriable. Merchandise on hand at year – end were: at home office, P64,000 at cost; at branch, P33,000 at billing price. Compute the (1) branch net income in so far as home office is concerned, and (2) the combined net income for 2016: a. (1) P40,900; (2) P84,900 b. (1) P32,100; (2) P76,100 c. (1) P32,000; (2) P76,000 d. (1) P33,000; (2) P77,000 54. Swift Corporation, operates a number of branches in Metro Manila. On June 30, 2016, its Sn. Lorenzo branch showed a Home Office Account balance of P27,350 and the home Office books showed a Sn. Lorenzo branch account balance of P25,550. The following information may help in reconciling both accounts: A P12,000 shipment, charged by Home Office to Sn. Lorenzo branch, was actually sent to and retained by Sto. Tomas branch. A P15,000 shipment, intended and charged to San Jose branch was shipped to Sn. Lorenzo branch and retained by the latter. A P2,000 emergency cash transfer from Sto. Tomas branch was not taken up in the Home Office books Home office collects a Sn. Lorenzo branch accounts receivable of P3,600 and fails to notify the branch. Home office was charged for P1,200 for merchandise returned by Sn. Lorenzo branch on June 28. The merchandise is in transit. Home office erroneously recorded Sn. Lorenzo’s net income for May, 2016 at P16,275. The branch reported a net income of P12,675. 55. What is the reconciled amount of the Home Office and Sn. Lorenzo branch reciprocal amounts? a. P21,750 b. P23,750 c. P27,350 d. P20,150
56. On December 31, 2016, the investment in Branch account on the home office’s books has a balance of P102,000. In analyzing the activity in each of these accounts for De cember you find the following differences: A P12,000 branch remittance to the home office initiated on December 27,2016, was recorded on the home office books on January 3,2017. A home office inventory shipment to the branch on December 28, 2016, was recorded by the branch on January 4, 2012; the billing of P24,000 was at cost. The home office incurred P14,400 of advertising expenses and allocated P6,000 of this amount to the branch on December 15, 2016. The branch has not recorded this transaction. A branch customer erroneously remitted P3,600 to the home office. The home office recorded this cash collection on December 23,2016. Meanwhile, back at the branch, no entry has been made yet. Inventory costing P51,600 was sent to the branch by the home office on December 10, 2016. The billing was at cost, but the branch recorded the transaction at P40,800. Compute the (1) Unadjusted Balance of the Home Office Account and (2) Adjusted Balance of the Reciprocal Account as of December 31, 2016: a. (1) P76,800; (2) P114,000 b. (1) P52,800; (2) P93,600 c. (1) P151,200; (2) P139,200 d. (1) P52,800; (2) P90,000 57. Aca. Inc. has several branches. Goods costing P10,000 were transferred by the head office to Cebu Branch with the latter paying P600 for freight cost. Subsequently, the head office authorized Cebu Branch to transfer the goods to Davao Branch for which the latter was billed for the P10,000 cost of the goods and freight charge of P200 for the transfer. If the head office had shipped the goods directly to Davao Branch, the freight charge would have been P700. The P100 difference in freight cost would be disposed of as follows: a. Considered as savings b. Charged to Cebu Branch c. Charged to Davao Branch d. Charged to the Head Office
58. On December 3, 2016, the home office of Kathy Office Supply Company recorded a shipment of merchandise to its Davao Branch as follows: Davao Branch ----------------------------------- 30,000 Shipment to Branch ----------------------Unrealized Profit in Branch inventory ----
25,000 4,000
Cash ( for freight charges) ---------------
1,000
The Davao branch sells 40% of the merchandise to outside entities during the rest of December 2016. The books of the home office and Kathy Office Supply are closed on December 31 of each year. On January 5, 2017, the Davao branch transfer half of the original shipment to the Baguio Branch, and the Davao Branch pays P500 as the shipment. The entry on the books of the Davao Branch to record receipt of the shipment from the home office on December 3, 2016 would be: a. Shipments from Home Office -------------Freight-out ---------------------------------Home Office ---------------------------
29,000 1,000
b. Shipments from Home Office -------------Accounts Receivable -----------------------Freight-in ---------------------------------Home Office ---------------------------
25,000 4,000 1,000
c. Shipments from Home Office -------------Home Office ---------------------------
30,000
d. Shipments from Home Office -------------Freight-in ---------------------------------Home Office ---------------------------
29,000 1,000
30,000
30,000 30,000
30,000
59. Using the same information in No. 58, at what amounts should the 60% of the merchandise remaining unsold at December 31, 2016 be included in (1) the inventory of the Davao Branch at December 31, 2016, and (2) the published balance sheet of Kathy Office Supply Company at December 31, 2016 shows inventory at: a. (1) P15,600 ; (2) P18,000 b. (1) P17,400 ; (2) P15,000
c. (1) P18,000 ; (2) P15,600 d. (1) P18,400 ; (2) p16,000
60. Using the same information in No. 58, what is the entry on the books of Baguio Branch for the January 5, 2017 transfer, assuming that the freight cost of the merchandise from the home office to Baguio Branch would have been P600: a. Shipments -----------------------------------Home Office -----------------------------
15,100 15,100
b. Shipments -----------------------------------Freight-in ------------------------------------Home Office -----------------------------
14,500 600
c. Shipments -----------------------------------Freight-in ------------------------------------Home Office -----------------------------
15,100 600
d. Shipments -----------------------------------Freight-in ------------------------------------Home Office -----------------------------
14,500 1,100
15,100
15,600
15,600
61. Using the same information on 58, 59, and 60, what is the entry on the books of Davao Branch in respect to January 5, 2017 transfer: a. Home Office ----------------------------------Inventory -------------------------------
15,500
b. Home Office ----------------------------------Shipments inventory ------------------Cash (for freight charges) -------------
15,100
c. Home Office ----------------------------------Cash (for freight charges) -------------Inventory --------------------------------
15,500
d. Home Office ----------------------------------Cash (for freight charges) ------------Freight-in -------------------------------Inventory --------------------------------
15,600
15,500 15,000 100 500 15,000 500 600 14,500
62. Using the same information in Nos. 58, 59 and 60, what is the entry on the home office books in respect to January 5, 2017 transfer: a. Home Office ----------------------------------Cash --------------------------------------Inventory ----------------------------------
15,500 500 15,000
b. Shipments ------------------------------------Freight-in ------------------------------------Home Office Current ---------------------
14,500 600
c. Branch Current – Baguio --------------------Excess Freight -------------------------------Branch Current – Davao -----------------
15,100 400
d. Branch Current – Baguio --------------------Excess Freight -------------------------------Branch Current – Davao -----------------
15,100 600
15,100
15,500
15,700
63. Lipton Company had an agency in Antipolo. For the period just ended, the agency transactions showed the following: Receipts from sales ---------------------------------------------Disbursements: Purchases --------------------------------------------------Salaries and commissions ---------------------------------Rent ---------------------------------------------------------Advertising supplies ---------------------------------------Other expenses ---------------------------------------------
P350,000 400,000 70,000 20,000 10,000 5,000
The agency had P100,000 receivables and P50,000 payables as of the end of the period. Also, they were inventories on hand of P90,000 and unused advertising supplies of P6,000. The agency was set up as an experiment for one period and would be closed if losses were incurred. The agency should: a. b. c. d.
Review again because it was a break even operation. Close with the period’s operational loss of P155,000. Close with the period’s operational loss of P9,000. Continue with the period’s profit of P25,000.
64. The JJ Company, Inc. opened an agency in Makati in 2016. The following is a summary of the transactions of the agency: Sales orders sent to home office ------------------------------Sales orders filled by home office in 2016 --------------------Freight on shipment to agency --------------------------------Collections, net if 2% discount --------------------------------Selling expenses paid from the agency working fund---------
P66,000 55,800 1,320 47,628 3,384
Administrative expenses charged to agency ------------------ 5% of gross sales Samples shipped to agency: Cost -------------------------------------------------------P3,600 Inventory, December 31, 2016 --------------------------1,320 The company maintains its gross margin on agency gross sales at 30% excluding the freight cost on shipments to agency. The agency’s cost of sales including freight and agency’s net income would amount to: a. b. c. d.
Cost of Sales P39,000 47,520 40,380 40,380
Net Income P5,994 7,668 5,994 7,320
65. Happy Inc. opens a sales agency in Davao City, and a working fund for P20,000 is established on the imprest basis. The first payment from the fund is P3,000 for rent. This transaction should be recorded by the home office as follows: a. No Entry b. Rent ---------------------------Cash -------------------------c. Davao Agency ----------------Cash -------------------------d. Davao Agency ----------------Working Fund ---------------
3,000 3,000 3,000 3,000 3,000 3,000
66. Sad Co. has a sales agency in Cebu. Agency revenues and expenses are recorded in separate agency accounts, with the operating results of both the agency and the home office generated at each month-end. For the month of October 2016, the home office paid P10,000 for advertising costs on behalf of the agency and recorded this as follows: a. Cebu agency 10,000 Cash 10,000 b. Advertising Expense 10,000 Cash 10,000 c. Accounts Receivable – Cebu Agency 10,000 Cash 10,000 d. Advertising expense – Cebu Agency 10,000 Cash 10,000 67. The home office ships merchandise to the branch at 25% percent above cost. If the balance before closing in the Intracompany Inventory Profit account is P66,000 and Shipments from Home Office amounted to P300,000, what was the cost of the branch’s beginning inventory? a. P30,000
b. P24,000 c. P80,000 d. P96,000 68. The home office ships merchandise to the branch at 50% above cost. On its books the branch shows a beginning inventory of home office merchandise amounting to P15,000 and shipments from home office of P110,000. Its ending inventory of home office merchandise is P5,000. What amount should the home office adjust the allowance for overvaluation of branch inventory account? a. P40,000 b. P55,000 c. P60,000 d. P62,500 69. Power Corporation shipped inventory to its Bacolod branch, costing P375,000 plus freight. Power bills inventory to its branches at 120% of original cost, plus the actual amount of shipping charges. At the end of the year, the Bacolod branch had resold 50% of the inventory from the home office. Shipping cost paid by Power were P2,000. What amount should the inventory be reported in the branch’s statement of financial position? a. b. c. d.
P187,500 P188,500 P226,000 P377,000
70. Using the question in No. 69, at what amount should the branch’s inventory from the home office be reported in the statement of financial position of Power Corporation as a whole? a. P157,520 b. P188,500 c. P189,500 d. P377,000 71. Oro Corporation has a branch in Cebu. The branch reported income of P130,000 for 2013. The branch has a balance in its Home Office account at the end of the year, after closing, P765,000. Branch income has not been recorded by Oro’s home office. During the year, Oro shipped inventory to the branch at a price of P160,000; oro’s original cost was P90,000. All but 45% of the inventory has been resold to unrelated parties by year –end. What is a. b. c. d.
the balance in Oro’s Investment in Branch account? P594,500 P603,500 P635,000 P765,000
72. A branch’s ending inventory of merchandise shipped purchased from outside vendors amounts to P50,000. The the Unrealized Gross Profit in Branch Inventory account is office practice of shipping merchandise at 20% above purchased from outside vendors contained in the ending amounts to: a. P38,000 b. P30,000 c. P18,000 d. P14,000
by the home office and post – closing balance in P6,000 due to the home cost. The merchandise inventory of the branch
73. Merchandise shipped to a branch for P30,000, which includes a 20% markup on cost, was returned by the branch. To record the receipt of the returned merchandise, the home office should make the following entry: a. Shipments to Branch 30,000 Investment in Branch 25,000 Allowance for overvaluation of Br. Inv. 5,000 b. Investment in Branch 30,000 Shipment in Branch 30,000 c. Shipments to Branch 25,000 Allow. for Overvaluation of Br. Inv. 5,000 Investment in Branch 30,000 d. Shipment to branch 24,000 Unrealized Profit in Br. Inv 6,000 Investment in Branch 30,000 74. During 2016, Jose Corporation transferred inventory from its home office to its Laguna Branch at a billed price of P110,000. The inventory originally cost the company P90,000. The home office reported sales and cost of goods sold of P1,400,000 and P590,000, respectively. The Laguna branch reported sales and cost of goods sold of P675,000 and P300,000, respectively. All of the inventory had been sold by year – end. What is the cost of goods sold to be reported in the 2016 combined statement of comprehensive income? a. P890,000 b. P870,000 c. P800,000 d. P780,000 75. The Simon Company always ships merchandise to a branch outlet at a 30% mark –up above cost. During 2016, this branch received P182,000 in such shipments while also acquiring goods from outside vendors at cost of P96,000. Half of the branch’s December 31, 2016, inventory of P57,200 came from home office acquisitions. At the beginning of 2013, the branch held merchandise with transfer price of P49,400. All of this inventory had been purchased directly from the home office. At the end of 2016, what is the adjusted balance in Simon’s Allowance for Overvaluation in Branch Inventory account? a. P4,250
b. P5,340 c. P6,000 d. P6,600 76. Lakas, Inc., starts a branch operation to sell more of its merchandise. Inventory costing P60,000 is shipped to this branch at a billed price of P90,000. During the initial year, the home office pays P17,000 in expenses for the branch. The branch sells 80% of the inventory that it received for P110,000 and remits P70,000 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. P7,000 b. P37,000 c. P75,000 d. P147,000 77. Lamp starts a branch operation on January 1, 2016.
