1) The Davao City Sales Company established a branch in Tagum City early last year.

It
shipped merchandise and billed the branch for P 400,000.00 prior to its opening. For the
year, it made additional shipments at billed price of P 130,000.00. Within the year, the
branch shipped back P 7,500.00 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 P
185,000.00 was established consisting of purchases from third parties at P 20,000.00,
with the balance coming from home office shipments at billed of the branch from outside
supplier amounted to P 72,500.00. The total cost of available for sale by the branch at
cost (net of overvaluation and returns) amounted to:
a. P 507,647.00
b. 485,000.00

c. P 422,500.00
d. 435,250.00

2) The home office of Ross Company, which uses the perpetual inventory system, bills
shipments of merchandise to the Edrian Branch a markup of 10% on the billed price. On
September 31,2008, the credit balance of the home office's Allowance for Overvaluation
of Inventories-Edrian Branch ledger account was P 50,000. On October 17,2008, the
home office shipped merchandise to the branch at a billed price of P 800,000. The branch
reported an ending inventory, at billed price, of P 260,000 on October 30,2008. Compute
the realized gross profit?
a. P 104,000.00
b.
20,000.00

c. P 120,000.00
d.
28,000.00

3) Tilaan Mercantile Company has a single branch in Digos. On March 01,2008, the home
office accounting records included an Allowance for Overvaluation of Inventories
Digos Branch ledger account with a credit balance P 42,000.00. During March,
merchandise costing P 60,000 was shipped to the Bulacan Branch and billed at a price
representing prepared an income statement indicating a net loss of P 11,500 for March
and ending inventories at billed of P 15,000. What is the amount of adjustment for
Allowance for Overvaluation of Inventories or reflect the true branch net income?
a. P 39,257 debit
b. 46,000 credit

c. P 39,333 debit
d. 76,000 debit

4) Jek-Jek, Inc. established its first branch on October 01,2008. During the first month of
operation, the home office shipped merchandise to the branch worth P 338,000 which
included a markup of 15% on cost. Sales for cash were P 100,000 while sales on account
were P 250,00.00 AT month's end, the branch reported operating expenses of P 38,000
and a closing inventory of P 100,000 at billed price. As far as the home office is
concerned, the true branch net income for May, 2008 is:
a. P 82,300.00
b. 147,005.00

c. P 177,023.00
d. 105,044.00

5) Jaimee Faythe Marketing Co. opened a branch in Cebu City at the beginning of 2008.
The branch extends credit, makes collections, pays expenses from cash receipts, and
acquires goods exclusively from the home office. During 2008, goods shipped by the
home office to the branch, at a billing price of 120% of cost, amounted to P 120,000, of P
12,500 remained in the branch's year -end inventory. Other branch transactions in 2008
were as follows: sales, all on credit P 117,430; expenses, of which P 1,500 are unpaid at
year-end, P 20,000; collections on account, after deducting discount of P 1,480, P 84,000;
and total remittances to the home office, P 62,500. As far as the home office is concerned,
the operations of the branch in 2008 resulted in a:
a. P 4,450 net income
b. 9,550 net loss

c. P 18,300 net income

d. 5,950 net income

6) The account shown below were taken from the trial balances
Corporation by its California branch:
2006
Petty cash fund .................................................... P 1,500
Accountancy receivable ......................................
43,800
Inventory ............................................................
--Sales .................................................................... 173,180
Shipments from home ( 120% of cost) ...............
51,260
Accounts written of ............................................
1,220

submitted to Sang-sang
2007
P 1,500
49,140
37,170
200,000.00
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. They petty cash is
counted every December 31, and its composition was as follows:
Currency and coins ..........................................
Expenses vouchers ..........................................

12/31/06
P 580
920

12/31/07
P 860
640

The branch inventory on December 31, 2008 was P41,379. The correct branch net
income for 2008 was
a.P32,390
c. P61,070
b. 56,670
d 60,530
7) The Mr. Santos Co, in the face of abundance in cash initiated to put up a branch in
Koronadal City. During 2008, the home office shipped to the branch merchandise billed
at P.240,000 including a markup of 20% on cost. The branch reports opening and closing
inventories of 80,000 and 150,000, respectively while the home office has closing
inventories of P210,000 which includes merchandise with are held on consignment
valued at P10,000.
Both location use the periodic inventory system. What closing inventory would be
reported in the combined statement of income for the year 2008?
a. P296,000
b.330,000

c P325,000
d. 330.000

8) CPA-SANA corporation started operating a branch on May 1, 2008 with a shipment of

merchandise billed at P350,000. Additional shipments during the month were billed at
P250,000. The branch returned damage merchandise worth P20,000. Inter-office
shipments are billed uniformly at 125% of cost. On May 31, 2008, The branch reported a
net loss of (75,000) and an inventory of P150,000. What is the branch net income (loss)
reflected in the combined income statement for may,2008?
a. P ( 9,500)
b. (11,000)

c. P(52,500)
d 95,000

9) Espana Branch was billed by Home Office for merchandise at 120% of cost. At the end
of its first month, Espana branch submitted among other things,the
following data:
1.
Merchandise from home Office (at billed price)............... P240,000
Merchandise purchased locally by Branch......................
40,000
Inventory, December 31 of which P7,000 are of
local purchased........................................
28,000
Net sales for month.............................................
256,000
The branch inventory at cost and the gross profit of the branch as far as the home
office is concerned are:
Gross Profit
Ending inventory of branch at cost
a. P22,000
P 92,500

b. 40,500
c. 30,000
d. 40,000

24,500
22,500
20,500

10) The Jacinto branch of the ADtu Company is billed for merchandise by the home office at
20% above cost. The branch in turn prices merchandise for sales purposes at 20% above
billed price. On February 14 a tsunami hit the city and all of the merchandise was
destroyed. No insurance was maintained. Branch accounts show the following
information
Merchandise inventory, January 1
(at billed price) .........................................
P 24,500
Shipments from home office ( Jan. 1- Feb. 16) .......
30,000
Sales ........................................................................
20,000
Sales returns ............................................................
2,000
Sales allowances .....................................................
1,000
What was the cost of the merchandise destroyed by fire?
a. P 36,000
c. P 32,916
b. 30,667
d. 30,000

SOLUTIONS
1) (a)
Cost goods available for sale, at cost:
Shipments from home office .......................................
Additional shipments ...................................................
Returns to home office .................................................
Shipments from home office at billed price (net of return)
Multiplied by: Cost Ratio .............................................
Shipment from home office at cost ..............................
Purchase from outsiders at cost ....................................
Cost of goods available for sale, at cost ......................

P 400,000.00
130,000.00
( 7,500.00)
P 522,500.00
100/120
P 435417.00
72,500.00
P 507,647(a)

2) (a)
Merchandise inventory, September 31,2008 ...........................
P 50,000.00
Add: Shipments ( P 800,000 x 10% -note: markup is based on
billed price ...........................................................
80,000.00
Cost of goods available for sale ........................................
P130,000.00
Less: Merchandise inventory, October 30,2008
(260,000.00 x 10%) ...............................................
26,000.00
Overvaluation of CGS/ Realized the gross profit on branch sales P 104,000.00(a)
3) Merchandise inventory, March 1, 2008 ..............................
Add: Shipments (P 60,000/60% = P 60,000 x 40%
- note: markup is based on billed price) ...................
Cost of goods available for sale ...........................................
Less: Merchandise inventory, March 31, 2008
(P 15,000 x x40%) ...................................................

P 42,000.00
40,000.00
P 82,000.00
6,000.00

Overvaluation of CGS/ Realized the gross profit on branch sales P 76,000.00 (d)
4). (d)
Sales (P100,000 + P250,000) ................................................
P 350,000.00
Less: Cost of Goods sold:
Shipment from home office, at cost
(P 338,000 x 100/115) ................. P 293,913.00
Less: Ending inventory at cost
(P 100,000 x 100/115 ....................
86,957.00
206,956.00
Gross profit ..........................................................................
143,044.00
Less: Operating expenses ....................................................
38,000.00
True Branch Net Income .....................................................
P105,044.00 (d)
5) (d)
Sales ...................................................................................

P 117,430.00

Less: Sales Discounts ........................................................

Net Sales ............................................................................
Less: Cost of goods sold:
Shipments from home office, at cost
( P 120,000 x 100/120) .......................
P 100,000.00
Less: Ending inventory, at cost
(P 12,000 x 100/120) ..........................
10,000
Gross profit ..............................................................................
Less: Expenses .........................................................................
Branch Results of Operations in so far as HO is concerned ....

1, 480.00
P 115,950.00

P 90,000
25,950
20,000
P 5, 950 (d)

6) (d)
Sales ........................................................................................
P 200,000.00
Less: Cost of goods sold:
Inventory, 1/1/08 at cost (P37,170 x 100/120) .... 30,975
Add: Shipments, at cost (P 136,080 x 100/120)
113,400
Cost of goods available for sale ........................... 144,375
Less: Inventory, 12/31/08, at cost
(P 41, 370 x 100/120 ) .............................. 34,475 P 79,900
Gross profit .............................................................................
P 120,100
*
**
Less: Expenses (P 57, 930 + P 1,920 - P 280 ) ....................
59,570
Correct branch net income .....................................................
P 60,530.00 (d)
During 2008, the home office shipped to the branch merchandise billed at P.240,000 including a
markup of 20% on cost. The branch reports opening and closing inventories of 80,000 and
150,000, res
7) (b)
Ending Inventory:
Branch: (P 150,000 x 100/120) ...................................
Home office: (P210,000 P 10,000) ..........................

P 125,000.00
200,000.00
P 325,000.00(c)

8) (B)
Branch reported net loss ..........................................................
Add: Overvaluation of cost of goods sold/realized
profit from sales made by branch:
Shipments, at cost (P350,000 + P250,000
- P20,000) x 25/125 ................
P 116,000
Less: Inventory, 5/31/2004
(P 150,000 x 25/125) .............
P 30,000
True Branch Net Loss ............................................................

P (75,000)

P 86,000
P (11,000)(B)

9) (b)
Net Sales .....................................................................
P 256,000.00
Less: Cost of goods sold:
Purchases ......................................................... P 40,000
Shipments from home office, at cost
(P240,000 x 100/120) ............................. 200,000
Cost of goods available for sale ....................... P 240,000
Less: Inventory, December 31
[(P28,000 P 7,000) x 100/120 +P7,000] 24, 500 (b) 215,500
Gross Profit ................................................................
P 40,500 (b)
10) (d)
Merchandise Inventory, January 1, at billed price ........................ P 24,500
Shipments from home office at billed price .................................
30,000
Cost of goods available for sale, at billed price ........................... P 54,500
Less: Cost of goods sold, at billed price
(P 20,000 P 2,000) x 100/120 ............................ (15,000)
Merchandise inventory, February 16, at billed price ................... P 39,500
Multiplied by: Cost ratio ............................................................. 100/120
Merchandise inventory destroyed by tsunami, at cost .......................
P 32,916 (c)