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Chapter 11 Home Branch Accounting- General Procedures

1. Christian Corporation operates a number of branches in the provinces. On December 31,2018, its Davao branched
showed a Home Office account balance of P54,700 and the home office book showed a n Investment in Davao branch
account balance of P51,100. The following information may help in reconciling both accounts:
1. A P24,000 shipment, charged by Home Office to Davao Branch, was actually sent and retained by Cebu
2. A P30,000 shipment, intended and charged to Aklan Branch was shipped to Davao Branch and retained
by the latter.
3. A P4,000 emergency cash transfer from Cebu branch was not taken up in the Home Office books.
4. Home Office collects a Davao Branch account receivable of P7,200 and fails to notify the branch.
5. Home Office was charged for P2,400 for merchandise returned by Davao Branch on December 30. The
merchandise is in transit.
Home Office erroneously recorded Davao Branch’s net income for 2018 at P32,550. The branch reported net income of
What is the adjusted balances of the home office and Davao branch reciprocal accounts on December 31,2018?
a. P40,300
b. P54,700
c. P47,500
d. P43,500
Solution: C
Home Office Account (Branch book) Investment in Davao Branch (HO
Unadjusted Balances P54,700 P51,100
Shipment charged to Davao branch (24,000)
but actually sent to Cebu Branch
Shipment to Aklan branch but 30,000
actually sent to Davao branch
No effect
Home office collection of Davao (7,200)
Branch A/R
Merchandise returned by Davao (2,400)
branch still in transit to home office
Overstatement of Davao branch net (7,200)
income (32,550-25,350)
Adjusted balances P47,500 P47,500

CPA Reviewer Advanced Accounting 2016- Guerrero Prob. 6-4

2. The following data pertains to the shipments of merchandise from Home Office to Branch during 2019:
Home Office’s cost of merchandise P350,000
Inter- Office billings 420,000
Sales by branch to outsiders 520,000
Merchandise inventory on December 2018 50,000

In the combined statement of comprehensive income of Home Office and the Branch for the year ended December
31,2018, what amount of the above transaction should be included as sales?
a. P570,000
b. P520,000
c. P470,000
d. P350,000
Solution: B
In the preparation of combined statements of the home office and branch, all inter-office transactions are eliminated
as if it had never occurred. Therefore, the only transaction that should be presented are transactions to outsider,
which in this problem, the P520,000 sales by branch to outsiders.
CPA Reviewer Advanced Accounting 2016-Guerrero Prob. 6-3
3. On December 31,2018 the branch manager of Gemma Company in Iloilo City submitted the following data to the home
office in Manila:
Petty Cash Fund P 6,000
Sales 390,000
Shipments from home office 270,000
Accounts Receivable, Jan.1, 2018 86,000
Inventory, Jan. 1, 2018 74,000
Inventory, Dec. 31, 2018 82,000
Expenses 96,000
All cash collected on accounts receivable amounting to P378,000 were remitted to the home office. What is the
balance of the Home Office account on:

January 1,2018 January 1,2019

a. P270,000 P186,000
b. P166,000 P186,000
c. P166,000 P88,000
d. P270,000 P88,000
Solution: B

January 1,2018 January 1,2019

Petty cash fund P 6,000 P 6,000
Account Receivable P86,000 P 98,000
Inventory P 74,000 P 82,000
Home Office account balance P 166,000 P 186,000

Advanced Accounting Textbook 2017- Guerrero Prob. 11-11

4. After examining on a comparative basis the inter-office account of the Marc Company with its suburban branch and
the similar account carried on the latter’s book, the following discrepancies at the close of the business on June 30,
2018 were seen:
a. A charge for labor by the Home Office, P500 was recorded twice by the branch.
b. A charge of P895 was made by the Home Office for freight on merchandise, but the amount was
recorded by branch as P89.50
c. A charge of P980 (furniture & Fixture) on the Home Office books was taken up by the branch as 890.
d. A credit by the Home Office for P350 (merchandise allowances) was taken up by the branch as P400.
e. The Home Office charged the Branch P425 for interest on open account which the Branch failed to take
up in full; instead, the Branch sent to the Home Office a wrong adjusting memo, reducing the charge by
P100 and set up liability for the net amount.
f. The Home Office received P5,000, from the sale of a truck which it erroneously credited to the branch;
the Branch did not charge the Home Office therewith.
g. The branch by mistake sent the home office a debit note for P370 representing its proportion of a bill
for repairs of truck; the Home Office did not record it.
h. The branch inadvertently received a copy of Home Office entry dated July 19, 2016 correcting item (f)
and entered a credit in favor of the Home Offices as of June 30, 2018.
At June 30, 2018, the unadjusted balance of the Investment in Branch Account on the Home Office books showed
P175,520. At the beginning of the year, the inter-office accounts were in balance.
What is the unadjusted balance of Home Office account on the branch books on June 30, 2018?
a. P184,279.50
b. P160,725.50
c. P184,729.00
d. P165,279.50
Solution: A
Unadjusted balances of Investment in branch account 6/30 P175,520.00
a. charge for labor 500.00
b. charge for freight (805.50)
c. Purchase of Furniture & fixture (90.00)
d. Merchandise Allowance (50.00)
e. Charge for interest (425.00)
f. Proceeds from sale of truck 5,000.00
g. Charge for truck repairs (370.00)
h. Proceeds from sale of truck 5,000.00
Unadjusted balance of home office account, 6/30 184,279.50
CPA Reviewer Advanced Accounting 2016- Guerrero Prob. 6-9
5. Argyll Company’s branch in Malate began operations on January 1, 2019. During the first year of operations, the home
office shipped merchandise to the Malate branch that cost P250,000 at a billed price of P300,000. One-fourth of the
merchandise remained unsold at the end of 2019. The home office records the shipments to the branch at the P300,000
billed price at the time shipments are made. Freight-in of P2,000 on the shipments from the home office was paid by
the branch. The home office should make an adjusting entry for freight-in as follows:
a. A year-end adjusting entry debiting the branch account for P500.
b. A year-end adjusting entry debiting the branch account for P2,000.
c. A year-end adjusting entry crediting the branch account for P500.
d. No year-end adjusting entry for freight charge.
Solution: D
No entry should be made in the books of the home office, since the freight should be chargeable to the
branch and the payment of the freight was made by the branch.
Advanced Accounting Textbook 2016-Dayag Prob. 12-15
6. A branch store in Caloocan was established by Gemma Company on March 1. Merchandise was billed to the branch at
125% of cost. Shipments of merchandise were as follows:
March 5 P120,000
March 10 50,000
March 20 35,000
On March 22, the branch returned defective merchandise worth P3,050. On March 31, the branch reported a net loss of
(P6,200) and merchandise inventory of P85,000.
In the home office books, the cost of merchandise sold by branch was:
a. P 161,560 b. P 116,950
c. P 93,560 d. P 161,950
Solution: C
Shipments from home office(120,000+50,000+35,000) P205,000
Less: Returns 3,050
Shipments from home office(net of return) 201,950
Less: Inventory3/31 85,000
Cost of goods sold at billed price 116,950
Less: Allowance or mark-up included in cost of goods sold
Or realized profit from branch sale(116,950*25/125) 23,390
Cost of Goods sold made by branch P93,560
Dayag 2005, Problem 7-3
7. On December 31, 2018, the following data are the records of the Cebu City Branch of the Dom Company:
Petty cash P94,500
Accounts receivable 12/31/17 85,200
Merchandise Inventory 12/31/17 75,500
Accounts receivable 12/31/18 88,800
Merchandise Inventory 12/31/18 81,000
Sales 272,700
Sales returns 4,800
Accounts receivable written off 2,000
Shipments from Home office 220,600
Expenses paid by home office 22,500
If cash collections in 2018 were remitted to Home office, the total remittances amounted to:
a. P 262,300 b. P 264,300
c. P 266,800 d. P 267,100
Solution: A
Accounts receivable 12/31/17 P85,200
Add:Sales on account 272,700
Total: 357,900
Less: Sales returns 4,800
Accounts receivable written off 2,000
Accounts receivable 12/31/18 88,800 95,600
Collections remitted to home office P262,300
Dayag 2005, Problem 7-2
8. Fatima 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 P7,500 inventory and got the credit memo for the 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 home office shipments at billed price. The home office
billed the branch at 20% above cost. The total purchases of the branch from outside suppliers amounted tp P72,500.
The total cost of goods sold available for sale by the branch at cost (net of overvaluation and returns) amounted to:
a. P 416,250 b. P 422,500
c. P 485,000 d. P 435,250
Solution: A
Shipments from home office P300,000
Additional shipments 120,000
Returns from home office (7,500)
Shipments from home office at billed price 412,500
Multiplied by Cost ratio 100/120
Shipments from Home office at cost 343,750
Purchases from outsiders at cost 72,500
Cost of goods available for sale at cost 416,250
Dayag 2005, Problem 7-14
9. The Quiapo Branch of Argyll Store is billed by Home office for merchandise shipments at 40% over cost.
Sales P4,500,000
Local Purchases 1,000,000
Shipments from home office 2,450,000
Quiapo reports an ending inventory of P700,000 of which P175,000 is identified to come form local purchases. Per
home office’s reckoning, how much is Quiapo’s gross profit?
a. P 2,300,000 b. P 1,750,000
c. P 2,750,000 d. P 2,200,000
Solution: A
Sales P4,500,000
Less:Local Purchases 1,000,000
Shipments from home office(2,450,000*100/140) 1,750,000
Cost of goods available for sale 2,750,000
Less:Ending inventory((700,000-175,000)
*100/140 + 175,000) 550,000 2,200,000
True Branch Gross Profit P2,300,000
Dayag 2005, Problem 7-21
10. On August 31, 2018, a fire destroyed totally the rented bodega of Ella Company.
Merchandise inventory 12/31/17 P110,000
For the period 1/1-8/3/18
Purchases 560,500
Freight in 5,600
Purchase returns 10,200
Sales 695,000
Sales returns and allowances 7,500
Using a 20% gross profit rate, the cost of the merchandise lost in the fire was:
a. P 90,700 b. P 88,400
c. P 115,900 d. P 63,200
Solution: C
Merchandise inventory 12/31/17 P110,000
Purchases 560,500
Freight in 5,600
Less: Purchase return 10,200 555,900
Cost of goods sold available for sale 665,900
Net sales (695,000-7,500) 687,500
Multiplied by cost ratio 80% 550,000
Merchandise inventory 8/31/18
Loss due to fire P115,900
Dayag 2005, Problem 7-27
Chapter 12 Home Branch Accounting- Special Procedures
1. Fatima Company has a single branch in Bulacan. On March 1, 2019 the home office accounting records included AN
Allowance for 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 a 40%
markup on billed price. On March 31, 2019 the branch prepared an income statement indicating net loss of P11,500 for
March and ending inventories at billed price 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
Solution: D

Billed price (100%) Cost (60%) Allowance (40%)

Merchandise Inventory, 3/1/19 32,0000
Shipments 60,000* 36,000 24,000
Cost Of Goods Available for Sale 56,000
Merchandise Inventory, 3/31/19 (10,000)
Overvaluation of CGS 46,000
*36,000 cost/ 60% = 60,000 x40% = 24,000 (Note: markup is based on billed price)
Advance Accounting Textbook 2016- Dayag Prob. 13-20
2. On July 31, 2018, the home office in Manila establishes a sales agency in Bulacan. the following are sent to the agency:
Cash (working fund to be operated under the imprest system) P22,000
Samples of merchandise P36,000
During the month of August, the following transactions occurred:
 The sales agency submits sales order of P272,000, sales per invoice was billed at P268,000. Cost of
sales to customer is P124,000.
 Collections during the month amount to P58,200, net of 3% discount.
 Home Office disbursements chargeable to the agency are as follows:
Furniture P40,000
Salaries for the month 21,600
Annual rent of office space 36,000
 On August 31, the sales agency working fund is replenished. Paid vouchers submitted by the sales
agency amounting to P17,925. Samples are useful until December 31,2018 which, at this time, are
believed to have a salvage value of 15% of cost. Furniture is depreciated 18% per annum.
What is the total comprehensive income of the sales agency for the month of August?
a. P91,425
b. P93,225
c. P92,955
d. P58,425
Solution: C
Sales P268,000
Sales Discount (58,200/97%) x 3% (1,800)
Net Sales 266,200
Cost and Expenses:
Cost of Sales P124,000
Salaries 21,600
Rent Expense (36,000 x 1/12) 3,000
Expenses 17,925
Samples (36,000 x 85% ) x 1/5 6,125
Depreciation (40,000 x 18% x 1/12) 600 173,245
Net Income 92,955
CPA Reviewer Advanced Accounting 2016-Guerrero Prob. 6- 37
3. Dominique 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 billing price. On August 1, 2018, all of the branch’s
merchandise stock was destroyed by fire. The branch records were recovered showed the following:
Inventory Jan.1, 2018 (@billed price) P165,000
Shipment received from HO, Jan. to July (@billed price) 110,000
Purchases, at cost, from outside sources,
all re-sold at a 20% mark-up 7,500
Sales 169,000
Sales return and allowances 3,750
The Dominique 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
Solution: A
Inventory,1/1 @billed
price P165,000
Shipment @billed price 110,000
Cost of good available for
sale @ billed price 275,000
Sales P169,000
Sales return and
allowances (3,750)
Sales price of
merchandise acquired
from outsiders
(7,500/120*) (9,000)
Net sales of merchandise
acquired from home
office 156,250
X Inter-company ratio 100/125 125,000
Inventory, 8/1/2018 150,000

X Cost ratio 100/125

Merchandise inventory
@cost destroyed by fire 120,000
Advance Accounting Textbook 2016- Dayag Prob. 13-31
4. The following are some of the account balances on the books of the home office and its branch on December 31, 2018.
Home Office Books Branch Books
Inventory, Jan. 1, 2018 P20,000 P58,000
Shipment from Home Office 150,800
Purchases 900,000 200,000
Shipment to branch 145,000
Allowance for overvaluation of 52,500
branch inventory
Sales 1,200,000 720,000
Operating Expenses 290,000 110,000

Per physical count, the ending inventory of the branch is P42,000 including goods purchased from outsider of P27,700
while the ending inventory of the home office is P120,000. Home Office bill its branch for merchandise shipment at 30%
above cost.
What is the amount of the unrealized inventory profit in the books of the home office on December 31,2018?
a. P9,000
b. P7,260
c. P12,000
d. P3,300
Solution: C
Branch ending inventory per physical count- from HO (42,000- 27,700) P14,300
Shipment in transit:
Shipment from HO @BP (145,000/130%) P188,500
Shipment from HO per books (150,800) P37,700
Correct branch ending inventory @ billed price 52,000
Branch ending @cost (52,000/130%) (40,000)
Unrealized inventory profit, December 31 12,000
CPA Reviewer Advanced Accounting 2016-Guerrero Prob. 13-39
5. Summary adjusted trial balance for the Home Office and Branch of Christopher Corporation at December 31, 2018 are
as follows:
Debits: Home office Branch
Other assets P530,000 165,000
Inventories, Jan 1. 2018 50,000 45,000
Branch 200,000
Purchases 500,000
Shipments from home 240,000
Expenses 120,000 50,000
Dividends 100,000
Total Debits P1,500,000 P500,000
Credits: Home office Branch
Other liabilities 90,000 25,000
Capital Stock 500,000
Retained Earnings 100,000
Home Office 175,000
Unrealized profit in 10,000
branch inventory
Sales 537,500 300,000
Shipment to branch 200,000
Branch profit 62,500
Total Credits P1,500,000 P500,000
Additional Information:
a. The home office ships merchandise to its branch at 120% of home office cost.
b. Inventories at December 31, 2018 are P70,000 for the home office and P60,000 for the branch.
The branch inventory is at transfer prices.
Compute the combined:
Net Income Cost of Good Sold
a. P370,000 P480,000
b. P200,000 P480,000
c. P132,500 P467,500
d. P200,000 P467,500
Solution: D
Sales (537,500 + 300,000) P837,500
Cost of Goods Sold
Merchandise Inventory Beg. [50,000 + (45,000/1.20)] P87,500
Purchases 500,000
Cost of Goods Available for Sale 587,500
Merchandise Inventory End [70,000 + (60,000/1.20)] (120,000) 467,500
Gross Profit 370,000
Expenses (120,000 + 50,000) 170,000
Net Income 200,000
Advance Accounting Textbook 2016- Dayag Prob. 13-14
6. A branch’s ending inventory of merchandise shipped by the home office and purchased from outside vendors amounts
to P50,000. The post-closing balance in the unrealized gross profit in branch inventory account is P6,000 due to the
home practice office 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 b. P 30,000
c. P 18,000 d. P 14,000
Solution: D
Branch ending inventory, at billed price P 50,000
Acquired from home office, at billed price:
Cost (P6,000 / 20%) P30,000
Mark-up 6,000 36,000
Purchased from outsiders P 14,000
Guerrero, 2017 problem 12-8
7. Christopher 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 expense for the branch.
The branch sells 80% of the inventory 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. P 37,000
c. P 75,000 d. P 147,000
Solution: B
Shipment from home office P 90,000
Expenses 17,000
Cash remittance to home office (70,000)
Home Office account balance before closing P 37,000
Guerrero, 2017 problem 12-12
8. Nelson Corporation has a branch in Cebu. The branch reported income of P130,000 for 2016. The branch has a balance
in its Home Office account at the end of the year, after closing, of P765,000. Branch income has not been recorded by
Nelson’s home office. During the year, Nelson, shipped inventory to the branch at a price of P160,000; Nelson’s original
cost was P90,000. All but 45% of the inventory has been resold to unrelated parties by year-end?
a.P594,500 b. P 603,500
c. P 635,000 d. P 765,000
Solution: C
Home office account balance after closing branch profit P765,000
Less: branch profit 130,000
Investment in branch account balance before closing branch profit P635,000
Guerrero, 2017 problem 12-7
9. Jay-r 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 a 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 2016, the
branch held merchandise with a 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. P 5,340
c. P 6,000 d. P 6,600
Solution: D
Overvaluation of branch ending inventory acquired from HO:
Billed price P 28,600
Cost (P28,600 / 130%) 22,000
Adjusted balance of allowance for overvaluation account P 6,600
Guerrero, 2017 problem 12-11
10. Lyris Corp shipped its inventory to its Bacolod branch, costing P375,000 plus freight. Lyris 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 had resold 50%
of the from the home office. Shipping cost paid by Lyris were P2,000.
What amount should the inventory be reported in the branch’s statement of financial position?
a.P187,500 b. P 188,500
c. P 226,000 d. P 377,000
Solution: B
Shipment to branch, at billed price P375,000
Shipping cost 2,000
Total cost P377,000
Sold (50%) 188,500
Inventory P188,500
Guerrero, 2017 problem 12-5