Chapter 12

Problem I
(a)Working Fund – Agency ……………………………… ……………………….. 5,000
Cash …………………………………………………………………………. 5,000
(b)Accounts Receivable …………………………………..................................... 50,000
Sales-Agency ………………………………………………………………. 50,000

(c)Cash ………………………………………………………..................................... 35,000

Accounts Receivable …………………………………………………….. 35,000

(d)Expenses-Agency ……………………………………………………………….. 4,500

Cash …………………………………………………………………………. 4,500

(e)Expenses-Agency ……………………………………………………………….. 2,250

Cash …………………………………………………………………………. 2,250

(f)Cost of Goods Sold-Agency …………………………………………………… 36,000

Merchandise Shipments-Agency ………………………………………. 36,000

Problem II
(a) Branch Books:

(a) Cash ………………………………………………………….. 42,500

Home Office …………………………………………… 42,500

(b) Shipments from Home Office …………………………… 50,200

Home Office …………………………………………... 50,200

(c) Accounts Receivable ……………………………………. 60,000

Sales …………………………………………………….. 60,000

(d) Purchases …………………………………………………… 22,500

Accounts Payable …………………………………… 22,500

(e) Home Office ……………………………………………….. 53,400

Accounts Receivable ………………………….. 53,400

 (f) Accounts Payable ………………………………………... 12,250

Cash …………………………………………………….. 12,250

(g) Furniture & Fixtures ………………………………………… 8,000

Cash …………………………………………………….. 8,000

(h) Expenses …………………………………………………….. 18,000

Cash …………………………………………………….. 18,000

(b) Home Office Books:

(a) Branch ………………………………………………………. 42,500

Cash ……………………………………………………. 42,500

(b) Branch ……………………………………………………… 50,200

Shipments to Branch ……………………………….. 50,200

(c) Accounts Receivable …………………………………... 105,000

Sales …………………………………………………… 105,000

(d) Purchases …………………………………………………. 122,500

Accounts Payable …………………………………. 122,500

(e) Cash ……………………………………………………….. 113,600

Accounts Receivable ……………………………… 113,600

 (f) Accounts Payable ………………………………………. 124,000

Cash …………………………………………………… 124,000

(g) Expenses …………………………………………………… 26,600

Cash …………………………………………………… 26,600

(h) Cash ……………………………………………………….. 53,400

Branch ………………………………………………... 53,400

(i) Retained Earnings ………………………………………. 10,000

Cash …………………………………………………... 10,000

BARTON CO.
Balance Sheet for Branch
December 31, 20x4

Assets Liabilities

Cash …………………………… P 4,250 Accounts Payable ………… P

10,250
Accounts Receivable ……… 12,600 Accrued Expenses ……………
300
Merchandise Inv……………... 23,500 Home Office …………………..
37,900
Prepaid Expenses …………… 750
Furnitures & Fixtures …. P 8,000
Less accum. Depr …… 650 7,350
Total Assets …………………… P48,450 Total Liabilities
………………….P48,450

BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6

Sales ……………………………………………………………………………
P66,000
Cost of Goods Sold:
Purchases …………………………………………………………… P22,500
Shipments for home office ………………………………………. 50,200
Merchandise available for sale ………………………………… P72,700
Less merchandise inv, December 31 ………………………….. 23,500
Cost of Goods Sold ……………………………………………….. 49,200
Gross Profit ……………………………………………………………………. P16,800
Expenses ……………………………………………………………………… 18,200
Net loss ………………………………………………………………………... P 1,400

BARTON CO.
Income Statement for Branch
For Year Ended December 31, 20x4

Assets Liabilities & Stockholders Equity

Cash …………………………….. P 23,200 Liabilities

Accounts Receivable ……….. 19,050 Accounts payable ………… P 21,300
Merchandise Inventory……… 48,500 Accrued Expenses …………. 1,350
P22,650
Prepaid Expenses ……………. 2,050 Stockholders Equity
Furniture & Fixtures …. P 20,000 Capital stock, P20 par……… P50,000
Less accum. Depr….. 5,580 14,420 Retained Earnings …………. 72,740
122,470
Branch ………………………… 37,900 Total liabilities and stockholders’
Total Assets …………………... P145,120 equity ………………… P145,120

BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4

Sales ……………………………………………………………………………....... P105,000

Cost of goods sold:
Merchandise inventory, January 1 …………………………………. P 40,120
Purchases ………………………………………………………………... 122,500
Merchandise available for sale ……………………………………… P162,620
Less shipments to branch ……………………………………………... 50,200
Merchandise available for own sale ……………………………….. P112,420
Less merchandise inventory, December 31 ………………………. 48,500
Cost of Goods Sold ……………………………………………………. 63,920
Gross Profit ………………………………………………………………………… P 41,080
Expenses …………………………………………………………………………… 27,630
Net income from own operations …………………………………………….. P 13,450
Deduct branch net loss …………………………………………………………. 1,400
Total Income ………………………………………………………………………. P 12,050

BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4

Sales …………………………………………………………………………………. P171,000

Cost of goods sold:
Merchandise inventory, January 1 ………………………………….. P 40,120
Purchases ………………………………………………………………… 145,000
Merchandise available for sale ……………………………………… P185,120
Less merchandise inventory, December 31 ……………………….. 72,000
Cost of goods sold ………………………………………………………. 113,120
Gross profit ………………………………………………………………………….. P 57,880
Expenses …………………………………………………………………………….. 45,830
Net Income …………………………………………………………………………. P 12,050
(a) Branch Books:

Expenses ………………………………………………………………. 650

Accumulated Depreciation – F&F………………………. 650

Sales …………………………………………………………………… 66,000

Merchandise Inventory ……………………………………………. 23,500

Income summary ………………………………………….. 89,500

Income Summary …………………………………………………… 90,900

Shipments from Home Office ……………………………

50,200

Purchases ……………………………………………………
22,500

Expenses …………………………………………………….. 18,200

Home Office ………………………………………………………… 1,400

Income Summary ………………………………………… 1,400

(b) Home Office Books

Expenses ………………………………………………………………. 1,180

Accumulated Depreciation – F&F………………………. 1,180

Sales …………………………………………………………………… 105,000

Merchandise Inventory ……………………………………………. 48,500
Shipments to Branch ……………………………………………….. 50,200
Income summary ………………………………………….. 203,700
Income Summary …………………………………………………… 190,250
Merchandise Inventory …………………………………… 40,120
Purchases ……………………………………………………. 122,500
Expenses …………………………………………………….. 27,630
 Branch Income ……………………………………………………… 1,400
Branch ………………………………………………………. 1,400

Income Summary ………………………………………………….. 1,400

Branch Income …………………………………………… 1,400

Income Summary ………………………………………………….. 12,050

Retained Earnings ……………………………………….. 12,050

Problem III
(a) Branch Books:

Jan. 1 Cash …………………………………………. 1,500

Home Office ……………………… 1,500

1 Shipments from home office ……………. 10,200

Home Office ……………………… 10,200

1 Home Office ……………………………….. 900

Cash ……………………………….. 900

1 Accts. Rec. – Home office ………………. 2,600

Home Office ……………………… 2,600

1-31 Accts. Rec.-Home Office ………………. 6,200

Sales ……………………………….. 6,200

1-31 Cash ……………………………………….. 2,600

Accounts Receivable ………….. 2,600

1-31 Purchases …………………………………. 3,000

Accounts Payable ……………… 3,000

1-31 Accounts Payable ………………………. 1,450

Cash ……………………………….. 1,450

 1-31 Expenses ………………………………….. 1,250

Cash ………………………………. 1,250

Jan. 1-31 Cash ………………………………………… 1,600

Accts. Rec.-Home Office ……... 1,600

1-31 Home Office ……………………………… 150

Accts. Rec.-Home Office ……. 150

1-31 Shipments from Home Office ………… 1,250

Home Office ……………………. 1,250

1-31 Home Office ……………………………… 1,000

Cash ……………………………… 1,000

(b) Home Office Books:

Jan. 1 Branch …………………………………….. 1,500

Cash ……………………………… 1,500
1 Branch …………………………………….. 10,200

Shipments to Branch ………….. 10,200

1 Store Furniture and Fixtures Branch ….. 3,000

Store Furniture and Fixtures …... 3,000

1 Accumulated Depr. Store F&F ……….. 750

Accumulated Depr. Store Furniture

And Fixtures, Branch ………….. 750

Calculation of depreciation: 2.5years at P300, (10% of

P3,000), or P750
1 Store Furniture and Fixtures Branch ….. 900

Branch …………………………… 900

1 Branch …………………………………… 2,600

Accounts Receivable …......... 2,600

1-31 Accounts Receivable ………………… 34,600

Sales ………................................ 34,600

1-31 Cash ………………………………………. 40,000

Accounts Receivable ………… 40,000

1-31 Purchases ………………………………….31,600

Accounts Receivable …………. 31,600

1-31 Accounts Payable ……………………… 36,200

Cash ……………………………... 36,200

1-31 Accrued Expenses Payable …………. 250

Expenses …………………………………. 8,950

Cash …………………………….. 9,200

1-31 Allowance for Doubtful Accounts ….. 150

Branch ………………………….. 150

1-31 Branch ……………………………………. 1,250

Shipments to Branch ………… 1,250

 1-31 Cash ……………………………………… 1,000

Branch …………………………. 1,000

EAGLE CO.
Balance Sheet
January 31, 20x4

Assets Liabilities

Cash …………............................ P 1,100 Accounts Payable ………………. P 2,400

Accounts Receivable ………….. 3,600 Accrued expenses ………………. 400
Accts. Rec.-home office ………. 850 Home Office ……………………… 14,050
Merchandise Inventory ………… 9,800
Merchandise in Transit …………. 600
Total assets ………………… P37,200 Total Liabilities …………………….
P37,200

EAGLE CO.
Income Statement for Branch
For Month Ended January 31, 20x4

Sales …………………………………………………………………………………………. P 6,200

Cost of Goods Sold:
Purchases …………………………………………………… P 3,000
Shipments from home office ……………………………. 11,450
Shipments from home office in transit ………….......... 600
Merchandise Available for Sale ……………………….. P15,050
Less merchandise inv. Dec 31, 19X9 ……................P9,800
Merchandise in transit ………………………….. 600 10,400
Cost of Goods Sold ……………………………………………………………. 4,650
Gross Profit ………………………………………………………………………………… P 1,550
Expenses …………………………………………………………………………………… 2,110
Net Loss ………………………………………………………………………………….. .. P 560

EAGLE CO.
Balance Sheet for Home Office
January 31, 20x4

Assets
Cash …………………………………………………………………… P 9,100
Accounts Receivable ……………………………………………… P34,000
Less allowance for doubtful accounts ……………….. 1,050 32,950
Merchandise Inventory ……………………………………………. 44,500
Store furniture and fixtures ………………………………………… P12,000
Less accumulated depreciation ………………………. 3,950 8,050
Store furniture and fixtures-branch ……………………………… P 3,900
Less accumulated depreciation ……………………… 785 3,315
Branch office ………………………………………………………... 14,050
Total Assets …………………………………………………………… P111,765

Liabilities
Accounts Payable …………………………………………….. P29,150

Accrued Expenses …………………………………………….. 750

Total Liabilities ………………………………………………….. P29,900

Stockholders Equity

Capital Stock ……………………………………………………P50,000

Retained earnings …………………………………………….. 31,865

Total stockholder’s equity …………………………………… 81,865

Total liabilities and stockholders equity …………………… P111,765

AGLE CO.

Income Statement for Home Office

For Month Ended January 31, 20x4

Sales ……………………………………………………………………………… P 34,600

Cost of goods sold:

Merchandise inventory, January 1 …………………….. P46,000

Purchases …………………………………………………… 31,600

Merchandise available for sale ………………………… 77,600

Less shipments to branch ………………………………… 12,050

Merchandise available for own sales …………………. P65,550

Less merchandise inventory, January 31 ……………… 44,500

Cost of goods sold …………………………………………………………… 21,050

Gross Profit ………………………………………………………………………… P 13,650

Expenses …………………………………………………………………………… 9,325

Net income from own operations ……………………………………………. P 4,225

Deduct branch net loss ………………………………………………………… 560

 Total Income …………………………………………………………………… P 3,665

EAGLE CO.
Income Statement for Home Office
For Month Ended January 31, 20x4
Assets Liabiities and Stockholders Equity
Liabilities
Cash …………………………….. ………. P 10,200 Accounts Payable …… P30,700
Accounts receivable ……….. P38,450 Accrued Expenses …… 1,100 P
31,800
Less allow for doubt-
Ful accounts ……….. 1,050 37,400
Merchandise Inventory ……………….. 54,900 Stockholders Equity
Store furn. & fixtures ………… P15,900 Capital Stocks …………P50,000
Less accum depr 4,735 11,165 Retained earnings …… 31,865 81,865
Total assets ……………………………… P113,665 Total liab. And stockholders equity . P113,665

EAGLE CO.
Combined Income Statement for Home Office and Branch
For Month Ended January 31, 20x4

Sales ………………………………………………………………………………….. P 40,800

Cost of goods sold:
Merchandise Inventory, January 1 ………………. P46,000
Purchases ……………………………………………... 34,600
Merchandise available for sale …………………... P80,600
Less merchandise inventory, Jan 31 ……………... 54,900
Cost of goods sold …………………………………............................... 25,700
Gross profit …………………………………………………………………………... P 15,100
Expenses ……………………………………………………………………………… 11,435
Net Income ………………………………………………………………………….. P 3,665

(a) Branch Books

Jan. 31 Shipments from Office-in Transit ……………… 600

Home Office ……………………………. 600

31 Expenses …………………………………………. 475

Home Office ……………………………. 475
31 Expenses ………………………………………… 35
Home Office ………………………….. 35
1/120 x P3,000, or P25 (depreciation for one month;
Asset life, 10 years); 1/90 x P900, or P10 (depreciation
For one month; asset life, 7.5 years)

31 Merchandise Inventory ……………………… 9,800

Merchandise in Transit ……………………….. 600
Income Summary …………………… 10,400

31 Expenses ……………………………………….. 350

Accrued Expenses …………………. 350

31 Sales ……………………………………………. 6,200

 Income Summary ………………….. 6,200

31 Income Summary ……………………………. 17,160

Shipments from Home Office ……. 11,450
Ship. From Home Office – in Trans . 600
Purchases …………………………… 3,000
Expenses …………………………….. 2,110

31 Home Office ………………………………….. 560

Income Summary …………………... 560

(b) Home Office Books:

31 Branch …………………………………………. 600

Shipments to Branch ………………. 600

31 Branch …………………………………………. 475

Expenses ……………………………... 475

31 Branch …………………………………………. 35

Accumulated Depreciation, Store

Furniture and Fixtures Branch …….. 35

31 Expenses ………………………………………. 100

Accumulated Depreciation store

Furniture and Fixtures branch ……. 100

1/120 x P12,000, or P100 (depreciation for one

Month; asset life, 10 years)

31 Income Summary …………………………… 46,000

Merchandise Inventory …………… 46,000

31 Merchandise Inventory …………………….. 44,500

Income Summary ………………….. 44,500

 31 Expenses ………………………………………. 750

Accrued Expenses …………………. 750

31 Sales …………………………………………… 40,925

Purchases …………………………… 31,600

Expenses …………………………….. 9,325

31 Branch Income ………………………………. 560

Branch ……………………………….. 560

31 Income Summary ……………………………. 560

Branch Income ……………………... 560

31 Income Summary ……………………………. 3,665

Retained Earnings ………………….. 3,665

Problem IV
1.
Socrates Company
Home Office and Plato Branch
Reconciliation of Reciprocal Ledger Accounts
June 30, 20x4
Investment in
Plato Branch Home Office
Ledger Ledger
Account Account
(Debit) (Credit)
Balances prior to adjustment P85,000 P33,500
Add: Merchandise shipped to branch 24,000
Less: Acquisition of office equipment by branch
(carried in accounting records of home office) (14,500)
Collection of branch trade accounts receivable (9,000)
Payment of cash by branch (22,000) _______
Adjusted balances P48,500 P48,500

2. (a) Accounting records of home office:

Office Equipment: Plato Branch 14,500
Investment in Plato Branch 14,500
To record acquisition of office equipment by branch.
 Cash in Transit 22,000
Investment in Plato Branch 22,000
To record cash in transit from branch.

(b) Accounting records of branch:

Home Office 9,000
Trade Accounts Receivable 9,000
To record collection by home office of branch accounts
receivable.

Inventories in Transit 24,000

Home Office 24,000
To record shipment of merchandise in transit from
home office.

Problem V
((a) BRANCH HOME OFFICE
ACCOUNT ACCOUNT…
Balances before Adjustments ……………………………………….. P 8,400 P 9,735
Adjustments:
Additions:
Merchandise in transit to branch …………………. 615
Collection of Home office receivable by Branch 2,500
Understatement of branch net income for Nov.. 90
P10,990 P10,350
Deductions:
Merchandise return to home office in transit ……………. 640
Corrected Balances ……………………………………………… P10,350 P10,350

(b) Branch Books:

Shipments from Home Office-in Transit ……………………. 615
Home Office …………………………………………... 615

Home Office Books:

Branch …………………………………………………………… 2,500
Accounts Receivable ……………………………….. 2,500

Branch …………………………………………………………… 90
Retained Earnings ……………………………………. 90

Merchandise Returns from Branch – in Transit ……………. 640

Branch ………………………………………………….. 640

Multiple Choice Problem

1. d
Branch A Branch B
Assets:
Inventory, January 1 P 21,000 P 19,000
Imprest branch fund 2,000 1,500
Accounts receivable, January 1 55,000 43,500
Total Assets P 78,000 P 64,000
Less: Liabilities -0- -0-
Home Office Current Account P 78,000 P 64,000
2. b
 Branch A Branch B
Assets:
Inventory, December 31 P 19,000 P 12,000
Imprest branch fund 2,000 1,500
Accounts receivable, December 31 70,000 53,500
Total Assets P 91,000 P 67,000
Less: Liabilities -0- -0-
Home Office Current Account P 91,000 P 67,000

3. d – incidentally, the entry in the books of the branch would be as follows:

Profit and loss summary ………………………………………………………… xxx
Home Office Current……………………………………………………. Xxx

4. c
January January 1,
1,20x4 20x5
Assets:
Inventory P 37,000 P 41,000
Petty cash fund 3,000 3,000
Accounts receivable 43,000 49,000
Total Assets P 83,000 P 93,000
Less: Liabilities _____-0- _____-0-
Home Office Current Account P 83,000 P 93,000

5. a – refer to No. 4 for computations

6. a
Sales P 74,000
Less: Cost of goods sold:
SFHO…………………………………………………………… P67,680
Less: Inventory, ending……………………………………… 9,180 58,500
Gross profit…………………………………………………………… P 15,500
Less: Expenses – 6,820
Net Loss……………………………………………………………….. P 8,680

7. a
January 1,
20x6
Assets:
Cash P 4,200
Inventory 9,180
Accounts receivable 12,800
Total Assets P 26,180
Less: Liabilities _____-0-
Home Office Current Account P 26,180

8. a – nominal accounts have zero beginning balance.

9. d
Branch H. Office
Current Current
Unadjusted balance, 6/30/20x4 P 225,770 P 226,485*
Add (Deduct): Adjustments
1 Erroneous recording of branch equipment 3150
2. Insurance premium recorded twice ( 675)
3. Erroneous recording of freight ( 90)
 4. Discount on merchandise ( 800)
5. Failure by the branch to record share in advertising 700
6. error by the home office to record remittance of 3,000 ________
Cebu
Adjusted balance, 6/30/20x4 P 228,770 P 228,770
* The P226,485 is compute simply by working back with P228,770 adjusted balance as the starting
point.

P2-07

10. c
Home Office Books Branch Books
(Branch Current- (Home Office Current –
Dr. balance) Cr. balance)
Unadjusted balance P518,575 P452,276
Add (deduct) adjustments:
In transit 10,500
Remittance ( 17,000)
Returns ( 775)
Cash in transit 25,000
Expenses - HO ( 800)
Expenses – branch 12,000
Error ________ _____224
Adjusted balance P 500,000 P 500,000

11. d
Home Office Books Branch Books
(Branch Current- (Home Office Current –
Dr. balance) Cr. balance)
Unadjusted balance P515,000 P495,750
Add (deduct) adjustments:
Excess freight ( 750)
Cash in transit ( 11,000)
Returns ( 4,000)
Expenses – branch ________ 5,000

Adjusted balance P 500,000 P 500,000

12. c – refer to No. 11 for computations

13. a – refer to No. 11 for computations
14. No answer available – P495,750
15. 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.

16. b
Home Office Books Branch Books
(Branch Current- (Home Office Current –
Dr. balance) Cr. balance)
Unadjusted balance P590,000 P506,700
Add (deduct) adjustments:
Remittance (40,000)
Returns (15,000)
 Error by the branch 300
Expenses – branch ________ 28,000

Adjusted balance P 535,000 P 535,000

17. c
Home Office Books Branch Books
(Branch Current- Dr. (Home Office Current –
balance) Cr. balance)
Unadjusted balance P150,000 P117,420
Add (deduct) adjustments:
In transit 37,500
HO A/R collected by br. 10,500
Supplies returned ( 4,500)
Error in recording Br. NI ( 1,080)
Cash sent to branch
to General Expense by HO 25,000 25,000
Adjusted balance P 179,920 P 179,920

18. d – refer to No. 17 for computation.

19. a
Home Office Books Branch Books
(Branch Current- Dr. (Home Office Current –
balance) Cr. balance)
Unadjusted balance P40,000 P31,100
Add (deduct) adjustments:
In transit 5,800
HO A/R collected by br. 500
Cash in transit 2,000 2,000
Error in recording Br. NI ( 3,600) _______
Adjusted balance P38,900 P38,900

20. a – refer to No. 19 for computations

21. a
Home Office Books Branch Books
(Branch Current- Dr. (Home Office Current –
balance) Cr. balance)
Unadjusted balance P49,600 P44,00
Add (deduct) adjustments:
Collection of branch A/R ( 800)
In transit 3,200
Purchase of furniture ( 1,200)
Return of excess merchandise ( 1,500)
Remittance ( 500) _______
Adjusted balance P46,400 P46,400

22. b – refer to No. 21 for computations

23. (C)
Sales (P350,000 + P100,000)………………………………………………………….P 450,000
Less: Cost of goods sold:
 Purchases (P400,000 + P50,000)……………………………. P 450,000
Less: Inventory, ending……………………………………… 90,000 360,000
Gross profit…………………………………………………………… P 90,000
Less: Expenses –
Salaries and commission…………………………………….. P 70,000
Rent……………………………………………………………… 20,000
Advertising supplies (P10,000 – P6,000)…………………… 4,000
Other expenses………………………………………………. 5,000 99,000
Net Loss……………………………………………………………….. P( 9,000)

24. a
In adopting the imprest system for the agency working fund, the home office writes a check to
the agency for the amount of the fund. Establishment of the fund is recorded on the home
office books by a debit to the Agency working fund and credit cash. The agency will request
fund replenishment whenever the fund runs low and at the end of each fiscal period. Such a
request is normally accomplished by an itemized and authenticated statement of
disbursements and the paid vouchers. Upon sending the agency a check in replenishment of
the fund, the home office debits expense or other accounts for which disbursements from the
fund were reported and credits cash.

25. d
Normally, transactions of the agency are recorded in the books of the home office separately
identified with the appropriate agency.

Theories
1 True 6. False 11. False 16. b 21 a 26. c 31 b
. . .
2 True 7. False 12. False 17. c 22 b 27. b 32 b
. . .
3 False 8. False 13. True 18. d 23 b 28. d 33 c
. . .
4 False 9. True 14. True 19. a 24 b 29. d 34 c
. . .
5 True 10 True 15. True 20. c 25 a 30. c 35 c
. , . .
36 d
.