AA Chap 11 Rev May 2016 (1)

CHAPTER 11 EXERCISES HOME OFFICE, AGENCY AND BRANCH ACCOUNTING 1. On April 1, 2016 Star Corporation, a cosmetic manufacturing company, opened an agency to take care of marketing its cosmetic products in Northern Luzon. The agency was given additional instruction to offer a discount of 5% for cash orders. You are given the following transactions: a) On April 1, samples worth P80,000 were shipped to the agency. Freight of P5,000 was paid by the home office and charged to the agency. b) A cash working fund of P75,000 was also transferred to the agency manager. Home Office uses the imprest system. The fund was immediately used it to buy furniture worth P10,000 and equipment worth P15,000. c) The manager rented an office space and paid P30,000 as advance rental for 6 months. d) Utilities incurred amounted to P15,000 including an unpaid bill of P3,000 as at June 30. e) Working fund was replenished and the above expenditures recorded. f) Home office deposits to the account of the agency manager a regular salary of P15,000 every fifth day of the following month g) The agency performance report showed: P600,000 quarterly sales, P300,000 of these sales availed of the cash discount. Mark-up was 100% of cost. Freight of P12,000 was paid for the shipments to the customers. Only half of the credit sales were collected. Home office grant a 5% bonus to all managers based on net quarterly sales earned in excess of P500,000 to be deposited to his account as part of salary policy. h) Expenditures replenished were reviewed and corresponding adjustments were made. i) The policy of the home office was to charge a monthly depreciation of 2%. j) Samples are estimated to be good for six months after which scrap value will be P8,000. Required: 1) Entries to record agency operation and profit closed to home office. 2) Is the agency performance within the required profit performance margin of 15%? 3) List the new accounts and the balances related to the agency transactions that will appear in the home office statement of financial position as at June 30. 4) Make the entry to set up home office cost of sales, given the following additional data: Inventory April 1 P950,000; Purchases P1,500,000; Freight In, P35,000; Purchase Discounts P200,000; Inventory June 30, P735,000. 2. Speed Auto Sales decided to open a branch in Cebu City at the start of 2015. The branch operation had the following transactions during 2015: a) Automobiles worth P6,000,000, furniture and equipments worth P250,000 and cash of P500,000 were transferred by Speed Auto Sales to the newly opened branch. It is the policy of the home office to maintain all fixed asset accounts in its book. b) Branch purchased additional automobile units, P3,000,000.Terms: on account c) Credit sales amounted to P6,500,000. Cost of sales was 50% of the total available for sale. Collections amounted to P5,000,000. d) Advertising costs P400,000 paid by Speed Auto Sales, 40% of which was for the account of the branch. e) The branch paid for commission at 5% of sales and other operating expenses of P450,000. f) The branch returned one car costing P1,200,000 and received credit for this. g) Branch paid half of the account still owing to the car supplier. h) 1% depreciation was recorded by the branch as per the instruction of Speed Auto Sales. i) Submitted its financial reports and remitted 50% of its cash balance to Speed. Required: a) T Account Income and Expense Summary to determine Cebu Branch profit.

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b) Entries in the books of the branch. c) T Account Investment in Branch to determine equity over branch. 3 U Company established a branch in Davao City. The transactions for the month of April are summarized below: a) P50,000 cash and P60,000 worth of merchandise were transferred to Davao Branch. Freight of P6,000 was paid for the goods shipped to Davao, FOB Destination Freight Collect. b) Fixtures and equipment were purchased by Davao Branch, P30,000, 2/10, n/30. The branch carries fixed assets in its books and records it using the net method. c) Purchases on account: Branch, P40,000 and Home Office, P220,000 d) The account of Davao Branch in b) was paid by the Home Office outside of the discount period. Discount lost was charged to Davao Branch by the Home Office. e) Sales for the month - cash basis: Branch, P48,000; Home Office, P240,000. on account: Branch, P75,000; Home Office, P100,000. f) Payment to suppliers: Branch P30,000 and Home Office P60,000. g) Expenses paid by the Branch: P5,000 for supplies P3,000 for utilities, rent P2,000. Home Office: P6,000 utilities; P45,000 salaries; P25,000 rent; P24,500 advertising. h) Collections of customers’ accounts: Branch, P17,500 and Home Office P40,000. i) Cash transfer made to the Home Office by the Branch amounted to P25,000. j) Home Office charged the Branch for the following expenses paid in g) above: P8,000 salaries and P7,500 advertising. k) Home Office note paid by the Branch, P15,000 plus interest P500. 1) Merchandise returned to the Home Office, P5,000. Freight of P500 was paid by Davao. m) Accrued utilities of the Home Office, P15,000 and of the Branch, P5,000. n) 12% depreciation rate on all properties. Plant assets of Home office amounted to P360,000. o) Books of Home Office and Branch were closed and the merchandise inventory end set up at P30.000 for the Branch and P60,000 for the Home Office. Required: 1) Entries in the books of the Branch to record the above transactions. 2) Entries in the Home Office books assuming inventory beginning is P75,000. 3) Prepare a working paper showing individual income statements and a combined income statement using the format on page 229. 4. The following account is found in the books of Food House Center (FHC): Home Office Equity – Food Corporation Date Explanation Debit Credit Jan. 1 Balance 3 Furniture transferred by home office to FHC 18,300 4 Rent paid by home office for FHC 6,000 10 Merchandise returned to home office including freight of P600. 8,100 15 Cash remitted to home office. 630 20 FHC receivable collected by home office. 3,000 22 Merchandise received from home office (P1,000 freight prepaid) 21,000 28 Supplier’s account paid by home office 4,500 31 Branch result of operation 5,000

Balance 22,180 cr 40,480 cr 46,480 cr 38,380 cr 37,750 cr 34,750 cr 55,750 cr 60,250 cr 55,250 cr

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Required:

Give the reciprocal entries in the books of Food Corporation.

5. On January 4, 2014, Manila Toy Company opened its first branch with instructions to Sylvia Cruz, the branch manager, to perform the functions of granting credit, billing customers, accounting for receivables, and making cash collections. The branch paid its operating expenses by checks drawn on its bank account. The branch obtained merchandise solely from the home office. Billings for these shipments were at cost. The following are their adjusted trial balances on December 31, 2015: Home Office Branch Debit Credit Debit Credit Cash 42,000 64,600 Notes Receivable 7,000 35,800 Accounts Receivable (net) 80,400 37,300 Inventories 95,800 42,000 Furniture & Equipment (net) 48,100 Investment in Branch 185,000 Accounts Payable 43,300 2,200 Common Stock, P2 par 200,000 Home Office Equity 185,000 Retained Earnings 25,000 Sales 507,650 101,100 Purchases 300,500 Shipments to branch 52,350 Operating expenses69,500 56,250 Shipments from Home Office _______ _______ 52,350 ______ Totals 828,300 828,300 288,300 288,300 Goods on hand December 31 are as follows: Home Office P83,450 and Branch P36,150. Required: a. Prepare the closing journal entries on December 31, 2015 in the accounting records of the branch. b. Prepare the entry to record the branch profit or loss as well as the closing entries in the accounting records of the home office. c. Prepare the financial statements: individual and combined. Use the working paper format on page 229.

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