CERTS.docx

Home, Branch and Agency (PA2.M-1412) Straight Problems Problem 1 On June 1, 2013, Ellaine Co. established an agency in Davao, sending samples costing P4,200,000 which are useful until May 31,2014 and have a salvage value of 20% of cost. A working fund of P3,412,500 is to be maintained using the imprest basis. During 2013, the agency submitted to the home office sales order amounting to P35,437,500.Sales per invoice were P27,562,500 which were duly approved by the home office. The cost of merchandised sold during the year amounted to P14,784,000 net of 4% sales discount. The cost of merchandise sold during the year is equal to 70% of the gross selling price. Vouchers for expenses amounted to P1,837,500 How much net income would be reported by the agency on December 31,2013? Problem 2 Davao Corporation has two branches, Cebu and Manila to which merchandise is billed at 20% above cost. Partial trial balance accounts of the three entities at December 31,2014 are summarized as follows:

Inventory Cebu Branch Manila Branch Shipments from home office Purchases Expenses Home Office Loading-Cebu Branch Loading-Manila Branch Sales Shipments to Cebu Branch Shipments to Manila Branch

Home office 800,000 450,000 420,000 1,600,000 900,000 130,000 120,000 1,950,000 500,000

Cebu Branch 180,000

Manila Branch 240,000

600,000

360,000

250,000 450,000

200,000 300,000

900,000

750,000

400,000

Additional information: Physical inventories on hand at December 31,2014 were as follows:

Physical inventories on hand at December 31,2014 were as follows: Home office P700,000 at cost Cebu branch P210,000 at billed prices Manila Branch P150,000 at billed prices Required 1. The ending inventory of Davao Corporation must be: 2. The combined net income of home office and branches for 2014 must be: 3. Correct net income of branches for 2014 must be:

Problem 3 The following information came from the books and records of Philip Corporation and its branch. The balances are as December 31,2014, the fourth year of the corporation’s existence.

Sales Shipments to branch Shipments from home office Purchases Expenses Inventory, January 1,2014 Unrealized profit in branch inventory

Home office Dr. (Cr.) P(80,000)

Branch Dr.(Cr.) P(320,000) 120,000 50,000 80,000 36,000

(50,000)

There are no shipments in transit between the home office and the branch. Both shipments accounts are properly recorded. The closing inventory billed prices includes merchandise acquired from the home office in the amount of P 21,000 and P9,000 acquired from the vendors for a total of P30,000. Required: Determined the following: 1. Beginning inventory acquired from the outsiders. 2. Correct cost of beginning inventory 3. Realized profit from inventory shipments. 4. Correct net income of branch 5. Correct ending inventory

6. Allowance balance at the end. Problem 4 The income statement submitted by the General Santos City branch to the Home office for the month of December, 2014 is shown below. After effecting the necessary adjustments the true net income of branch was ascertained to be P156,000. Sales Cost of sales Inventory, December Shipments from home office Local purchases Total Available for sale Inventory, December 31 Gross margin Operating expenses Net income

P600,000 80,000 350,000 30,000 460,000 100,000

The branch inventories were: Dec. 01,2014 Merchandised from home office 70,000 Local purchases 10,000 Total 80,000

360,00 240,000 (180,000) 60,000 Dec.31,2014 84,000 16,000 100,000

Required 1. The billing price based on cost imposed by the home office to the branch, and 2. The balance of allowance for overvaluation of the branch December 31,2014 after adjustment.

Problem 5 The following transactions were entered in the branch current account of Marikina Head Office for the year 2013: Investment in Branch- Olanggapo Beg.balance1/1/13 Shipments to branch, 4/1/13

459,258 212,400

33,300 Collection of AR, 9/12/13

Cash forwarded, 6/1/13 Operating Expenses charged to The branch, 12/31/13

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15,000 2,880

Shipments to the Branch during the year were made at 20% above cost. The balance of the Allowance for Overvaluation of Branch Inventory account was P21,300 at the beginning, and the allowance was written down to P14,700 at year-end. On December 10,2013, the home office purchased a piece of equipment amounting to P36,000 for its branch in Olanggapo. The said equipment has a useful life of five years and will be carried in the books of the branch, but the home office recorded the purchase by debiting Equipment. The branch recorded the depreciation of the equipment by debiting the home office current account and crediting Accumulated Depreciation. Debit memo regarding the allocation of operating expenses to the Olanggapo branch was received by the branch on January 2, 2014. The Olanggapo branch reported net income of P197,730. It also remitted cash to the home office on December 31,2013 amounting to P33,000, which the home office received and recorded on January 1,2014. The interoffice accounts were in agreement at the beginning of the year.

Required 1. How much is the adjusted balance of the branch Current account on December 31,2013 before the necessary closing entries were made? 2. What is the amount of adjustment in the allowance for Overvaluation of Branch inventory? 3. How much is the net income of Olanggapo branch that will br reported in the combined income statement of the Marikina Company? 4. What is the amount of the Office Current account that will be reported in the books of Olanggapo branch after closing entries are made? Problem 6 The preclosing general ledger trial balances at December 31,2013 for the CRC company and its Cagayan de Oro Branch office are shown below:

Cash

Accounts receivable Inventory Property,Plant and equiptment (net) investment in Branch Accounts Payable Accrued Expenses Home Office Equity Common stock (P10 par) Retained Earnings Sales Purchases Expenses Purchases from home office Total

Branch Home Office Office Dr(Cr) Dr(Cr) 360,000 80,000 350,000 120,000 700,000 150,000 900,000 200,000 -360,000 -135,000 -140,000 -25,000 -90,000 -500,000 -450,000 -4,400,000 -950,000 2,900,000 240,000 440,000 160,000 450,000 0 0

An audit disclosed the following data: a) On December 23 the branch office manager purchased P40,000 of furniture and fixtures but failed to notify the home office. The bookkeeper, knowing that all plant assets are carried on the home office books, recorded the proper entry on the branch books. It is the company policy not to take any depreciation on assets acquired in the last half of a year. b) On December 27 a branch customer erroneously sent a P20,000 account payment to the home office. The bookkeeper made the correct entry on the home office books but did not notify the branch. c) On December 30 the branch remitted cash P50,000 which was received by the home office in January, 2014 d) On December 31, the branch erroneously recorded the December allocated expenses from the home office asP5,000 instead P15,000 e) On December 31 the home office shipped merchandise billed at P30,000 to the branch, which was received in January,2014. f) The entire beginning inventory of the Branch had been purchased from the home office. Home office 2013 shipments to the branch were purchased by the home office in 2013. The physical inventories at December 31,2013, excluding the shipment in transit are: Home office-P550,000(at cost) Branch-P 200,000(consisting of 180,000 from home office and P20,000 from outsiders) g) The home office consistently bills shipments to the branch at 20% above cost. The sales account is credited for the invoice price.

Required: 1. 2. 3. 4.

The adjusted reciprocal accounts before branch net income, The correct branch net income. The combined net income of the home office and branch. Prepare the financial statements of the company as of December 31, 2013

MULTIPLE CHOICE QUESTIONS 1. A home office ships inventory to its branch at a mark-up of 125% above cost. The required balance of the allowance for overvaluation account is P1,425,000. During the year, the home office sent merchandise to the branch costing P 9,000,000. At the start of the year, the branch’s statement of financial Position shows P1,800,000 of inventory on hand that was acquired from the home office. By what amount will the Allowance for Unrealized Gross Margin Branch inventory account be debited at the end of the year? a.P12,250,000 c.P1,185,000 b.P10,825,000 d.P2,610,000 2. During the year 2013 goods billed at P3,250,000 were shipped to the branch at 130% of cost. The account Loading in branch Inventory has a balance of P1,225,000 before adjustment. The beginning inventory of the branch from the home office at cost is P2,375,000; the beginning inventory of the branch from outsiders is P540,00; purchases from outsiders is P1,450,000. How much is the total goods available for sale of the branch from the home office? a.P5,308,335 c.P8,090,000 b.P6,337,500 d.P6,100,000 3. PrestigeFix Co. operates a branch in Cebu. On December 31,2013, the Cebu branch in the home office books showed a debit balance of P3,132,660. The interoffice accounts were in agreement at the beginning of the year. For the purposes of reconciling the interoffice accounts, the following facts were given: It is the policy of the home office to bill its branches at 20% above cost.  Shipments from the home office to Cebu branch costing P435,000 were in transit as of the year-end .Cebu branch recorded the said transfer twice at cost: one on December 31,2013 and the other on January 1,2014.  The home office allocated to the Cebu branch ¾ of the rent expenses it paid for the year ended 2013. The rent expense was P144,000. The home office sent a debit memo to Cebu branch for the allocated amount, but the branch recorded the said debit memo by debiting the home office –current account and crediting rent payable.

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The branch wrote-off uncollectible accounts amounting to P60,720. The allowance for doubtful accounts is maintained in the books of the home office. The home office recorded the write-off as a write-off of its own accounts receivable. The branch collected accounts receivable from the home office’s customers amounting to P317,520, net of 2% cash discount. The branch treated the said transaction as if it was a collection from its own customers. The office was not yet notified of the said collection.

What is the unadjusted balance of the home office-current account in the books of Cebu branch on December 31,2 013? a.P2,855,940

c.P2,781,900

b.P2,768,940

d.P2,754,420

Question 4 through 8 based on the following: Comparative trial balances of the home office and the two branches of Norway Corporation at December 31,2014 were as follows: Home office 5,000 80,000 150,000 170,000 165,000

Cash Accounts receivable Inventories Branch no.1 Branch no.2 Plant asset (net) Purchases Shipments from home office Expenses

730,000 900,000

Total Accounts payable Other liabilities Loading in branch inventories Capital Stock , P10 par Retained earnings Home office

300,000 2,500,00 0 100,000 80,000 108,000 500,000 262,000

Branch 1 15,000 30,000 60,000

Branch 2 22,000 40,000 48,000

250,00 0

200,00 0

300,00 0 75,000 730,00 0 45,000 15,000

240,00 0 50,000 600,00 0 30,000 5,000

170,00 0

165,00 0

Sales Shipments to branches Total

1,000,00 0 450,000 2,500,00 0

500,00 0 0 730,00 0

400,00 0 0 600,00 0

Additional information: Home office (at cost) Branch no.1 (at billed price) Branch no.2 (at billed price)

P120,000 72,000 96,000

4. What is the mark-up rate merchandise transfers to branch? a.20 percent of billed price c.16-2/3 percent of billed price b.25 percent of cost d.25 percent of billed price 5. How much is the beginning inventory of Norway Corporation? a.P150,000 c.P240,000 b.P258,00 d.P90,000 6. How much is the ending inventory of Branch No.1 at cost? a.P72,000 c.P60,000 b.P57,600 d.P54,000? 7. How much is the correct net income of Branch No.2 as far as home office is concerned? a.P190,000 c.P185,000 b.P158,000 d.P94,000 8. How much net income will the office report in it’s separate income statement? a.P220,000 c.494,000 b.P595,000 d.P100,000 Question 9 and 10 are based on the following: The Dagupan City branch of Andy Enterprises, Manila was billed for merchandise shipments from home office at cost plus 25% in 2013 and cost plus 20% in 2014. Other pertinent data for 2014: Dagupan Branch Sales Inventory Beginning Purchases Inventory transfers Inventory , end Expenses

8,900(at billed price) 50,400(at billed price) 11,700(at billed price) 20,300

Home office P212,000 23,000(at cost) 164,000 42,000(at cost) 28,500(at cost) 76,400

9. What will be the combined cost of sales of dagupan branch and Andy’s home office that must be shown in the combined income statement? a.P22,430 c.P155,870 b.P155,815 d.P22,040 10. What will be the combined net income of Dagupan branch and Andy’s home office? a.P22,430 c.P22,133 b.P22,600 d.P22,040