HOME OFFICE AND BRANCH ACCOUNTING

HO & BRANCH ACCOUNTING – GENERAL PROCEDURES

I – Journal Entries: General Procedures

A balance sheet for the Faith Company as of January 1, 2003, is as follows:

ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY

Cash P 30, 000 Accrued Expenses P 500
Accounts Receivable P 84, 000 Accounts Payable 67, 500
Less: Allow. For D/Accts. 2, 400 81, 600 Capital stock 100, 000
Merchandise Inventory 92,000 Retained Earnings 56, 400
Store furniture & Fixtures P 30, 000
Less: Acc. Depreciation 9, 200 20, 800
Total Assets P 224, 400 Total Liabilities P 224,400

On this date, a branch sales office is established in Cebu. The branch is sent the following assets by the home office:
1. Cash, P 3,000
2. Merchandise, cost, P 20,400
3. Store furniture and fixtures previously used by the home office – cost, P 6,000 age 2 ½ years;
depreciation rate in the past, 10% a year. The cost of shipment and installation, P 1,800, is paid by the
branch. This cost is to be written- off over the remaining life of the asset. The equipment account are to
be carried on the books of the home office
4. Accounts Receivable P 5,200. Accounts arose from home office sales to customers in Cebu. The
branch is authorized to take over the accounts and make collections.

Home Office and branch transactions with outsiders during January were:
HOME OFFICE BRANCH
5. Sales on account …………………………………………… P 69, 200 P 12, 400
6. Collections on own account ………………………………. 80, 000 5, 200
7. Purchases on account ……………………………………… 63, 200 6, 000
8. Payments on account ……………………………………… 72, 400 2, 900
9. Payments on expenses (including accruals as of Jan. 1) …. 18, 400 2, 500
10. The following took place in respect to accounts received by the branch from the home office:
collections of P 3,200 were made, accounts of P300 were uncollectible and were written-off, it is
believed that remaining accounts of P1,700 are collectible.

Inter- office transactions during January were:

11. Merchandise Shipment to branch, at cost …………………………………………. P 2,500
12. Cash remittance to home office ……………………………………………………. 2,000

The following information is to be recorded on January 31:

a. Merchandise costing P 1,200 was shipped by the home office to the branch on January 31, this
merchandise is in transit and will not reach the branch until February 2. (This shipment is not included
in transfers previously mentioned)
b. Expenses that are paid by the home office during the month and that are chargeable to the branch total
P 950. (These are included in the P 18,400 amount).
c. Depreciation on furniture and fixtures is recorded at the rate of 10% a year.
d. Merchandise inventories, excluding merchandise in transit are: home office, P 89,000; branch,
P 19,600.
e. Accrued Expenses are home office, P1,500; branch, P 700.

Required:
1. Prepare entries to record the foregoing transactions for the home and the branch.
2. Prepare the adjusting entries and close the books at the end of the month for the branch and home
office.
3. Prepare individual statements for the branch and the home office.
4. Prepare combined statements for the branch and the home office.

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 Multiple Choice – General Procedures

Ilocos Corporation has been operating a branch in Surigao for a year. Shipments are billed to the branch cost. The
branch carries its own accounts receivable, makes its own cash collections and pays its own expenses. The
transactions of the branch for the year 2003 are given effect in the trial balance below.

DEBITS CREDITS
Cash P 200, 000
Home Office Current P 400, 000
Shipments from Home Office 1, 600, 000
Accounts Receivable 300, 000
Sales 1, 940 000
Expenses 240, 000
Total P 2, 340, 000 P 2, 340, 000

The branch inventory on December 31, 2003 is P 260, 000:

1. On January 1, 2003, the Shipment to branch Account on the home Office books should have an
opening balance of:
a. P -0- c. P 360, 000
b. 1, 960, 000 d. 2, 000, 000

2. On December 31, 2003 compute the net income of the branch:

a. P 1, 700, 000 c. P 1, 400, 000
b. 360, 000 d. 100, 000

3. On January 1, 2004, the Branch Current account on the books of the Home Office should have a
balance of:
a. P 760, 000 c. P 2, 160, 000
b. 1, 000, 000 d. 400, 000

RECONCILIATION OF HOME OFFICE AND BRANCH ACCOUNT

I – Adjusted Balance Method

The following entries are reflected in the Intra-Company accounts of a home office and its lone branch for June
2003:

Investment in Branch
6/01 Balance P 50, 000 6/02 Remittance P 10, 000
6/12 Inventory Shipment 12, 000 6/08 Collection of branch
6/25 Advertising allocation to branch Receivable 500
(50% of advertising incurred) 4, 000 6/27 Equipment purchase by
6/28 Inventory shipment 14, 000 Branch 7, 000
6/30 Depreciation allocation 2, 000

Balance 64,500

Home Office Current

6/02 Remittance P 10, 000 6/01 Balance P 50, 000
6/24 Purchase of equipment
(carried on home 6/10 Collections of home office
Office books) 7, 000 Receivables 2, 000
6/29 Remittance 15, 000 6/16 Inventory Shipment 12, 000
6/30 Inventory returned to
Home office 1, 000 6/28 Advertising allocation 400
6/30 Depreciation allocation 2, 000

6/30 Balance P 29,400

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Except for the error by the branch in recording its shares of allocated advertising expenses and depreciation
allocation, all differences are all timing differences.

Required: Prepare a reconciliation statement to correct the books of the home office and/or the branch.

II – Unadjusted / Adjusted Balance Method and Adjusting Entries

On December 31, 2003, the Investment in Branch Current ledger account in the accounting records of the home
office of Grace Company shows a debit balance of P 55, 500. You ascertained the following facts in analyzing this
account.

a. On December 31, 2003, merchandise billed at P 5, 800 was transit from home office to the branch. The
periodic inventory system is used by both the home office and the branch.
b. The branch had collected home office trade accounts receivable of P 560; the home office was not
notified.
c. On December 29, 2003, the home office had mailed a check for P 2, 000 to the branch, but the
accountant for the home office had recorded the check as a debit to the Charitable Contribution
Expense ledger account, the branch had not received the check as of December 31, 2003.
d. Branch net income for December, 2003, was recorded erroneously by the home office at P 840 instead
of P480. The credit was recorded by the home office in the Branch income Summary ledger account.
e. On December 28, 2003, the branch had return supplies costing P 220 to the home office: the home
office had not recorded the receipt of the supplies. The home office records acquisitions of supplies in
the Office Supplies ledger account.
f. Acquisition of equipment by the branch, P 1, 500. The equipment account is to be maintained in the
home office books. The home office had not been notified of the acquisition.
g. A branch customer erroneously remitted P 1, 000 to the home office. The home office recorded this
cash collection on December 29, 2003. Meanwhile, back at the branch, no entry has been made yet.
Required:
1. Compute the balance of the Home Office Current account on the books of the branch as of December
31, 2003 before its adjustment.
2. Compute the adjusted balance of the reciprocal account on December 31, 2003.
3. Prepare adjusting entries on the books of the home office and the branch on December 31, 2003.

III – Adjusted Balance Method

The branch account on the home office books of the Faith Company and the home office account on the branch
books on June 30, 2002 are as follows:

Branch Current
6/01 Balance P 62, 815 6/15 Remittance P 10, 600
6/05 Merchandise shipment 6/22 Merchandise Returns 410
100 units of Product X
@ P 37.85 3, 785
6/12 Merchandise Shipment:
200 units of Product X
@ P 37.85
200 units of Product Y
@ P 44.95 16, 560
6/15 Advertising chargeable
To branch 600
6/29 Merchandise shipments 4, 400

Home Office Current

6/13 Remittance P 10, 600 6/01 Balance P 62, 815
6/18 Merchandise Returns 410 6/08 Merchandise Shipment 3, 785
6/22 Understatement of 6/16 Merchandise Shipment 16, 650
Depreciation in 2001 540 6/20 Collection of Home Office
6/29 Remittance 16, 000 Account 750

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The adjusted Balance of the Reciprocal account as of June 30, 2002 is:
a. P 61, 270 c. P 61, 360
b. 61, 450 d. 61, 990

HOME OFFICE & BRANCH – SPECIAL PROCEDURES

I – Shipments with Unrealized Intercompany Inventory Profit

Hope Company operates a main store at its home office and a branch store in another city. The branch purchases
most of its merchandise from the home office at 10% above home office cost. All merchandise acquired from other
suppliers is accounted for by the branch at original cost. At September 30, 2009, the records of the branch indicated
the following.

September Sales ……………………………………… P 140, 000

Inventory, September 1 ……………………………… 35, 200* (50% from outside suppliers)
Shipments from home office ………………………… 55, 000 (at billed price)
Purchases from outsiders ……………………………. 24, 000
Selling Expenses …………………………………….. 8, 000
General Expenses ……………………………………. 32, 000
Inventory, September 30 ……………………………. 30, 000 (P 8, 000 from outside suppliers)

*Merchandise acquired from the home office is inventoried at billed prices.

Required:
1. Give the journal entries on the home office and branch books to record the shipments.
2. Prepare the income statement for the branch.
3. Prepare all necessary entries on the home office books at September 30, 2009 to adjust the home office
record for the branch operations for September.

II – Computation of Sources of Beginning Inventory and True Branch Net Income

The following information came from the books and records of Davao Corporation and its branch. The balances are
as of December 31, 2009, the fourth year of the corporation’s existence.
HOME
OFFICE BRANCH
Dr. (Cr.) Dr. (Cr.)
Sales P (1, 700, 000)
Shipments to branch P (480, 000)
Shipments from home office 720, 000
Purchases 360, 000
Expenses 320, 000
Inventory, January 1, 2009 144, 000
Unrealized Profit in branch inventory (272, 000)

There are no shipments in transit between the home office and the branch. Both shipments accounts are properly
recorded. The closing inventory at billed prices includes merchandise acquired from the home office in the amount
of P 108, 000 and P 60, 000 acquired from the vendors for a total of P 168, 000.

Required:
1. How much of the beginning inventory was acquired from the home office and from outsiders.
2. What is the true branch net income?

III – Unrealized Inventory Profit, Merchandise Returns to Home Office and Real Branch Net Income

The Aramis Company branch at 135% of cost. On December 31 the balance in the unrealized profit account is to be
calculated from the following information reported by the branch:

Merchandise Merchandise
from Home Purchased
Office at Outsiders
(Billed Price) (at cost)
Total
Merchandise inventory, December 1 P 32, 400 P 8, 000 P 40, 400
Merchandise into stock, December 1-31 40, 500 24, 000 64, 500

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 Merchandise inventory, December 31 37, 800 10, 000 47, 800

Required:
1. What is the balance of the unrealized profit account on the home office books before any adjustments
is made for branch sales for December?
2. Assuming that the branch had a net income per books of P 20, 000 and had returned to the home office
merchandise originally acquired at a billed price of P 1, 080. What is the real branch net income?

IV – Branch Inventory at cost and Combined Net Income

The Sharon Company operates a branch in Marawi City. Operating data for the home office and the branch for 2009
follow:

HOMEOFFICE BRANCH
Sales P 256, 000 P 78, 500
Purchases from outsiders 210, 000 20, 000
Shipments to branch:
Cost of home office 30, 000
Billing price to branch 40, 000
Expenses 60, 000 12, 500
Inventories, January 1, 2009:
Home Office acquired from outsiders, at cost 80, 000
Branch:
Acquired from outsiders, at cost 7, 500
Acquired from home office, at billed price, which
Average 22 ½ % above cost 24, 500
Inventories, December 31, 2009:
Home Office, acquired from outsiders, at cost 55, 000
Branch:
Acquired from outsiders, at cost 5, 500
Acquired from home office, at 2009 billed price 26, 000

1. The branch inventory at cost:

1/01/2009 12/31/2009
a. P 32, 000 P 31, 500
b. 26, 488 22, 833
c. 27, 500 26, 724
d. 27, 500 25, 000

2. The combined net income (loss) of the home office and the branch for the year 2009 amounted to:
a. P (3, 500)
b. 2, 776
c. (5, 224)
d. 4, 500

The only thing that stands between a man and what a man wants from life is often merely the will to try it

and the faith to believe that it is possible.

BRANCH TO BRANCH TRANSACTIONS

I – Interbranch Cash Transfer

Branch AA is authorized by its Home Office to send to Branch BB P 10, 000 cash. How is This transfer best
recorded on the books of:
(1) Home Office
(2) Branch AA, and
(3) Branch BB

II – Interbranch Merchandise Transfer

The Manila Company maintains branches that market the products that it produces. Merchandise is billed to the
branches at manufacturing costs, with the branches paying the freight charges from the home office to the branch.
On November 15, Branch No. 1 ships part of its stock to Branch No. 5 upon authorization by the home office.
Originally Branch No. 1 had been billed for this merchandise at P 16, 000 and had paid freight charges of P 3, 500
on the shipment from the home office. Branch No. 5, upon receiving the merchandise, pays freight charges of

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P 2, 500 on the shipment from Branch No. 1 if the shipment had been made from the home office directly to Branch
No. 5 would have been P 4, 000.

How should the merchandise transfers be recorded on the books of:

(1) Home Office
(2) Branch No. 1, and
(3) Branch No. 5
III – Interbranch Merchandise Transfer
YY Corporation has two branches to which merchandise is transferred at cost plus 20%, plus freight charges. On
November 30, 2008, YY Corporation shipped merchandise that cost P 5, 500 to its CC Branch, and the P 200
shipping charges were paid by YY Corporation. On December 15, 2008, the DD Branch encountered an inventory
shortage, and the CC Branch shipped the merchandise to the DD Branch at a freight cost of P 160 paid by the CC
Branch. Shipping charges from the home office to the DD Branch would have been P 175.

1. YY Corporation will record the P 5, 500 shipment to the CC Branch, together with the P 200 shipping
charge, in a journal entry that includes the following:
a. Shipments from home Office P 6, 600
b. Shipments to CC Branch, P 5, 700
c. Unrealized profit – branch inventory, P 1, 100
d. Investment in CC Branch, P 5, 700

2. CC Branch should record the transfer of merchandise to the DD Branch by either a debit or credit entry
that includes the following:
a. Shipments from home office , P 5, 500
b. DD Branch, P 6, 975
c. Home Office, P 6, 960
d. Inventory, P 5, 660

3. If the merchandise is unsold at year-end, the DD Branch will inventory the merchandise at
a. P 6, 000 c. P 6, 760
b. 6, 975 d. 6, 775

4. If the merchandise is unsold at year-end, YY Corporation will include it as an asset in its Annual
Report to Stockholders in the amount of:
a. P 5, 500 c. P 5, 675
b. 5, 660 d. 5, 875

5. the loss on excessive freight charges on the inter-branch transfer amounted to:
a. P 200 c. P 175
b. 160 d. 185