Practical Accounting 2 AIRIVERA

Home Office & Branch – Part 1

1. Home office establishes a branch for an initial investment of P1,000,000.

2. Branch acquires equipment for P400,000 to be carried in the branch books. Depreciation for the year
is 40,000.
3. Branch acquires equipment for P200,000 to be carried in the home office books. Depreciation for the
year is 20,000
4. Home office acquires furniture for P50,000 to be carried in the branch books. Depreciation for the
year is 5,000. Depreciation for the year is 3,000.
5. Home office acquires furniture for P30,000 to be carried in the home office books, but possession and
use of the equipment is transferred to the branch
6. Home office transfers inventory worth P150,000 to the branch. Freight paid by the home office is
P10,000.
7. Home office transfers inventory worth P80,000 to the branch. Freight paid by the branch is P6,000.
8. Branch purchases inventory worth P40,000 on account from outside party. Freight paid by the branch
is P2,000.
9. Branch makes total sales of P500,000 on account.
10. Branch collects P400,000 from accounts receivable.
11. Branch remits P300,000 cash collections to home office.
12. Branch incurs various operating expenses amounting to P100,000, one-fourth remains unpaid.
13. Home office allocates P10,000 utilities expense and P4,000 general overhead costs to the branch.
14. Close the branch’s nominal accounts to the income summary account
15. Close the branch’s profit to reciprocal accounts

Requirement:
a. Journalize the above transactions

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The trial balances of the Home Office and Branch are shown below:

Home Office Branch

Dr (Cr) Dr (Cr)
Cash 1,100,000 417,000
Accounts Receivable 180,000 100,000
Inventory, beg 650,000
Shipments from HO 230,000
Purchases 72,000 40,000
Freight-in 22,000 18,000
Shipment to Br (230,000)
Investment in Br 827,000
Equipment 720,000 400,000
Acc Depn - Equipment (72,000) (40,000)
Furniture 90,000 50,000
Acc Depn - Furniture (9,000) (5,000)
Accounts Payable (72,000) (40,000)
Accrued Expenses (45,000) (25,000)
Share Capital (2,000,000)
Share Premium (500,000)
Retained earnings, beg (206,200)
Home Office (827,000)
Sales (900,000) (500,000)
Depreciation Expense 168,000 68,000
Utilities Expense 18,000 10,000
General overhead expense 7,200 4,000
Various operating expense 180,000 100,000
Totals - -

The home office and the branch have ending inventories of P270,000 and P150,000, respectively

Required:
a. Combined Statement of Financial Position
b. Combined Statement of Profit or Loss
c. Individual Statement of Financial Position

Reconciliation – Adjusted Balance

ABC Co. is currently preparing its combined financial statements. At December 31, 20x1, the home
office shows a P156,000 balance in its “investment in branch” account while the branch shows a P70,200
balance in its “Home Office” account. The following information has been gathered:

a. The home office shipped merchandise worth P20,000 to the branch during December 31, 20x1
which the latter has received and recorded only in January 20x2
b. The home office collected P10,000 accounts receivable on behalf of the branch. The branch did
not yet receive the credit memo sent by the home office
c. The branch returned damaged merchandise worth P30,000 to the home office. The home office
did not yet receive the debit memo sent by the branch
d. A remittance of cash collections amounting to P40,000 was not yet recorded by the home office
e. The home office allocated overhead cost of P5,000 to the branch which the latter has recorded
twice
f. Freight charges of P12,000 paid by home office for shipments of merchandise to the branch was
recorded by the latter as 1,200

Required: Compute for the adjusted balances of the reciprocal accounts

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Reconciliation – Unadjusted Balance
ABC Co. is currently preparing its combined financial statements. At December 31, 20x1, the home
office shows a P182,000 balance in its “investment in branch” account. The following information has
been gathered during the reconciliation process:

a. A credit memo sent by the home office to the branch amounting to P12,000 was not recorded by
the branch
b. A debit memo sent by home office to the branch amounting to P9,000 was not recorded by the
branch
c. A credit memo sent by the branch to the home office amounting to P20,000 was recorded by the
home office twice
d. A debit memo sent by the branch to the home office amounting to P30,000 was recorde by the
home office as P3,000
e. The branch sent by mistake a credit memo amounting to P7,000 to the home office. The home
office did not record it.

Required: Compute for the unadjusted balance of the “Home Office “account.

Reconciliation – Net Adjustment

ABC Co. is currently preparing its combined financial statements. At December 31, 20x1, the home
office shows a P95,000 balance in its “investment in branch” account while the branch shows a P132,000
balance in its “Home Office” account. The following information has been gathered:

a. The home office allocated unpaid utilities expenses amounting to P10,000 to the branch which
the branch did not record in full. Instead, the branch sent a wrong adjusting memo to the home
office reducing the charge by P2,500 and setting up a liability for the remaining amount.
b. The home office erroneously credited the branch for a return of shipment of merchandise worth
P25,000. The branch did not make any return on merchandise
c. The branch mistakenly received a copy of the home office correcting entry for item (b) above
dated January 3, 20x2 and entered a credit in favor of the home office on December 31, 20x1
d. The branch mistakenly sent the home office a debit memo amount to 3,000 for an apparent
remittance of collections which did not happen. The home office did not record the debit memo.

Required:
1. Net adjustments to the “investment in branch” and “home office” accounts
2. Adjusted balances of the reciprocal accounts

Several Branches – Unadjusted Balance

ABC Co. has several branches. On December 31, 20x1, the “Home Office” account maintained by Alpha
Branch shows a balance of P145,000. The following was determined:

a. The home office charged Alpha Branch for P15,000 shipment which was usually sent to Beta
Branch and retained by the latter. Alpha Branch was not notified of the intended shipment
b. The home office charged Charlie Branch for a P16,000 shipment which was actually sent to
Alpha Branch. Alpha Branch retained the shipment
c. The home office erroneously recorded a remittance for P5,000 from its Delta Branch as coming
from Alpha Branch
d. Utilities expense of P4,000 that is allocable to Echo Branch was recorded by the home office in
Alpha Branch’s account. Alpha Branch has inappropriately recorded the related debit memo from
the home office.

Required: Compute for the unadjusted balance of the “Investment in Alpha Branch” account in the Home
Office Books

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Several Branches – Adjusted Balance
ABC Co. has several branches. On December 31, 20x1, the “Investment in Branch One” maintained by
the home office shows a balance of P100,000 while the “Home Office” account maintained by Branch
One shows a balance of P142,000. The following information was determined:

a. Branch Two acquired equipment for P30,000 to be maintained in the books of the home office.
This was recorded by the home office as a transaction with Branch One
b. Branch One acquired equipment for P40,000 to be maintained in its books. This was not recorded
by the home office
c. Branch Four remitted cash collections of P10,000 for the home office within the latter failed to
record
d. The home office erroneously charged Branch One for a debit memo of P12,000 received from
Branch Five
e. Branch One reversed a previous debit memo from Branch Six amounting to P6,000. The home
office decided that this charge is appropriately Branch Seven’s cost.

Required: Compute for the adjusted balances of the reciprocal accounts of the home office and branch
one.

Difference between unadjusted reciprocal accounts

Abetski Co. has several branches. The following information was determined during the reconciliation
procedures for its reciprocal account with Kisten Branch.

a. Utilities expense of P4,000 that is properly allocable to Kisten Branch was recorded by the home
office in Dorian Branch’s account. Kirsten Branch made the correct entry.
b. The home office recorded a cash remittance of P16,000 from Kirsten Branch as coming from
Phrygian Branch
c. A debit memo from the home office for P10,000 representing shipment of merchandise was not
recorded by the Kirsten Branch.
d. The debit posting for a cash remittance to the home accounting to P7,000 was not recorded by
Kirsten Branch
e. The credit posting for a credit memo received from the home office representing collection by
home office of the branch’s accounts receivable amounting to P5,000 was not recorded by
Kirsten Branch

Required: How much is the difference between the unadjusted “Investment in Kirsten Branch” and
“Home Office “accounts

END

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