HOME OFFICE, AGENCY AND BRANCH

1. On November 2, 2015, L Sison Company created an agency in Davao, and transferred

merchandise samples costing P15,000, equipment worth P36,000 and a cash working fund
of P10,000 to be maintained on an imprest basis. The agency transmitted to the home office
sales orders which were billed at P90,000 of which P46,550 was collected net of a 2%
discount. The agency also paid for its operating expenses of P7,500 including supplies of
P2,000. The agency received replenishment thereof from the home office before the year
ended. On December 31, the agency samples were estimated to be useful over a period of 5
months while the equipment is estimated to have a useful life of eight years. Unused supplies
on Dec 31 amounted to P1,000. Home office maintains a gross profit rate of 25% of cost.
a. How much is agency profit at the end of December?
b. Give the agency real accounts that will be presented in the Dec. 31 balance sheet.
b. Give the cost of sales of Home Office if its Inventory on Nov 2 is P1,250,000 while on hand
at Dec 31 went down to 20% of total stock . Net purchases was P2,750,000 including freight
of P50,000.
2. Celestial Corporation shows the following balance sheet accounts as at Jan 1, 2015:
Cash P476,500 Accumulated Depreciation P 93,750
Accounts Receivable 1,050,000 Accrued Expenses 7,250
Inventory 1,300,000 Accounts Payable 743,750
Furniture & Fixtures 750,000 Capital Stock 2,500,000
Allowance for Bad Debts 31,500 Retained Earnings 263,250
On this date, management decided to establish a branch in Baguio and reported the
following transactions for the first quarter of 2015:
a) Transferred cash P150,000, merchandise P500,000 with freight prepaid based on 2% of its
shipment cost.
b) Home office approved on Feb 1, the purchase by the branch of its furniture and fixtures
costing P75,000 for its own use. Home office policy was to maintain and control all fixed
assets.
c) The branch was authorized to take over P60,000 home office accounts from its Baguio
customers and make the necessary collections. Home Office issued a debit memo for this.
d) Summary of account sales and (collections) for the quarter : Home Office- P1,865,000 and
(1,499,400 net of a 2% discount) and for the Branch- P655,000 (P565,000).
e) Summary of account purchases and (payments): Home Office-P790,000 and (P745,000)
and for the Branch- P150,000 and (P88,755 net of a 3% discount).
f) Operating Expenses paid including accrued expenses, if any-
Home Office, P230,000 and Branch, P 131,250.
g) Returns from the original shipment amounted to P75,000. Freight on returns was paid
by the branch. Allocated freight and freight paid by branch were all charged to home
office as a loss account.
h) From the Baguio accounts turned over in c), collections were made accordingly less a
discount of 2% which the branch charged to the home office.
i) P11,875 of the expenses paid by home office in f) were charged to the branch.
j) Cash remittance was made by the branch in excess of original cash transfer.
k) Depreciation was recorded at a rate of 12%.
l) Unpaid utility bills: P67,500 for home office and P18,500 for the branch.
m) Policy on doubtful accounts was to be maintained based on the previous rate.
Required: 1) Entries to record transactions a) to m) in parallel column.
2) Closing Entries (one entry to close all the nominal accounts) including set up of
inventory per count: Home Office P785,500 and Branch P130,750.
3) Present the Plant Asset section of the Statement of Financial Position of the Home
Office.
4) Present the Income statement of the Home Office and the Branch using the
following format:
 Income Statement Home Office Branch Combined

Sales

Less Sales Discounts (___________) (___________) (_________)

Net Sales ____________ ___________ __________

Cost of Sales:

Inventory, Beginning

Net Purchases

Shipments from Home Office

Freight In ____________ ___________ __________

Total

Shipments to branch ( )

Inventory, Ending ( ) ( ) (___________)

____________ ___________ ____________

Gross Profit ____________ ___________ ____________

Less Operating Expenses:

Bad Debts ( ) ( ) ( )

Depreciation ( ) ( ) ( )

Utilities ( ) ( ) ( )

Other operating expenses ( ) ( ) ( )

Net Profit from Operation

Branch Profit (Loss)

Loss on Branch Transfers ____________ ___________ __________

Net Profit P___________ P__________ P_________

SOLUTION 3BAC
Home Office, Agency and Branch
1. a) Income & Expense Summary b. Real Accounts:
Samples Used 6,000 Sales 90,000
Supplies 1,000 Agency Samples P 9,000
Cost of Sales 72,000 Working Fund, Dvo Agency 10,000
Depreciation 750 Supplies, DvoAgency 1,000
Other expenses 5,500 Equipment, DvoAgency P 36,000
Sales discount 950 Accum Depn ( 750) 35,250

Balance 3,800 c. Home Office Cost of Sales

4.Inventory, Nov 2 P1,250,000
Net Purchases 2,700,000
Freight In 50,000
Shipments ( 87,000)
Inventory, Dec 31 (800,000)
P3,113,000

2. Home Office Books Branch Books

Investment in branch 660,000 Cash 150,000
Cash 160,000 Freight In 10,000
Shipments to Branch 500,000 Shipments from H.O. 500,000
Home office Equity 660,000

Furn & Fix, Branch 75,000 Home Office Equity 75,000

Investment in Branch 75,000 Cash 75,000

Investment in Branch 60,000 Acct Receivable 60,000

Accts Receivable 60,000 Home Office Equity 60,000

Accts receivable 1,865,000 Accts Receivable 655,000

Sales 1,865,000 Sales 655,000

Cash 1,499,400 Cash 565,000

Sales Discount 30,600
Accts. Receivable 1,530,000 Accts Receivable 565,000

Purchases 790,000 Purchases 150,000

Accts Payable 790,000 Accts Payable 150,000

Accts Payable 745,000 Accts Payable 91,500

Cash 745,000 Cash 88,755
Purchase Discount 2,745

Operating Expenses 222,750 Operating Expenses 131,250

Accrued Expenses 7,250 Cash 131,250
Cash 230,000

Shipments to Branch 75,000 Home office Equity 78,000

Freight loss 3,000 Cash 1,500
Investment in Branch 78,000 Freight In 1,500
Shipments from HO 75,000

Sales Discount 1,200 Home office Equity 1,200

Investment in Branch 1,200 Cash 58,800
Accts. Receivable 60,000

Investment In Branch 11,875 Operating Expenses 11,875

Operating Expenses 11,875 Home Office Equity 11,875

Cash 327,295 Home Office Equity 327,295

Investment in Branch 327,295 Cash 327,295
Investment in Branch 2,250 Depreciation Expense 2,250
AccumDepn,Furn Home Office Equity 2,250
&Fixtures,Branch 2,250 75,000 x 12% x 3/12

Depreciation Expense 22,500

Acc Depn,Furn & Fix 22,500
750,000 x 12%x 3/12

Utility Expense 67,500 Utility Expense 18,500

Utility Payable 67,500 Utility Payable 18,500

Bad Debts 8,250 Bad Debts 2,700

Allowance for Bad Debts 8,250 Allow for Bad Debts 2,700
1,325,000x.03=39,750-31,500 90,000 x .03

Inventory, End 785,500 Inventory, End 130,750

Sales 1,865,000 Sales 655,000
Shipments to Branch 425,000 Purchase Discount 2,745
Inventory Beg 1,300,000 Bad Debts 2,700
Purchases 790,000 Shipments from H.O 425,000
Bad Debts 8,250 Purchases 150,000
Depreciation 22,500 Freight In 8,500
Sales Discount 31,800 Depreciation 2,250
Other Operating Expenses 210,875 Other Operating Exp 143,125
Utility Expense 67,500 Utility Expense 18,500
Income and Expense S 644,575 Income & Expense S 38,420

Investment in Branch 38,420 Income & Expense S 38,420

Branch Inc & Exp Sum= 38,420 Home Office Equity 38,420

Branch Income & Expense 38,420

Inc & Exp Summary 35,420
Freight Loss 3,000

Income & Expense S 679,995

Retained Earnings 679,995

Req. 3 Furniture & Fixtures 750,000

Accum Depreciation 116,250 633,750

Furniture & Fixtures-Baguio 75,000

Accum Depreciation 2,250 72,750

Total P706,500
 Income Statement Home Office Branch Combined
Sales 1,865,000 655,000 2,520,000
Less Discounts,returns,allowances ( 31,800) ( 31,800)
Net Sales 1,833,200 655,000 2,488,200
Cost of Sales:
Inventory, Beginning 1,300,000 1,300,000
Net Purchases 790,000 147,255 937,255
Shipments to Branch (425,000) -
Freight In 8,500 8,500
Shipments from Home Office 425,000
Inventory, Ending (785,500) (130,750) (916,250)
879,500 450,005 1,329,505
Gross Profit 953,700 204,995 1,158,695
Less Operating Expenses:
Bad Debts 8,250 2,700 10,950
Depreciation 22,500 2,250 24,750
Utility 67,500 18,500 86,000
Other operating expenses 210,875 143,125 354,000
309,125 166,575 475,700
Net Profit from Operation 644,575 38,420 682,995
Branch Profit 38,420
Loss on Branch Transfers (3,000) ______ (3,000)
Net Profit (Loss) 679,995 38,420 679,995
HOME OFFICE, AGENCY AND BRANCH

1. On November 2, 2015, L Sison Company created an agency in Davao, and transferred

merchandise samples costing P15,000, equipment worth P36,000 and a cash working fund
of P10,000 to be maintained on an imprest basis. The agency transmitted to the home office
sales orders which were billed at P90,000 of which P46,550 was collected net of a 2%
discount. The agency also paid for its operating expenses of P7,500 including supplies of
P2,000. The agency received replenishment thereof from the home office before the year
ended. On December 31, the agency samples were estimated to be useful over a period of 5
months while the equipment is estimated to have a useful life of eight years. Unused supplies
on Dec 31 amounted to P1,000. Home office maintains a gross profit rate of 20% of cost.
a. How much is agency profit at the end of December?
b. Give the agency real accounts that will be presented in the Dec. 31 balance sheet.
b. Give the cost of sales of Home Office if its Inventory on Nov 2 is P1,250,000 while on hand
at Dec 31 went down to 20% of total stock . Net purchases was P2,750,000 including freight
of P50,000.
2. Celestial Corporation shows the following balance sheet accounts as at Jan 1, 2015:
Cash P476,500 Accumulated Depreciation P 93,750
Accounts Receivable 1,050,000 Accrued Expenses 7,250
Inventory 1,300,000 Accounts Payable 743,750
Furniture & Fixtures 750,000 Capital Stock 2,500,000
Allowance for Bad Debts 31,500 Retained Earnings 263,250
On this date, management decided to establish a branch in Baguio and reported the
following transactions for the first half of 2015:
a) Transferred cash P150,000, merchandise P500,000 with freight prepaid based on 2% of its
shipment cost.
b) Home office approved on Feb 1, the purchase by the branch of its furniture and fixtures
costing P75,000 for its own use. Home office policy was to maintain and control all fixed
assets.
c) The branch was authorized to take over P60,000 home office accounts from its Baguio
customers and make the necessary collections. Home Office issued a debit memo for this.
d) Summary of account sales and (collections) for the quarter : Home Office- P1,865,000 and
(1,499,400 net of a 4% discount) and for the Branch- P655,000 (P565,000).
e) Summary of account purchases and (payments): Home Office-P790,000 and (P745,000)
and for the Branch- P150,000 and (P88,755 net of a 3% discount).
f) Operating Expenses paid including accrued expenses, if any-
Home Office, P230,000 and Branch, P 131,250.
g) Returns from the original shipment amounted to P75,000. Freight on returns was paid
by the branch. Allocated freight and freight paid by branch were all charged to home
office as a loss account.
n) From the Baguio accounts turned over in c), collections were made accordingly less a
discount of 2% which the branch charged to the home office.
o) P11,875 of the expenses paid by home office in f) were charged to the branch.
p) Cash remittance was made by the branch in excess of original cash transfer.
q) Depreciation was recorded at a rate of 12%.
r) Unpaid utility bills: P67,500 for home office and P18,500 for the branch.
s) Policy on doubtful accounts was to be maintained based on the previous rate.
Required: 1) Entries to record transactions a) to m) in parallel column.
2) Closing Entries (one entry to close all the nominal accounts) including set up of
inventory per count: Home Office P785,500 and Branch P130,750.
3) Present the Asset section of the Statement of Financial Position of the Home
Office, Branch and Combined.
4) Present the Income statement of the Home Office and the Branch using the
following format:
 Statement of Financial Position Home Office Branch Combined
Assets
Cash
Accounts Receivable
Allowance for Bad Debts
Inventories
Investment in Branch
Furniture and Fixtures
Accumulated Deprreciation
Furnitures & Fixtures,Branch
Accum Dep- Furn & Fix, Branch
Total Assets

Liabilities and Equity

Accounts Payable
Accrued Expenses
Capital Stock
Retained Earnings
Home Office Equity
Total Liabilities & Equity
SOLUTION 3AAc Home Office, Agency and Branch
1. a) Income & Expense Summary b. Real Accounts:
Samples Used 6,000 Sales 90,000
Supplies 1,000 Agency Samples P 9,000
Cost of Sales 75,000 Working Fund, Dvo Agency 10,000
Depreciation 750 Supplies, DvoAgency 1,000
Other expenses 5,500 Equipment, DvoAgency P 36,000
Sales discount 950 Accum Depn ( 750) 35,250

Balance 800 c. Home Office Cost of Sales

4.Inventory, Nov 2 P1,250,000
Net Purchases 2,700,000
Freight In 50,000
Shipments ( 90,000)
Inventory, Dec 31 (800,000)
P3,110,000

2. Home Office Books Branch Books

Investment in branch 660,000 Cash 150,000
Cash 160,000 Freight In 10,000
Shipments to Branch 500,000 Shipments from H.O. 500,000
Home office Equity 660,000

Furn & Fix, Branch 75,000 Home Office Equity 75,000

Investment in Branch 75,000 Cash 75,000

Investment in Branch 60,000 Acct Receivable 60,000

Accts Receivable 60,000 Home Office Equity 60,000

Accts receivable 1,865,000 Accts Receivable 655,000

Sales 1,865,000 Sales 655,000

Cash 1,499,400 Cash 565,000

Sales Discount 62,475
Accts. Receivable 1,561,875 Accts Receivable 565,000

Purchases 790,000 Purchases 150,000

Accts Payable 790,000 Accts Payable 150,000

Accts Payable 745,000 Accts Payable 91,500

Cash 745,000 Cash 88,755
Purchase Discount 2,745

Operating Expenses 222,750 Operating Expenses 131,250

Accrued Expenses 7,250 Cash 131,250
Cash 230,000

Shipments to Branch 75,000 Home office Equity 78,000

Freight loss 3,000 Cash 1,500
Investment in Branch 78,000 Freight In 1,500
Shipments from HO 75,000

Sales Discount 1,200 Home office Equity 1,200

Investment in Branch 1,200 Cash 58,800
Accts. Receivable 60,000

Investment In Branch 11,875 Operating Expenses 11,875

Operating Expenses 11,875 Home Office Equity 11,875

Cash 327,295 Home Office Equity 327,295

Investment in Branch 327,295 Cash 327,295
Investment in Branch 3,750 Depreciation Expense 3,750
AccumDepn,Furn Home Office Equity 3,750
&Fixtures,Branch 3,750 75,000 x 12% x 5/12

Depreciation Expense 45,000

Acc Depn,Furn & Fix 45,000
750,000 x 6%

Utility Expense 67,500 Utility Expense 18,500

Utility Payable 67,500 Utility Payable 18,500

Bad Debts 7,293 Bad Debts 2,700

Allowance for Bad Debts 7,293.75 Allow for Bad Debts 2,700
1,293,125 x.03=38,793.75-31,500 90,000 x .03

Inventory, End 785,500 Inventory, End 130,750

Sales 1,865,000 Sales 655,000
Shipments to Branch 425,000 Purchase Discount 2,745
Inventory Beg 1,300,000 Bad Debts 2,700
Purchases 790,000 Shipments from H.O 425,000
Bad Debts 7,293.75 Purchases 150,000
Depreciation 45,000 Freight In 8,500
Sales Discount 63,675 Depreciation 3,750
Other Operating Expenses 210,875 Other Operating Exp 143,125
Utility Expense 67,500 Utility Expense 18,500
Income and Expense S 591,156.25 Income & Expense S 36,920

Investment in Branch 36,920 Income & Expense S 36,920

Branch Inc & Exp Sum= 36,920 Home Office Equity 36,920

Branch Income & Expense 36,920

Inc & Exp Summary 33,920
Freight Loss 3,000

Income & Expense S 625,076.25

Retained Earnings 625,076.25
Requirement 3
Balance Sheet Home Office Branch Combined
Assets
Cash 1,168,825.0 150,000 1,318,825
Accounts Receivable 1,293,125.0 112,500 1,405,625
Allow for Bad Debts (38,793.75) 1,254,331.25 (5,625) 106,875 (44,418.75) 1,361,206.25
Inventory 785,500.0 130,750 916,250
Investment in Branch 369,050.0
Furniture and Fixtures 750,000.00 750,000.00
Accumulated Depn 138,750.00 611,250.0 (138,750) 611,250.00
Fur & Fixtures-Branch 75,000.00
75,000.00
Accum Dep Fur & Fix Br 3,750.00 71,250.0 _______ 3,750.00 71,250.00
Total Assets 4,260,206.25 387,625 4,278,781.25
 Income Statement Home Office Branch Combined
Sales 1,865,000 655,000 2,520,000
Less Discounts,returns,allowances ( 63,675) ( 63,675)
Net Sales 1,801,325 655,000 2,456,325
Cost of Sales:
Inventory, Beginning 1,300,000 1,300,000
Net Purchases 790,000 147,255 937,255
Shipments to Branch (425,000) -
Freight In 8,500 8,500
Shipments from Home Office 425,000
Inventory, Ending (785,500) (130,750) (916,250)
879,500 450,005 1,329,505
Gross Profit 921,825 204,995 1,126,820
Less Operating Expenses:
Bad Debts 7,293.75 2,700 9,993.75
Depreciation 45,000 3,750 48,750
Utility 67,500 18,500 86,000
Other operating expenses 210,875 143,125 354,000
330,668.75 168,075 498,743.75
Net Profit from Operation 591,156.25 36,920 628,076.25
Branch Profit 36,920
Loss on Branch Transfers (3,000) ______ (3,000)
Net Profit (Loss) 625,076.25 36,920 625,076.25