HOME OFFICE AND

BRANCH ACCOUNTING
General Procedures
 CONTENTS
• Agency and Branch Distinguished
• Accounting for an Agency
• Accounting for Branches
• Reciprocal Accounts
• Property, Plant and Equipment Used by the Branch
• Expenses Incurred by the Home Office but Charged to Branch
• Reconciliation of Reciprocal Accounts
 AGENCY AND BRANCH
DISTINGUISHED
• An AGENCY is an organization in which:
• 1. It is established to display merchandise.
• 2. It does NOT stock merchandise to fill customer’s orders or pass on customer’s
credit.
• 3. Merchandise orders obtained are sent to the home office for approval.
• 4. It is normally provided with a working fund that is to be used for the payment
of expenses that can be more conveniently settled through the agency.
• 5. It has NO separate accounting or business entity.
• 6. Its transactions are recorded in the books of the home office either at:
• A. Separate records from the home office transactions, or
• B. No separate records from the home office transactions.
 AGENCY AND BRANCH
DISTINGUISHED
• A BRANCH is an organization that:
• 1. Sells goods out of a stock that it maintains;
• 2. Possesses the authority to engage transactions as an independent business;
• 3. Makes sales to customers, passes on customer credit, collects receivables,
incurs expenses and performs other functions normally associated with the
operating of a separate business enterprise; and
• 4. Has a separate branch accounting system.
 AGENCY ACCOUNTING RECORDS
SEPARATE FROM THE HOME OFFICE
• If the home office wishes to determine the net income of each of its
agencies as well as of the home office:
• 1. It will maintain separate sales revenue and expense accounts for the
individual sales units.
• 2. The shipments to agency account balance are subtracted from the sum of
the home office beginning inventory and purchases in determining the
merchandise available from home office sales.
• 3. Following the adjusting entries, agency sales revenue and expenses accounts
are closed into an income summary account for each agency.
 ACCOUNTING FOR AN AGENCY
• The accounting entries prepared by home office as a result of agency
transactions:

1. Establishment of petty cash fund

Working Fund - # Agency XX
Cash XX
2. Shipped merchandise to agency for use as samples
Samples inventory - # Agency XX
Shipment to # Agency XX
3. Purchase of agency equipment
Equipment - # Agency XX
Cash XX
4. Payment of salaries to employees of agency
Salaries expense -# Agency XX
Cash XX
 ACCOUNTING FOR AN AGENCY
• The accounting entries prepared by the home office as a result of agency
transactions:

5. Sales orders from agency are filled and customers are billed, and goods
are delivered by the home office
Accounts Receivable XX
Sales – # Agency XX
6. Utilities, advertising expense and other expenses were incurred out of
working fund
No entry is required under the imprest fund system

7. End of the year adjustments:

a. Cost of goods identified with # Agency
Cost of Goods Sold XX
Shipments to # Agency XX
 ACCOUNTING FOR AN AGENCY
• The accounting entries prepared by the home office as a result of agency
transactions:

7. End of the year adjustments:

b. Depreciation expense for agency equipment
Depreciation expense - # Agency XX
Accumulated depreciation – equipment - # Agency XX
c. Replenishment of agency’s working fund
Utilities expense - # Agency XX
Advertising expense - # Agency XX
Other expense - # Agency XX
Cash XX
d. Agency samples inventory to NRV:
Advertising expense - # Agency XX
Samples inventory - # Agency XX
 ACCOUNTING FOR AN AGENCY
• The accounting entries prepared by the home office as a result of agency
transactions:

8. Closing entries:
a. To close sales revenue account:
Sales - # Agency XX
Income Summary - # Agency XX
b. To close cost of goods sold account:
Income Summary - # Agency XX
Cost of goods sold - # Agency XX
 ACCOUNTING FOR AN AGENCY
• The accounting entries prepared by the home office as a result of agency
transactions:

8. Closing entries:
c. To close expenses account:
Income Summary XX
Salaries expense - # Agency XX
Depreciation expense - # Agency XX
Utilities expense - # Agency XX
Advertising expense - # Agency XX
Other expenses - # Agency XX
d. To close the Agency Income Summary to General Income Summary
Income Summary - # Agency XX
Income Summary XX
 ACCOUNTING FOR BRANCHES
• Procedures to be observed by the branch are as follows:
• 1. A branch’s cash and merchandise and such other assets as may be needed
are supplied by the home office.
• 2. The branch may purchase merchandise from outsiders to satisfy certain local
needs for goods not available from the affiliated unit.
• 3. The branch ships merchandise, bills its customer, makes collections on
account, and deposits the sum in its own bank account.
 RECORDS MAINTAINED AT THE
BRANCH
• Generally, the branch accounting system is maintained at the branch.
• Financial statements are prepared by the branch periodically and are
submitted to the home office.
 RECIPROCAL ACCOUNTS
• When complete self-balancing books are kept by the branch, an account
called Home Office Current takes place of the customary capital accounts.
• This home office current account is credited:
• 1. Cash, goods, or services received from the home office; AND
• 2. For profits resulting from branch operations.
• On the other hand, the account is debited:
• 1. For remittances made by the branch to the home office; and
• 2. For losses from operations.
 RECIPROCAL ACCOUNTS
• The home office, in turn, keeps a reciprocal account, called Branch Current,
or Investment in Branch.
• This noncurrent asset (Branch Current or Investment in Branch) account is
debited:
• 1. For cash, goods or services transferred to the branch and
• 2. For branch income.
• Conversely, the account is credited:
• 1. For remittances from the branch or other assets received from the branch and
• 2. For branch losses.
 RECIPROCAL ACCOUNTS
HOME OFFICE BOOKS BRANCH BOOKS
Account: Branch Current Account: Home Office Current
Element: Asset Element: Equity
Transaction (TRPLE H):
a. (T) Transferred to branch /
received from home office (D) Debited (C) Credited
b. (R) Remittances from
branch (C) Credited (D) Debited
c. (I/P) Branch income/profit (D) Debited (C) Credited
d. (L) Branch losses (C) Credited (D) Debited

e. (E) Branch’s EQUIPMENT

purchase (C) Credited (D) Debited
f. (H) Home Office to Branch
Expense Allocation (D) Debited (C) Credited
 PROPERTY, PLANT AND
EQUIPMENT USED BY THE BRANCH
• Accounting for property, plant and equipment used by the branch.
Scenario 1: Equipment is purchased by the home office for the branch; the entry
for the acquisition on the:
HOME OFFICE BOOKS:
Equipment - # Branch XX
Cash or Accounts Payable XX

BRANCH BOOKS:
No entry is required
 PROPERTY, PLANT AND
EQUIPMENT USED BY THE BRANCH
• Accounting for property, plant and equipment used by the branch.
Scenario 2: In contrast, if the branch will purchase the equipment, then the entry
for the acquisition:
HOME OFFICE BOOKS:
Equipment – # Branch XX
Branch Current (or Investment in Branch) XX

BRANCH BOOKS:
Home Office Current XX
Cash or Accounts Payable XX
 EXPENSES INCURRED BY THE HOME
OFFICE BUT CHARGED TO BRANCH
• The following guideline should be followed:
• 1. Certain items can be directly identified with individual branches and are
immediately charged to the branches.
• 2. Other charges resulting in benefits that are NOT directly identified with certain
branches may be summarized on the home office books and charged
periodically to the branches using equitable basis.
• 3. When charges reported on the home office books are taken up on the branch
books, home office accounts should be REDUCED by the amounts transferred.
• 4. The home office may charge individual branches for interest and rent on the
working capital and the properties and equipment transferred to the branches.
When such charges are made, the BRANCH recognizes these charges as
expense items, while the HOME OFFICE reports corresponding revenue.
 T-ACCOUNTS OF THE RECIPROCAL
ACCOUNTS
• Home Office Books:
Branch Current (Noncurrent Asset)
(T) Cash sent to branch (E) Equipment acquired by branch
(T) Shipment to branch (T*) Shipment returns
(H) Depreciation charged to (R) Remittance
branch
(I/P) Branch income summary
(Profit)
( H I T) ( T* E R)

TOTAL (Normal Balance)

 T-ACCOUNTS OF THE RECIPROCAL
ACCOUNTS
• Branch Books:
Home Office Current (Equity)
(E) Equipment acquired by (T) Cash sent to branch
branch (T) Shipment to branch
(T*) Shipment returns (H) Depreciation charged to
(R) Remittance branch
(I/P) Branch income summary
(Profit)
( T* E R) ( H I T)

TOTAL (Normal Balance)

 TRANSFER OF ASSETS OTHER THAN
MERCHANDISE BY HOME OFFICE TO
BRANCH
• Example: (T) Cash sent to branch >>> Increase investment/ equity
HOME OFFICE BOOKS:
Branch Current XX
Cash XX

BRANCH BOOKS:
Cash XX
Home Office Current XX
 TRANSFER OF MERCHANDISE BY
HOME OFFICE TO BRANCH
• Example: (T) Shipment to branch >>> Increase investment/ equity
HOME OFFICE BOOKS (under periodic system):
Branch Current XX
Shipment to branch (@ cost) XX

BRANCH BOOKS (under periodic system):

Shipment from home office XX
Home Office Current XX
 PURCHASE OF ASSETS (EQUIPMENT) BY
BRANCH TO BE CARRIED ON HOME
OFFICE BOOKS
• Example: (E) Equipment Acquired by Branch (to be carried on home office
books) >>> Decrease investment/ equity
HOME OFFICE BOOKS:
Equipment - # Branch XX
Branch Current XX
BRANCH BOOKS:
Home Office Current XX
Cash XX
 TRANSFER TO/FROM HOME OFFICE
AND BRANCH
EXAMPLE 1A: (T) Actual transfer of
ownership of assets FROM HOME
OFFICE TO BRANCH (e.g. to be
recorded in the BRANCH BOOKS)
HOME OFFICE BRANCH
HOME OFFICE BOOKS: BRANCH BOOKS:
Branch Current Cash/ Shipments to branch / Equipment
Cash/ Shipments to branch / Equipment Home Office Current
 TRANSFER TO/FROM HOME OFFICE
AND BRANCH
EXAMPLE 1B: NO Actual transfer of *Home Office owns or purchased Equipment
ownership of assets FROM HOME for branch mere right to use, property belongs to
OFFICE TO BRANCH (e.g. still to be the HOME OFFICE and thus still to be recorded in
recorded in the HOME OFFICE BOOKS) the HOME OFFICE BOOKS

HOME OFFICE BRANCH

HOME OFFICE BOOKS: BRANCH BOOKS:
Equipment No entry is required.
Cash
 TRANSFER TO/FROM HOME OFFICE
AND BRANCH
EXAMPLE 2A: (E) Actual transfer of *Branch purchased Equipment for mere right to
ownership of assets FROM BRANCH use, property belongs to the HOME OFFICE and
TO HOME OFFICE (e.g. to be thus to be recorded in the HOME OFFICE BOOKS
recorded in the HOME OFFICE
BOOKS) HOME OFFICE BRANCH
HOME OFFICE BOOKS: BRANCH BOOKS:
Equipment - # Branch Home Office Current
Branch Current Cash
 TRANSFER TO/FROM HOME OFFICE
AND BRANCH
EXAMPLE 2B: NO Actual transfer of *Branch purchased and owned the
ownership of assets FROM BRANCH Equipment, property belongs to the BRANCH and
TO HOME OFFICE (e.g. still to be thus to be recorded in the BRANCH BOOKS
recorded in the BRANCH BOOKS)
HOME OFFICE BRANCH
HOME OFFICE BOOKS: BRANCH BOOKS:
No entry is required. Equipment
Cash
 RETURNS OF MERCHANDISE BY
BRANCH TO HOME OFFICE
• Example: (T*) Shipment Returns >>> Decrease investment/ equity
HOME OFFICE BOOKS (under periodic system):
Shipment to branch (@ cost) XX
Branch Current XX
BRANCH BOOKS (under periodic system):
Home Office Current XX
Shipment from home office XX
 REMITTANCES BY BRANCH TO
HOME OFFICE
• Example: (R) Remittance >>> Decrease investment/ equity

HOME OFFICE BOOKS:

Cash XX
Branch Current XX
BRANCH BOOKS:
Home Office Current XX
Cash XX
 BRANCH CHARGES SUBMITTED BY
HOME OFFICE
• Example: (H) Adjusting Entry - Depreciation charge to branch

HOME OFFICE BOOKS:

Branch Current XX
Accumulated Depreciation – Equipment - # Branch XX
BRANCH BOOKS:
Depreciation expense XX
Home Office Current XX
 TRANSACTIONS OF BRANCH WITH
OUTSIDERS
• Example 1: Purchased merchandise from outside suppliers for cash.
• Example 2: Sold merchandise for cash.
• Example 3: Paid expenses: Salaries, Utilities, Rent, and Miscellaneous Expenses.
HOME OFFICE BOOKS:
No entry is required.
BRANCH BOOKS:
(1) Purchases XX
Cash XX
(2) Cash XX
Sales XX
(3) Salaries expense XX
Utilities expense XX
Rent expense XX
Miscellaneous expense XX
Cash XX
 ADJUSTMENTS OF BRANCH
OUTSIDERS
• Example: Salaries payable at year-end
HOME OFFICE BOOKS:
No entry is required.
BRANCH BOOKS:
Salaries expense XX
Cash XX
 DETERMINATION OF HOME OFFICE NET
INCOME OR LOSS AND OF BRANCH
NET INCOME OR LOSS
• Example: Closing entries (I/P) or (L) Branch Income Summary
HOME OFFICE BOOKS:
Branch Current XX
Branch Income Summary XX
Branch Income Summary XX
Income Summary XX
BRANCH BOOKS:
Sales XX
Merchandise Inventory, Dec 31 XX
Purchases XX
Shipments from home office XX
Expenses XX
Income Summary XX
Income Summary XX
Home Office Current XX
 PREPARATION OF COMBINED
STATEMENTS FOR HOME OFFICE AND
BRANCHES
• In combining branch data with home office data, the elimination of certain
reciprocal interoffice items is necessary:
• 1. In preparing a combined balance sheet, the home office account and the
branch account are eliminated, since these accounts are without significance
when the related units are recognized as a single entity.
• 2. In preparing a combined income statement, their accounts Shipments from
Home Office and Shipments to Branch are eliminated, since these balances
summarize interoffice transfers that are not significant when the related units are
reported as a single entity.
• 3. Other interoffice revenues and expense items are also eliminated so that the
combined statement may report only the results of transactions with outsiders.
 PREPARATION OF COMBINED
STATEMENTS FOR HOME OFFICE AND
BRANCHES
• Example of elimination entries in the working papers/ worksheets:
Shipments to branch XX
Shipments from home office XX

Home Office Current XX

Branch Current XX
 RECONCILIATION OF RECIPROCAL
ACCOUNTS
• Theoretically, the balances of the reciprocal accounts, i.e. the Branch
Current account (Investment in Branch) and the Home Office Current
account, should always be equal.
• The data to be considered in reconciling the two accounts may be classified
as follows:
• 1. Debits in the branch account without corresponding credits in the home
office account.
• 2. Credits in the branch account without corresponding debits in the home
office account.
• 3. Debits in the home office account without corresponding credits in the
branch account.
• 4. Credits in the home office account without corresponding debits in the
branch account.
 RECONCILIATION OF RECIPROCAL
ACCOUNTS
• Example 1: Depreciation charge by home office - A debit of 2,000 in the
Branch Current account was erroneously recorded by the branch in the
Home Office Current account as P200
HOME OFFICE BOOKS BRANCH BOOKS
Entry Made: Entry Made:
Branch Current 2,000 Depreciation expense 200
Accumulated Depreciation 2,000 Home Office Current 200

Correct Entry: Correct Entry:

Branch Current 2,000 Depreciation expense 2,000
Accumulated Depreciation 2,000 Home Office Current 2,000

Correcting Entry: Correcting Entry:

No entry is required. Depreciation expense 1,800
Home Office Current 1,800
 RECONCILIATION OF RECIPROCAL
ACCOUNTS
• Example 2: Shipments to branch – A debit of P4,000 in the Branch Current
account without a related credit in the Home Office Current account.

HOME OFFICE BOOKS (periodic system) BRANCH BOOKS (periodic system)

Entry Made: Entry Made:
Branch Current 4,000 No entries were made.
Shipments to branch 4,000

Correct Entry: Correct Entry:

Branch Current 4,000 Shipment from Home Office (in transit) 4,000
Shipments to branch 4,000 Home Office Current 4,000

Correcting Entry: Correcting Entry:

No entry is required. Shipment from Home Office (in transit) 4,000
Home Office Current 4,000
 RECONCILIATION OF RECIPROCAL
ACCOUNTS
• Example 3: Collection of branch trade receivable – A credit of P500 in the
Branch Current account without a related debit in the Home Office Current
account.
HOME OFFICE BOOKS BRANCH BOOKS
Entry Made: Entry Made:
Cash 500 No entries were made.
Branch Current 500

Correct Entry: Correct Entry:

Cash 500 Home Office Current 500
Branch Current 500 Accounts Receivable – trade 500

Correcting Entry: Correcting Entry:

No entry is required. Home Office Current 500
Accounts Receivable – trade 500
 RECONCILIATION OF RECIPROCAL
ACCOUNTS
• Example 4: Acquired Equipment – A debit in the Home Office account
without a related credit in the Branch Current account.

HOME OFFICE BOOKS BRANCH BOOKS

Entry Made: Entry Made:
No entries were made. Home Office Current 1,500
Cash 1,500

Correct Entry: Correct Entry:

Equipment - # Branch 1,500 Home Office Current 1,500
Branch Current 1,500 Cash 1,500

Correcting Entry: Correcting Entry:

Equipment - # Branch 1,500 No entry is required.
Branch Current 1,500
 RECONCILIATION OF RECIPROCAL
ACCOUNTS
• Example 5: Collection of home office trade receivable – A credit of P1,000 in
the Home Office ledger account with a related debit in the Branch Current
account.
HOME OFFICE BOOKS BRANCH BOOKS
Entry Made: Entry Made:
No entries were made. Cash 1,000
Home Office Current 1,000

Correct Entry: Correct Entry:

Branch Current 1,000 Cash 1,000
Accounts Receivable – trade 1,000 Home Office Current 1,000

Correcting Entry: Correcting Entry:

Branch Current 1,000 No entry is required.
Accounts Receivable – trade 1,000
 SUMMARY ANALYSIS:
RECONCILIATION OF RECIPROCAL
ACCOUNTS
HOME OFFICE BOOKS:

Branch Current
Beginning Balance P31,250 Cash received from
1 Depreciation charge to branch P10,000
branch 2,000 Collection of branch
2 Shipments to branch 4,000 trade receivable 500 3
Ending Balance P26,750

BRANCH BOOKS:
Home Office Current
Cash sent to home Beginning balance P31,250
office P10,000 Collection of home
4 Acquired equipment 1,500 office trade receivable 1,000 5
Depreciation charged
by home office 200
Ending balance P20,950
 RECONCILIATION OF RECIPROCAL
ACCOUNTS
Home Office Books Branch Books
Branch Current (DR) Home Office Current (CR)
Balances before adjustments P26,750 P20,950
Add: (1) Error made by branch in recording
depreciation 1,800
(2) Merchandise shipped to branch
still in transit 4,000
(5) Home office trade accounts
receivable collected by branch 1,000
Less: (3) Branch trade accounts receivable
collected by home office (500)
(4) Equipment acquired by branch (1,400)
Adjusted balances P26,250 P26,250
 QUICK CHECK
• Accounting for Agency Transactions
• Accounting for Home Office and Branch Transactions
• Home Office and Branch Transactions
• Reconciliation of Reciprocal Accounts
 PROBLEM 1: ACCOUNTING FOR
AGENCY
• The following are transactions in relation to an agency of a home office:
• a. The transfer of P5,000 to an agency to establish a working fund.
• b. Receipt of sales orders from the agency, P50,000.
• c. Collections of agency accounts by the home office, P35,000.
• d. Home office disbursements representing agency expenses, P4,500.
• e. Replenishment of the agency working fund upon receipt of expense vouchers
for P2,250.
• f. Cost of goods sold identified with agency sales, P36,000.

• Required:
• 1. Prepare entries on the home office books to record the above transactions.
• 2. Determine the net income identified with the agency.
 PROBLEM 2: ACCOUNTING FOR HOME
OFFICE AND BRANCH TRANSACTIONS
• On January 1, 2024, the Barton Company opened a new branch in a neighboring
city. A summary of transactions for the home office and the branch for 2024 and the
balance sheet for the home office on January 1 are as follows:
• Home office transactions:
• A. Transfer of cash to branch, P42,500
• B. Transfer of merchandise to branch (billed at cost), P50,200.
• C. Sales on account, P105,000.
• D. Purchases on account, P122,500.
• E. Collections on account, P113,600.
• F. Payments on account, P124,000.
• G. Expenses paid, P26,600.
• H. Cash received from branch, P53,400.
• I. Dividends paid, P10,000
• J. Adjusting data on December 31: depreciation for year, P1,180; merchandise inventory,
P48,500; prepaid expenses, P2,050 and accrued expenses, P1,350.
 PROBLEM 2: ACCOUNTING FOR HOME
OFFICE AND BRANCH TRANSACTIONS
• On January 1, 2024, the Barton Company opened a new branch in a neighboring
city. A summary of transactions for the home office and the branch for 2024 and the
balance sheet for the home office on January 1 are as follows:
• Branch transactions:
• A. Cash received from home office, P42,500.
• B. Merchandise received from home office, P50,200.
• C. Sales on account, P66,000.
• D. Purchases on account, P22,500.
• E. Cash collections on account deposited to the credit of the home office, P53,400.
• F. Payments on account, P12,250.
• G. Purchase of furniture and fixtures for cash, P8,000.
• H. Expenses paid, P18,000
• I. Adjusting data on December 31: depreciation, P650; merchandise inventory, P23,500;
prepaid expenses, P750 and accrued expenses, P300.
 PROBLEM 2: ACCOUNTING FOR HOME
OFFICE AND BRANCH TRANSACTIONS
• A balance sheet on December 31, 2023, showed the following balances:

ASSETS LIABILITIES AND EQUITY

Cash P59,300 Accrued Expenses P1,250
Accounts receivable 27,650 Accounts payable 22,800
Merchandise Inventory 40,120 Common stock, P20 par 50,000
Prepaid expenses 1,800 Retained Earnings 70,420
Furniture and fixtures 20,000
Accumulated depreciation (4,400)

Total Assets P144,470 Total liabilities and equity P144,470

• Required:
• 1. Prepare the journal entries to record the foregoing transactions for (a) the branch and (b) the home office.
• 2. Prepare individual statements for the branch and the home office.
• 3. Prepare combined statements for the branch and the home office.
• 4. Prepare the journal entries to adjust and close the books at the end of the month for (a) the branch and (b)
the home office.
 PROBLEM 3: HOME OFFICE AND
BRANCH TRANSACTIONS
• A balance sheet for the Eagle Co. as of January 1, 2024 is as follows:
ASSETS LIABILITIES AND EQUITY
Cash P15,000 Accrued Expenses P250
Accounts receivable 42,000 Accounts payable 33,750
Allowance for doubtful accounts (1,200) Common stock 50,000
Merchandise Inventory 46,000 Retained Earnings 28,200
Furniture and fixtures 15,000
Accumulated depreciation (4,600)

Total Assets P112,200 Total liabilities and equity P112,200

 PROBLEM 3: HOME OFFICE AND
BRANCH TRANSACTIONS
• On this date a branch sales office is established in Tagaytay. The branch is
sent the following assets by the home office:
• A. Cash, P1,500
• B. Merchandise, cost, P10,200.
• Store furniture and fixtures previously used by the home office – cost, P3,000; age
2 and ½ years; depreciation rate used in the past, 10% a year. The cost of
shipment and installation, P900, is paid by the branch. This cost is to be written off
over the remaining life of the asset. The equipment accounts are to be carried
on the books of the home office.
• Accounts receivable, P2,600. Accounts arose from home office sales to
customers in Miami. The branch is authorized to take over the accounts and
make collections.
 PROBLEM 3: HOME OFFICE AND
BRANCH TRANSACTIONS
• Home office and branch transactions with outsiders during January were:
• Home Office Branch
• Sales on account P34,600 P6,200
• Collections on own accounts 40,000 2,600
• Purchases on account 31,600 3,000
• Payments of expenses (including accruals
• as of January 1 9,200 1,250
 PROBLEM 3: HOME OFFICE AND
BRANCH TRANSACTIONS
• The following took place with respect to accounts received by the branch from the
home office: collections of P1,600 were made; accounts of P150 were uncollectible and
were written off; it is believed that remaining accounts of P850 are collectible.
• Interoffice transactions during January were:
• Merchandise shipments to branch, cost P1,250
• Cash remittance to home office 1,000
• The following information is to be recorded on January 31:
• A. Merchandise costing P600 was shipped by the home office to the branch in 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 P475 (these are included in the P9,200 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, P44,500;
branch P9,800.
• E. Accrued expenses are: home office, P750; branch P350.
 PROBLEM 3: HOME OFFICE AND
BRANCH TRANSACTIONS
• Required:
• 1. Prepare journal entries to record the foregoing transactions for (a) the branch
and (b) the home office.
• 2. Prepare individual statements for the branch and for the home office.
• 3. Prepare combined statements for the branch and the home office.
• 4. Prepare the journal entries to adjust and close the books at the end of the
month for (a) the branch and (b) the home office.
 PROBLEM 4: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• Included in the accounting records of the home office and the only branch,
respectively, of Socrates Company were the following ledger accounts for
June, 2024:
Investment in Plato Branch
Date 2024 Explanation Debit Credit Balance
May 31 Balance 51,000 dr
June 6 Shipment of merchandise 30,500 81,500 dr
June 20 Receipt of cash 11,500 70,000 dr
June 26 Collection of branch trade account receivable 9,000 61,000 dr
May 30 Shipment of merchandise 24,000 85,000 dr
 PROBLEM 4: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• Included in the accounting records of the home office and the only branch,
respectively, of Socrates Company were the following ledger accounts for June, 2024:

Home Office
Date 2024 Explanation Debit Credit Balance
May 31 Balance 51,000 cr
June 8 Receipt of merchandise 30,500 81,500 cr
June 18 Payment of cash 11,500 70,000 cr
June 27 Acquisition of office equipment 14,500 55,500 cr
June 30 Payment of cash 22,000 33,500 cr

• Required:
• 1. Prepare a working paper to reconcile the reciprocal ledger accounts to corrected
balances.
• 2. Prepare journal entries on June 30, 2024, for the (a) home office, and (b) Plato Branch of
Socrates Company. The branch uses the periodic inventory system.
 PROBLEM 5: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• On December 31 the branch account on the home office books of the Ward Co.
shows a balance of P8,400 and the home office account on the branch books
shows a balance of P9,735. The following data are determined in accounting for the
difference:
• A. Merchandise billed at P615 was shipped by the home office to the branch on
December 28. The merchandise is in transit and has not been recognized on the
books of the branch.
• B. The branch collected a home office account receivable of P2,500, but failed to
notify the home office of this collection.
• C. The home office recorded incorrectly the branch net income for November at
P1,125. The branch reported net income of P1,215.
• D. The home office was charged P640 when the branch returned merchandise to
the home office on December 31. The merchandise is in transit.
• Required:
• 1. Prepare a working paper to reconcile the reciprocal ledger accounts to corrected balances.
• 2. Prepare journal entries on December 31, 2024, for the (a) home office, and (b) branch. The
branch uses the periodic inventory system.
 PROBLEM 6: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• The branch account on the home office books of the Sunset Co. and the
home office account on the branch books on January 31, 2024 are as
follows:
Wilshire Branch
2024 Debit 2024 Credit
Jan. 1 Balance P62,815 Jan. 15 Remittance 10,600
Jan. 1 Merchandise shipments: 100 units of Jan. 22 Merchandise 410
Product A @ P37.85 3,785
Jan. 12 Merchandise shipments: 200 units of
Product A @ P37.85; 200 units of
Product B @ P44.95 16,560
Jan. 15 Advertising chargeable to branch 600
Jan. 29 Merchandise shipments 4,400
 PROBLEM 6: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• The branch account on the home office books of the Sunset Co. and the home
office account on the branch books on January 31, 2024 are as follows:

Home Office
2024 Debit 2024 Credit
Jan. 13 Remittance 10,600 Jan. 1 Balance 62,815
Jan. 18 Merchandise returns 410 Jan. 8 Merchandise shipments 3,785
Jan. 22 Understatement of depreciation in Jan. 16 Merchandise shipments 16,650
2023 540 Jan. 20 Collection of home office
Jan. 31 Remittance 16,000 account 750

• Required:
• 1. Prepare a statement reconciling the reciprocal accounts as of January 31, 2024.
• 2. Prepare any necessary entries for the books of the home office as well as for the
branch before combined statements can be prepared.
 PROBLEM 7: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• The branch account on the home office books of Block and Bell, Inc., and
the home office accounts on the branch books on January 31, 2027, are as
follows:
Beverly Hills Branch
2027 Debit 2027 Credit
Jan. 1 Balance 50,615 Jan. 20 Cash received from branch 14,000
Jan. 16 Merchandise shipments 22,600 Jan. 20 Remittance received from the
Jan. 31 Expenses chargeable to branch 215 branch customer in settlement
of branch account 65
Home Office
2027 Debit 2027 Credit
Jan. 10 Uncollectible account written-off 1,200 Jan. 1 Balance 28,415
Jan. 20 Cash remittance to home office 14,000 Jan. 21 Correction for income
understatement for December 310
Jan. 31 Cost of merchandise sold 21,400
Jan. 31 Income for January 1,440
 PROBLEM 7: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• The branch account on the home office books of Block and Bell, Inc., and
the home office accounts on the branch books on January 31, 2027, are as
follows:
Shipments from Home Office
2027 Debit 2027 Credit
Jan. 1 Cost of merchandise sold 21,400 Jan. 1 Balance 22,200
Jan. 31 Shipments returned to home office 14,000 Jan. 16 Shipments from home office 21,200
 PROBLEM 7: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• The following additional data are available in reconciling the accounts:
• A. A P1,400 shipment of goods charged by the home office to the Beverly Hills
branch was actually sent to the Brentwood branch.
• B. The goods returned by the branch are in transit and do not appear on the
home office records.
• C. The branch failed to recognize expenses incurred by the home office and
chargeable against income.
• D. The allowance for doubtful account on branch receivables is maintained by
the home office.
• Required:
• 1. Prepare a statement reconciling the reciprocal accounts as of January 31, 2027.
• 2. Prepare any necessary entries to correct and bring the accounts up to date on (a) the
books of the branch and (b) the books of the home office.
 PROBLEM 8: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• Comparison between the interoffice account of the Wash Wholesale Company with
its suburban branch and the corresponding account carried on the latter’s books
shows the following discrepancies at the close of business on September 30, 2022:
• A. A debit of P870 (Office Furniture) on the home office books is recorded by the branch
as P780.
• B. A credit for P300 (Merchandise Allowances) by the home office is recorded by the
branch as P350.
• C. The home office charges the branch P325 for interest on open account, which the
branch fails to take up in full; instead, the branch sends to the home office an incorrect
adjusting memo, reducing the charge by P75, and sets up a liability for the net amount.
• D. A labor charge by the home office, P433, is recorded twice by the branch.
• E. A charge of P785 for freight on merchandise is made by the home office, but the
amount is recorded by the branch as P78.50.
• F. The branch incorrectly sends the home office a debit note for P293, representing its
proportion of a bill for truck repairs; the home office does not record it.
 PROBLEM 8: RECONCILIATION OF
RECIPROCAL ACCOUNTS
• Comparison between the interoffice account of the Wash Wholesale Company with
its suburban branch and the corresponding account carried on the latter’s books
shows the following discrepancies at the close of business on September 30, 2022:
• G. The home office receives P475 from the sale of a truck, which it erroneously credits to
the branch; the branch does not charge the home office therewith.
• H. The branch accidentally receives a copy of the home office entry dated October 10,
2022, correcting item (g), and records a credit in favor of the home office as of September
30, 2022.

• The balance of the branch account on the home office books shows P131,690 receivable
from the branch at September 30, 2022. The interoffice accounts were in balance at the
beginning of the year.
• Required:
• 1. Determine the balance of the home office account on the branch books before
adjustment.
• 2. Determine the correct amount of the interoffice balance.
• 3. Reconcile the amount of P131,690 on the home office books with the adjusted balance of
the reciprocal accounts.
• 4. Prepare the journal entry or entries necessary to adjust the branch books.
HOME OFFICE AND
BRANCH ACCOUNTING
Special Procedures
 SPECIAL PROCEDURES
• 1. Merchandise shipments to the branch at amounts other than cost such as:
• A. Billing at a price in excess of cost, at billed price (original or home office cost
plus mark-up based on cost), and
• B. At the branch’s retail selling price (mark-up based on billed price).
• 2. Interbranch transfers of cash; and
• 3. Interbranch transfers of merchandise.
 BILLING AT A PRICE IN EXCESS OR
COST/ AT BILLED PRICE (ORIGINAL
COST PLUS MARK-UP BASED ON COST)
• Billing by the home office may be made at some arbitrary rate above cost in
order to withhold from branch officials complete information concerning the
actual earnings from branch operations.
• When billings to the branch exceed cost, the profit determined by the
branch will be less than actual profit; the inventories reported by the branch
at the billed figures will exceed the cost.
 ACCOUNTING FOR BILLING AT A PRICE IN EXCESS
OF COST/ AT BILLED PRICE (ORIGINAL COST PLUS
MARK-UP BASED ON COST)
• Example 1: Received merchandise shipments from home office at billed
price
HOME OFFICE BOOKS:
Branch Current (at billed price) XXX
Allowance for overvaluation of branch inventory (mark-up) XXX
Shipments to branch (at cost) XXX
BRANCH BOOKS:
Shipments from home office (at billed price) XXX
Home Office Current (at billed price) XXX
 ACCOUNTING FOR BILLING AT A PRICE IN EXCESS
OF COST/ AT BILLED PRICE (ORIGINAL COST PLUS
MARK-UP BASED ON COST)
• Example 2: Returned merchandise acquired (@ billed price)from home
office
HOME OFFICE BOOKS:
Allowance for overvaluation of branch inventory (mark-up) XXX
Shipments to branch (at cost) XXX
Branch Current (at billed price) XXX
BRANCH BOOKS:
Home Office Current (at billed price) XXX
Shipments from home office (at billed price) XXX
 ACCOUNTING FOR BILLING AT A PRICE IN EXCESS
OF COST/ AT BILLED PRICE (ORIGINAL COST PLUS
MARK-UP BASED ON COST)
• Additional Closing Entry: Realized mark-up on merchandise sold by branch

HOME OFFICE BOOKS:

Allowance for overvaluation of branch inventory XXX
Branch Income Summary XXX
BRANCH BOOKS:
No entry
 ACCOUNTING FOR BILLING AT A PRICE IN EXCESS
OF COST/ AT BILLED PRICE (ORIGINAL COST PLUS
MARK-UP BASED ON COST)
Balance of Allowance for Overvaluation of Branch Inventory account
before adjustment of realized profit (unrealized profit)
Beginning balance of allowance
Add: [Shipments to Branch less returns X (Mark-up on
XXX
cost percentage)
Less: Overvaluation of branch ending inventory
Ending inventory at Branch Books, acquired from Home
Office X (Mark-up on cost/ 1+Mark-up on cost) (XXX)

Realized profit on sales made by branch/ Overvaluation of Cost of

Goods Sold (adjustment to reflect true branch net income) XXX
 ACCOUNTING FOR BILLING AT A PRICE IN EXCESS
OF COST/ AT BILLED PRICE (ORIGINAL COST PLUS
MARK-UP BASED ON COST)
Balance of Allowance for Overvaluation of Branch Inventory account
before adjustment of realized profit (unrealized profit)
Beginning balance of allowance
Add: [Shipments from Home Office less returns, at billed
XXX
price X (Mark-up on cost/ 1+Mark-up on cost)]
Less: Overvaluation of branch ending inventory
Ending inventory at Branch Books, acquired from Home
Office X (Mark-up on cost/ 1+Mark-up on cost) (XXX)

Realized profit on sales made by branch/ Overvaluation of Cost of

Goods Sold (adjustment to reflect true branch net income) XXX
 ACCOUNTING FOR BILLING AT A PRICE IN EXCESS
OF COST/ AT BILLED PRICE (ORIGINAL COST PLUS
MARK-UP BASED ON COST)
Current Mark-up on cost = (Shipments from Home Office - Shipments to Branch)
Shipments to Branch

Previous Mark-up = [Allowance for Overvaluation, (beginning) or unadjusted

excluding overvaluation from current shipments ]
[Merchandise Inventory, beginning (@ billed price) LESS Allowance for
Overvaluation, (beginning) or unadjusted excluding overvaluation from current
shipments ]
 ACCOUNTING FOR BILLING AT A PRICE IN EXCESS
OF COST/ AT BILLED PRICE (ORIGINAL COST PLUS
MARK-UP BASED ON COST)

Allowance for Overvaluation of Branch Inventory

Realized mark-up on Beginning balance
merchandise sold by branch Mark-up on net shipments to
branch
Ending balance (Normal credit
balance)
 COMBINED STATEMENTS WHEN
GOODS ARE BILLED AT AMOUNTS
OTHER THAN COST
• Billing at a Price in Excess of Cost, at Billed (Original Cost plus Mark-up based
on Cost
• 1. Reciprocal home office and branch account balances are eliminated and
balance sheet data are then combined. Reciprocal interoffice revenue and
expense balances are eliminated and income statement data are combined.
• 2. The beginning and ending inventory on the branch balance sheet reported at
an amount other than cost must be restated in terms of cost in preparing the
combined balance sheet.
• 3. The entries that appear in the working paper as elimination entries do not
appear on the books of the home office and branch books. They are entries only
to prepare the combined financial statements for external purposes.
 WORKSHEET ELIMINATION ENTRIES
• The reciprocal accounts Home Office Current and Branch Current account
are cancelled by the following elimination entry:
Home Office Current XXX
Branch Current XXX
 WORKSHEET ELIMINATION ENTRIES
• Account balances resulting from the transfer of merchandise between
offices are cancelled by the following elimination entry:
Shipments to branch, at cost XXX
Allowance for overvaluation of branch inventory XXX
Shipments from home office, at billed price XXX
 WORKSHEET ELIMINATION ENTRIES
• The ending inventory, which is carried at billed price in the balance sheet
and in the income statement, is reduced by its mark-up to bring it to its
actual cost by the following elimination entry:
Branch Income Summary XXX
Merchandise Inventory, December 31 XXX
 WORKSHEET ELIMINATION ENTRIES
• The amount of realized profit from sales in beginning inventory to reduce it to
cost by the following elimination entry:

Allowance for overvaluation of branch inventory XXX

Merchandise Inventory, Jan. 1/ Branch Income Summary XXX
 BILLING AT RETAIL SALES PRICE (MARK-
UP BASED ON BILLED PRICE)
• The home office may bill a branch for merchandise at its retail price not only
to conceal information concerning branch earnings from branch officials,
but also to provide a more effective control over merchandise handled by
the branch.
• The home office, when informed of branch sales currently, is provided with a
continuous record of the goods in the hands of the branch.
• Inventory (@ retail price) = Branch Net Sales – Branch Cost of Goods Available for
Sale
• If the branch is billed for goods at the sales price, the branch cost of goods sold
will be equal to sales, and branch activities will show a loss from operations equal
to the expenses of operation.
• Branch Sales = Branch Cost of Goods Sold
 BILLING AT RETAIL SALES PRICE (MARK-
UP BASED ON BILLED PRICE)
• The home office may bill a branch for merchandise at its retail price not only
to conceal information concerning branch earnings from branch officials,
but also to provide a more effective control over merchandise handled by
the branch.
• Branch statements may be prepared and submitted to home office.
• In accounting for shipments that are billed at sales price, the home office may
follow a procedure that is similar to that employed for shipments at an arbitrary
rate above cost.
• Upon shipping goods to a branch, the unrealized intercompany inventory
account is credited for the difference between the cost and the billed price.
 TRANSACTIONS BETWEEN
BRANCHES
• Efficient operations may occasionally require that merchandise or other
assets be transferred from one branch to another.
• A branch does not carry a reciprocal ledger account with another branch
but records the transfer in the Home Office ledger account.
• Inter-branch transfers of cash
• Inter-branch transfers of merchandise
• Freight cost on shipments
 TRANSACTIONS BETWEEN
BRANCHES
• Inter-branch Transfers of Cash
• On certain circumstances, the home office may authorize the transfer of certain
assets from one branch to another.
• Instead of opening special accounts with member branches, branches will clear
such transfers through the home office account.
 TRANSACTIONS BETWEEN
BRANCHES
• Example 1: Inter-branch Transfers of Cash – Assume that upon authorization
by the home office, Branch #1 sends cash to Branch #2. The entries to
record this transfer on the home office and branch books are:
HOME OFFICE BOOKS
Branch Current #2 XXX
Branch Current #1 XXX
BRANCH #1 BOOKS
Home Office Current (decreased) XXX
Cash (decreased) XXX
BRANCH #2 BOOKS
Cash (increased) XXX
Home Office Current (increased) XXX
 TRANSACTIONS BETWEEN
BRANCHES
• Inter-branch Transfers of Merchandise
• When merchandise is supplied by the home office to its branches, it may
become necessary in certain instances for the home office to authorize the
transfer of goods from one branch to another.
• Inter-branch transfers of merchandise, like inter-branch transfers of cash, are
normally cleared through the Home Office Current account rather than through
special accounts with member branches.
 TRANSACTIONS BETWEEN
BRANCHES
• Freight Cost on Shipments
• The cost of shipping merchandise to its final sale location can be significant
element of the cost of merchandise inventoried and sold. Accordingly, freight
costs on merchandise shipped between home office and branch locations
should be included in branch inventory and cost of goods sold measurements.
• The transfer of merchandise from one branch to another does not justify increasing the
carrying amount of inventories by the freight costs incurred because of indirect
routing.
• The amount of freight costs properly included in inventories of a branch is limited to
the cost of shipping merchandise directly from the home office to its present location.
• Excess freight costs are recognized as expenses of the home office.
 TRANSACTIONS BETWEEN
BRANCHES
• Example 2: Inter-branch transfers of merchandise – Home Office ships goods
to Branch #3, billing the branch for the goods plus freight charges incurred.
At a subsequent date, the home office authorizes the transfer of these goods
to Branch #4. Branch #3 pays the freight charge on the transfer. If the
shipment had been made by the home office directly to Branch #4, the
freight charge would have been PXXX.
 INTER-BRANCH TRANSFERS OF
MERCHANDISE
HOME OFFICE BOOKS
Branch Current #3 XXX
Shipments to Branch #3 XXX
Cash (Freight paid by HO) XXX
BRANCH #3 BOOKS
Shipments from Home Office XXX
Freight-in (Freight paid by HO: HO to B#3) XXX
Home Office Current XXX
BRANCH #4 BOOKS
No entry
 INTER-BRANCH TRANSFERS OF
MERCHANDISE
HOME OFFICE BOOKS
Branch Current #4 XXX
Excess freight (Total freight – Assumed freight from HO to B#4) XXX
Branch Current #3 (Balance + Addl. Freight paid by B#3) XXX
Shipments to Branch #3 XXX
Shipments to Branch #4 XXX
BRANCH #3 BOOKS
Home Office Current XXX
Shipment from Home Office XXX
Freight-in (HO to B#3) XXX
Cash (Addl. Freight-paid by B#3: From B#3 to B#4) XXX
BRANCH #4 BOOKS
Shipments from Home Office XXX
Freight-in (Assumed freight from HO to B#4) XXX
Home Office Current XXX
 PROBLEM 1 – SPECIAL PROCEDURES
WITH UNREALIZED INTERCOMPANY
INVENTORY PROFIT/ DEFERRED PROFIT
• Home 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 the other
suppliers is accounted for by the branch at original cost. At September 30, 2024,
the records of the branch indicated the following:
September Sales P140,000
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 (P8,000 from outside suppliers)
*Merchandise acquired from the home office is inventoried at billed prices.
 PROBLEM 1 – SPECIAL PROCEDURES
WITH UNREALIZED INTERCOMPANY
INVENTORY PROFIT/ DEFERRED PROFIT
• 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, 2024 to
adjust the home office records for the branch operations for September.
 PROBLEM 2 – JOURNAL ENTRIES ON
ALLOWANCE FOR OVERVALUATION
OF BRANCH INVENTORY
• On December 1, Walter Co. opened a Newark branch, to which merchandise
billed at P30,000 was shipped. During the month additional shipments were
made at billed prices of P12,000. During December the branch returned
merchandise that was defective and received credits of P750 on the returns. At
the end of the month the branch records its inventory at P18,500, which is from
the following sources:

Merchandise acquired from home office at billed price P16,500

Merchandise acquired from outsiders 2,000
Total inventory 18,500

• A branch loss for December is calculated at P2,600.

 PROBLEM 2 – JOURNAL ENTRIES ON
ALLOWANCE FOR OVERVALUATION
OF BRANCH INVENTORY
• The home office has followed the practice of billing the branch at 20% above
merchandise cost. Further, the home office has recorded branch merchandise
shipments and returns in its regular sales and sales returns accounts at this billed
price.
• Required:
• 1. Prepare the journal entries on the books of the home office at the end of
December to recognize:
• A. The results of branch operations and
• B. To correct and bring its books up to date.
• 2. Determine the branch net income in so far as home office is concerned.
 PROBLEM 3 – SPECIAL PROCEDURES: JOURNAL
ENTRIES ON ALLOWANCE FOR OVERVALUATION
OF BRANCH INVENTORY
• The Marsh Co. bills its branch for merchandise at 135% of cost. On December
31the balance in the unrealized profit account is to be calculated from the
following information reported by the branch:
Merchandise from Merchandise
Home Office purchased from
(at billed price) Outsiders Merchandise
Merchandise inventory, Dec. 1 P16,200 P 4,000 P20,200
Merchandise inventory, Dec. 1-31 20,250 12,000 32,250
Merchandise inventory, Dec. 31 18,900 5,000 23,900
 PROBLEM 3 – SPECIAL PROCEDURES: JOURNAL
ENTRIES ON ALLOWANCE FOR OVERVALUATION
OF BRANCH INVENTORY
• Required:
• 1. What is the balance of the unrealized profit account on the home office book
before any adjustment is made for branch sales for December?
• 2. What entry us required on the home office books to adjust the unrealized profit
account at the end of December?
• 3. Assuming that the branch had returned to the home office merchandise
originally acquired at a billed price of P540, what entries would be made on the
branch and home office books to record this return?
 PROBLEM 4 – OVERVALUATION OF COST OF
GOODS SOLD OR REALIZED PROFIT FROM SALES
MADE BY THE BRANCH
• Trial balances for the home office and the branch of Ace Company show the
following items, before adjustment, on December 31. Differences in the
shipments account balances result from the home office policy of billing the
branch for merchandise at 20% above cost.
Home Office books Branch books

Unrealized intercompany inventory profit P3,600

Shipments to branch 8,000
Purchases (outsiders) P2,500
Shipments from home office 9,600
Merchandise inventory, December 1 15,000
 PROBLEM 4 – OVERVALUATION OF COST OF
GOODS SOLD OR REALIZED PROFIT FROM SALES
MADE BY THE BRANCH
• Required:
• 1. What part of the branch inventory as of December 1 represented purchases from
outsiders and what part represented goods acquired from the home office?
• 2. Assuming that the branch ending inventory is P10,000, composed of merchandise
from home office at billed price, P8,400, and merchandise from outsiders at cost,
P1,600, what entry is necessary on the home office books to adjust the unrealized
profit account at the end of the fiscal period?
 PROBLEM 5 – ADJUSTMENTS, CLOSING,
WORKSHEET, SEPARATE AND COMBINED
STATEMENTS
• On December 31, 2024, the end of a monthly period, the following trial balances
were prepared for the Spencer Co. and its branch (see next slide). Merchandise was
billed to the branch at 120% of cost.
• The following data are available on December 31:
• Merchandise inventories: home office, cost P24,200; branch P14,600, composed of
merchandise purchased from outsiders (at cost), P2,900.
• Store supplies on hand: home office, P380, branch, P300.
• Prepaid expenses (credit Miscellaneous General Expense): home office, P350; branch
P120.
• Accrued expenses (debit Miscellaneous General Expense): home office, P260; branch
P105.
• Depreciation of furniture and fixtures is recorded at 1% a month.
• A cash remittance of P1,500 had been recorded on the branch books, but the cash had
not yet been received by the home office and no entry has been made.
• The home office had charged the branch with the following expenses that have not yet
been recorded by the branch: taxes and insurance, P220.
 PROBLEM 5 – ADJUSTMENTS, CLOSING,
WORKSHEET, SEPARATE AND COMBINED
STATEMENTS Home Office Branch
Cash P10,350 P2,650
Accounts Receivable 26,200 12,850
Merchandise Inventory – December 1 31,500 14,400
Furniture and Fixtures 8,500 3,600
Accumulated Depreciation – Furniture and Fixtures 2,500 540
Unrealized Intercompany Inventory Profit 3,700
Store Supplies 940 580
Branch 33,760
Account Payable 35,400 4,200
Home Office 32,040
Capital Stock 65,000
Retained Earnings 6,850
Sales 44,850 20,000
Shipment to Branch 8,500
Purchases 27,600 4,100
Shipments from Home Office 10,200
Advertising Expense 2,850 2,800
Salaries and Commission Expense 4,250 2,350
Miscellaneous Selling Expense 1,850 1,050
Rent Expense 2,700 1,500
Miscellaneous General Expense (includes taxes and insurance 2,600 700
P159,950 P159,950 P56,780 P56,780
 PROBLEM 5 – ADJUSTMENTS, CLOSING,
WORKSHEET, SEPARATE AND COMBINED
STATEMENTS
• Required:
• 1. Prepare individual statements for the branch and the home office for December,
2024.
• 2. Prepare a worksheet for combined statements.
• 3. Prepare combined statements for the branch and the home office.
• 4. Prepare the entries to adjust and close the books of (a) the branch and (b) the
home office.
 PROBLEM 6 – RECONCILIATION AND
COMBINED INCOME STATEMENT
• You are engaged to audit the records of the Western Import Company,
which has not previously been audited.
• The following additional information is to be considered:
• A. The branch receives all of its merchandise from home office. The home office
bills goods to the branch at 125% of cost. During 2024 the branch was billed for
P105,000 on shipments from the home office.
• B. The home office credits Sales for the invoice price of goods shipped to the
branch.
• C. On January 1, 2024, the inventory of the home office was P25,000. The branch
books showed a P6,000 inventory.
• D. On December 30, 2024, the home office billed the branch for P12,000,
representing the branch’s share of expenses paid at the home office. The
branch has not yet recorded this billing.
 PROBLEM 6 – RECONCILIATION AND
COMBINED INCOME STATEMENT
• The following additional information is to be considered:
• E. All cash collections made by the branch are deposited in a local bank to the
account of the home office. Deposits of this nature included the following:
Amount Date Deposited by Branch Date Recorded by Home Office
P5,000 December 28, 2024 December 30, 2024
3,000 December 29, 2024 January 2, 2025
7,000 December 30, 2024 January 3, 2025
2,000 January 2, 2025 January 5, 2025
• F. Expenses incurred locally by the branch are paid from an imprest bank
account that is reimbursed periodically by the home office. Just prior to the end
of the year, the home office forwarded a reimbursed check in the amount of
P3,000, which was not received by the branch office until January, 2025.
 PROBLEM 6 – RECONCILIATION AND
COMBINED INCOME STATEMENT
• The trial balance at December 31, 2024 as follows:
Debits Home Office Branch
Cash P15,000 P2,000
Accounts Receivable 20,000 17,000
Inventory – December 31, 2024 30,000 8,000
Plant Assets (net) 150,000
Branch 44,000
Cost of Goods Sold 220,000 93,000
Expenses 70,000 41,000
Total P549,000 P161,000

Credits
Accounts Payable P23,000
Mortgage 50,000
Capital Stock 100,000
Retained Earnings – January 1, 2024 26,000
Sales 350,000 P150,000
Accrued Expense 2,000
Home Office 9,000
Total P549,000 P161,000
 PROBLEM 6 – RECONCILIATION AND
COMBINED INCOME STATEMENT
• Required:
• 1. Prepare a reconciliation of the branch accounts and the home office
account, showing the corrected book balances.
• 2. Prepare a worksheet for combined statements.
• 3. Prepare combined income statement.
 PROBLEM 7 – COMBINED INCOME
STATEMENT
• Operating data for Paxton Co. of Manila and its Pampanga branch for 2025 follow:

Manila Office Pampanga Office

Sales P1,060,000 P315,000
Inventory, January 1 (at cost) 115,000
(at billed price) 44,500
Purchases 820,000
Shipments to Pampanga branch (at cost) 210,000
Shipments from Manila office (at billed price) 252,000
Inventory, December 31 (at cost) 142,500
(at billed price) 58,500
Operating expenses 382,000 101,500
• Records show that the Pampanga branch was billed for merchandise shipments as follows:
• In 2024, cost + 25%
• In 2025, cost + 20%
 PROBLEM 7 – COMBINED INCOME
STATEMENT
• Required:
• 1. Prepare income statements for the branch and for the home office for the year
ended December 31, 2025.
• 2. Prepare a combined income statement.
 PROBLEM 8 – SEPARATE AND
COMBINED INCOME STATEMENT
• The Ruggles Co. operates a branch in Cleveland, Operating data for the home
office and the branch for 2024 follow: Home Office Branch
Sales P256,000 P78,500
Purchases from outsiders 210,000 20,000
Shipments to branch
Cost to home office 30,000
Billing price to branch 40,000
Expenses 60,000 12,500
Inventories, January 1, 2024
Home Office, acquired from outsiders, at cost 80,000
Branch: 7,500
Acquired from outsiders, at cost
Acquired from home office, at billed price,
which averaged 22 ½% above cost 24,500
Inventories, December 31, 2014:
Home office, acquired from outsiders, at cost 55,000
Branch:
Acquired from outsiders, at cost 5,500
Acquired from home office, at 2024 billed price 26,000
 PROBLEM 8 – SEPARATE AND
COMBINED INCOME STATEMENT
• Required:
• 1. Prepare income statements for the branch and for the home office for the year
ended December 31, 2024.
• 2. Prepare a combined income statement.
 PROBLEM 9 – RECONCILIATION,
SEPARATE AND COMBINED INCOME
STATEMENT
• The trial balances of the home office and the branch office if the Allen
Company appears as follows:
Debits Home Branch
Cash P17,000 P200
Inventory – Home Office 23,000 11,550
Inventory – Branch 48,450
Sundry Assets 200,000
Branch Current 60,000
Purchases 190,000
Shipments from Home Office 105,000
Freight in from Home Office 5,500
Sundry Expenses 42,000 24,300
Total P532,000 P195,000
Credits
Sundry Liabilities P35,000 P3,500
Home Office Current 51,500
Sales 155,000 140,000
Shipments to Branch 110,000
Unrealized intercompany inventory profit 1,000
Retained Earnings 200,000
Capital Stock 31,000
Total P532,000 P195,000
 PROBLEM 9 – RECONCILIATION,
SEPARATE AND COMBINED INCOME
STATEMENT
• The audit at December 31, 2024, disclosed the following:
• 1. The branch office deposits all cash receipts in a local bank for the account of the
home office. The audit working papers for the cash cutoff revealed:

Amount Date Deposited by Branch Date Recorded by Home Office

P1,050 December 27, 2024 December 30, 2024
1,100 December 29, 2024 January 2, 2025
600 December 30, 2024 January 3, 2025
300 January 2, 2025 January 6, 2025
• 2. The branch office pays locally incurred expenses from an imprest bank account
that is maintained with a balance of P2,000. Check are drawn once a week on this
imprest account and the home office is notified of the amount needed to replenish
the account. At December 30 a P1,800 reimbursement checks was mailed to the
branch office.
 PROBLEM 9 – RECONCILIATION,
SEPARATE AND COMBINED INCOME
STATEMENT
• The audit at December 31, 2024, disclosed the following:
• 3. The branch office receives all of its goods from the home office. The home
office bills the goods at cost plus a markup of 10% of cost. On December 31 a
shipment with a billing value of P5,000 was in transit to the branch. Freight costs
are typically 5% of billed values. Freight costs are considered to be inventoriable
costs.
• 4. The trial balance beginning inventories are shown at their respective costs to
the home office and to the branch office. The inventories on December 31,
excluding the shipment in transit, are:
Home Office, at cost P30,000
Branch Office, at billing value 10,400
 PROBLEM 9 – RECONCILIATION,
SEPARATE AND COMBINED INCOME
STATEMENT
• Required:
• 1. Prepare a reconciliation of the branch accounts and the home office account,
showing the corrected book balance.
• 2. Prepare income statements for the branch and for the home office
 PROBLEM 10 – BRANCH
INVENTORY FIRE LOSS
• The Berkeley branch of the Bruin Co. is billed for merchandise by the home office
at 20% above cost. The branch in turn prices merchandise for sales purposes at
25% above billed price. On January 17 all of the branch merchandise is
destroyed by fire. No insurance was maintained. Branch accounts show the
following information.
Merchandise inventory, Jan. 1 (at billed price) P26,400
Shipments from home office (Jan. 1-17) 20,000
Sales 15,000
Sales returns 2,000
Sales allowances 1,000

• Required:
• 1. What was the cost of the merchandise destroyed?
• 2. Prepare the entries on both the branch books and the home office books to record
the loss (assume perpetual inventory records).
 PROBLEM 11 – INTER-BRANCH TRANSFER OF
MERCHANDISE (AT COST)
• The McCall Company maintains branches that market the products that it
produces. Merchandise is billed the branches of manufacturing costs, with the
branches paying 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 P1,600 and had paid freight charges of P350 on the shipment
from the home office. Branch No. 5 upon receiving the merchandise, pays
freight charges of P250 on the shipment from Branch No. 1. If the shipment had
been made from the home office directly to Branch No. 5, the freight cost to
Branch No. 5 would have been P400.
• Required: How should the merchandise transfers best recorded on the books of:
• 1. Branch No. 1
• 2. Branch No. 5
• 3. The Home Office