HOME OFFICE AND BRANCH ACCOUNTING H101

REGULAR TRANSACTIONS AND RECONCILIATIONS

I. The financial statements of Poseidon Corporation at the beginning of the year are as follows:
Home Office
STATEMENT OF FINANCIAL POSITION
Cash P 200,000 Liabilities
Account receivable 150,000 Accounts payable P 160,000
Inventory 120,000 Bonds payable 210,000
Equipment, net 550,000 Shareholders’ equity
Machinery, net 230,000 Share Capital 400,000
Building, net 280,000 Retained earnings 760,000
TOTAL ASSETS P 1,530,000 P 1,530,000

Additional information:
Poseidon Company, located in Olympus, opened a branch in Percy City on January 1, 2024. The transactions
of the branch and home office are summarized as follows:
a. The branch received cash from the Home Office in the amount of P98,000.
b. The home office sent P400,000 worth of merchandise to the branch. However, after inspection, P50,000
of merchandise was found defective and returned to the home office.
c. The home office collected P30,000 from branch customers and notified the branch in a timely manner.
d. The home office’s customers remitted P12,000 to the branch.
e. During the year, the following fixed assets were purchased:
i. The home office acquired P200,000 worth of equipment but will be used and recorded by
the branch.
ii. P300,000 worth of machinery was acquired by the branch for its operations, but to be
recorded by the home office.
iii. P400,000 of machinery was acquired and recorded by the home office, but it is to be used by
the branch.
f. Meralco billed the home office for the power charges incurred by the branch. The home office paid
P10,000 to Meralco.
g. Advertising expenses paid by the home office amounted to P250,000. 10% of it was allocated to the
branch.
h. Purchases on account from outsiders made by the home office and branch amounted to P2,000,000 and
P72,000, respectively.
i. Sales for the year(60% on account): Home office – P1,500,000; Branch P500,000
j. Other operating expenses incurred by the home office amounted to P320,000.
k. At the end of the year, P122,000 worth of merchandise was counted at the branch warehouse, while
P750,000 worth of merchandise was found at the home office’s storage.
l. Fixed assets were depreciated by 10% in the year of acquisition and thereafter.

1. Prepare the necessary journal entries for the home office and branch accounting books.
2. Compute for the reciprocal accounts.
3. Prepare separate year–end financial statements for the home office and the branch.
4. Prepare combined financial statements and the eliminating journal entries.

II. On December 31, 2024, the Investment in Branch account on the home office books of the Strygwyr
Company shows a balance of 84,000, and the Home Office account on the branch's books shows a balance of
97,350. The following data are determined in accounting for the difference.

a. Merchandise billed at 6,150 was shipped by the home office to the branch on December 28. The
merchandise is in transit and has not been recognized on the branch books.
b. The branch collected a home office accounts receivable of 25,000 but failed to notify the home office of
this collection.
c. The home office incorrectly recorded the branch's net income at 11,250. The branch reported net
income of 12,150.
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 d. The home office was charged 6,400 when the branch returned merchandise to the home office on
December 31. The merchandise is in transit.

5. What is the reconciled amount of the reciprocal accounts on December 31?

a. 103,500 b. 102,600 c. 78,500 d. 97,350

III. Just before the books are closed on December 31, 2024, the trial balances for the home office and branch
contained the following account balances:

Investment in branch P 38,600

Home office – current 21,320

Information follows:

a. On December 26, the branch remitted 10,400 in cash to the home office that was not received until
January 3.
b. Merchandise that was billed to the branch at 7,280 was in transit at December 31.
c. A cash payment of 400 on an open accounts receivable was received by the home office. The account,
however, was carried on the books of the branch; the home office did not notify the branch of the cash
collection.

6. Compute for the adjusted balance of the reciprocal accounts at December 31, 2024.
a. 29,000 b. 49,000 c. 39,000 d. 28,200

IV. At the end of 2024, the following records were taken from the books of the home office and the branch:

Branch Books
Home Office – current account
2024 2024
December 1 Cash remitted to home office 80,000 January 1 Balance 60,000
December 28 Cash remitted to home office 30,000 December 5 Shipment from HO 120,000
December 28 Mdse returned to home office 12,000 December 28 Expenses from HO 45,200
Balance 103,200

Home office books

Investment in branch
2024 2024
January 1 Balance 60,000 December 3 Cash received from branch 80,000
December 4 Shipments to branch 120,000 28 Collection from customer 18,000
28 Expense allocation 52,400
28 Shipments to branch 24,000
28 Supplies purchased for
branch and shipped
directly to branch 8,000
Balance 166,400
Except for the error by the branch in recording its share of allocated expenses, all differences are timing
differences. Compute the correct balances of the reciprocal accounts.

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V. Binay Company, located in Makati, operates a branch in Taguig City. At the close of business on December
31, 2024, the home office account in the books of the Taguig branch showed a credit balance of 2,784,300.
The interoffice accounts were in agreement at the beginning of the year. For purposes of reconciling the
interoffice accounts, the following facts were ascertained:
a. On December 29, 2024, the branch sent a check for 13,500 to its suppliers. The branch erroneously
recorded the transaction as a remittance to the home office and sent a copy of the debit memo to the
home office. Upon receiving the debit memo on January 4, 2025, the home office recorded this.
b. The home office allocated promotions and insurance expenses totaling 18,000 to the Taguig branch. The
home office inadvertently charged the said expense to the Manila branch. The Taguig branch had not
entered the allocation at year – end.
c. The branch recorded the home office debit memo for 20,700 regarding the transfer of funds twice by
debiting its reciprocal account.
d. A branch customer remitted 15,000 to the home office. The home office recorded this as a cash
collection of its own receivable on December 23, 2024. Upon notification in the same year, the branch
debited the Receivable from the Home Office and credited its reciprocal account.
e. A 105,000 shipment, charged by the home office to the Taguig branch, was actually sent to and retained
by the Mandaluyong branch.
f. The home office failed to take up a 12,000 credit memo from the branch.
g. The home office paid the Branch store insurance premiums of 9,600. The home office debited insurance
expenses and credited cash in its books. The branch recorded the amount of 96,000 as a liability.
h. Inventory costing 39,000 was sent to the branch by the home office on December 12, 2024. The branch
recognized a liability by crediting Accounts Payable upon receiving the inventory.
i. The home office paid a freight charge of 12,600 on merchandise shipped to the branch, which was
recorded in the branch books as 1,260.
j. A branch customer remitted 63,000 to the home office. The home office recorded this cash collection on
December 28, 2024. Upon receiving a credit memo, the branch recorded the transaction twice on
December 30, 2024.
7. The unadjusted balance of the branch-current account as of December 31, 2024 is:
a. 2,970,840 b. 3,075,240 c. 3,051,240 d. 2,962,140

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