Chapter 12

Problem I
(a)Working Fund Agency ..
5,000
Cash .
5,000
(b)Accounts Receivable ..................................... 50,000
Sales-Agency .
50,000
(c)Cash ..................................... 35,000
Accounts Receivable ..
35,000
(d)Expenses-Agency ..
Cash .

4,500

(e)Expenses-Agency ..
Cash .

2,250

(f)Cost of Goods Sold-Agency

Merchandise Shipments-Agency .

36,000

4,500
2,250
36,000

Problem II
(a) Branch Books:
(a) Cash ..
Home Office

42,500

(b) Shipments from Home Office

Home Office ...

50,200

(c) Accounts Receivable .

Sales ..

60,000

(d) Purchases
Accounts Payable

22,500

(e) Home Office ..

Accounts Receivable ..

53,400

(f) Accounts Payable ...

Cash ..

12,250

(g) Furniture & Fixtures

Cash ..

8,000

(h) Expenses ..
Cash ..

18,000

42,500
50,200
60,000
22,500
53,400
12,250
8,000
18,000

(b) Home Office Books:

(a) Branch .
Cash .

42,500

(b) Branch
Shipments to Branch ..

50,200

(c) Accounts Receivable ...

Sales

105,000

(d) Purchases .
Accounts Payable .

122,500

(e) Cash ..
Accounts Receivable

113,600

(f) Accounts Payable .

Cash

124,000

(g) Expenses
Cash

26,600

(h) Cash ..
Branch ...

53,400

(i) Retained Earnings .

Cash ...

10,000

42,500
50,200
105,000
122,500
113,600
124,000
26,600
53,400
10,000

BARTON CO.
Balance Sheet for Branch
December 31, 20x4
Assets

Liabilities

Cash
Accounts Receivable
Merchandise Inv...
Prepaid Expenses
Furnitures & Fixtures .
P 8,000
Less accum. Depr
650
Total Assets

P 4,250
12,600
23,500
750
7,350
P48,450

Accounts Payable P 10,250

Accrued Expenses
300
Home Office .. 37,900

Total Liabilities .P48,450

BARTON CO.
Income Statement for Branch
For Year Ended December 31, 19X6
Sales
Cost of Goods Sold:
Purchases

P66,000
P22,500

Shipments for home office .

Merchandise available for sale
Less merchandise inv, December 31 ..
Cost of Goods Sold ..
Gross Profit .
Expenses
Net loss ...

50,200
P72,700
23,500
49,200
P16,800
18,200
P 1,400

BARTON CO.
Income Statement for Branch
For Year Ended December 31, 20x4
Assets
Cash ..
Accounts Receivable ..
Merchandise Inventory
Prepaid Expenses .
Furniture & Fixtures . P 20,000
Less accum. Depr..
5,580
Branch
Total Assets ...

Liabilities & Stockholders Equity

P 23,200
19,050
48,500
2,050
14,420
37,900
P145,120

Liabilities
Accounts payable P 21,300
Accrued Expenses .
1,350
Stockholders Equity
Capital stock, P20 par P50,000
Retained Earnings .
72,740
Total liabilities and stockholders
equity

P22,650
122,470
P145,120

BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales .......
Cost of goods sold:
Merchandise inventory, January 1 .
Purchases ...
Merchandise available for sale
Less shipments to branch ...
Merchandise available for own sale ..
Less merchandise inventory, December 31 .
Cost of Goods Sold .
Gross Profit
Expenses
Net income from own operations ..
Deduct branch net loss .
Total Income .

P105,000
P 40,120
122,500
P162,620
50,200
P112,420
48,500
63,920
P 41,080
27,630
P 13,450
1,400
P 12,050

BARTON CO.
Income Statement for Home Office
For Year Ended December 31, 20x4
Sales .
Cost of goods sold:
Merchandise inventory, January 1 ..
Purchases
Merchandise available for sale

P171,000
P 40,120
145,000
P185,120

Less merchandise inventory, December 31 ..

Cost of goods sold .
Gross profit ..
Expenses ..
Net Income .

72,000
113,120
P 57,880
45,830
P 12,050

(a) Branch Books:

Expenses .
Accumulated Depreciation F&F.

650

Sales
Merchandise Inventory .
Income summary ..

66,000
23,500

Income Summary
Shipments from Home Office
Purchases
Expenses ..

90,900

Home Office
Income Summary

650

89,500
50,200
22,500
18,200
1,400
1,400

(b) Home Office Books

Expenses .
Accumulated Depreciation F&F.

1,180

Sales
Merchandise Inventory .
Shipments to Branch ..
Income summary ..
Income Summary
Merchandise Inventory
Purchases .
Expenses ..

105,000
48,500
50,200

Branch Income
Branch .

1,400

Income Summary ..
Branch Income

1,400

Income Summary ..
Retained Earnings ..

12,050

Problem III
(a) Branch Books:

1,180

203,700
190,250
40,120
122,500
27,630

1,400
1,400
12,050

Jan.

1
1
1
1-31
1-31
1-31
1-31
1-31
Jan.

1-31
1-31
1-31
1-31

Cash .
Home Office

1,500

Shipments from home office .

Home Office

10,200

Home Office ..
Cash ..

900

Accts. Rec. Home office .

Home Office

2,600

Accts. Rec.-Home Office .

Sales ..

6,200

Cash ..
Accounts Receivable ..

2,600

Purchases .
Accounts Payable

3,000

Accounts Payable .
Cash ..

1,450

Expenses ..
Cash .

1,250

Cash
Accts. Rec.-Home Office ...

1,600

1,500

10,200
900
2,600
6,200
2,600
3,000
1,450
1,250
1,600

Home Office
Accts. Rec.-Home Office .

150

Shipments from Home Office

Home Office .

1,250

Home Office
Cash

1,000

150
1,250
1,000

(b) Home Office Books:

Jan.

1
1
1
1

Branch .. 1,500
Cash
Branch .. 10,200
Shipments to Branch ..

10,200

Store Furniture and Fixtures Branch .. 3,000

Store Furniture and Fixtures ...

3,000

Accumulated Depr. Store F&F .. 750

Accumulated Depr. Store Furniture
And Fixtures, Branch ..

750

1,500

Calculation of depreciation: 2.5years at P300, (10% of

P3,000), or P750
1
1
1-31
1-31
1-31
1-31
1-31

1-31
1-31
1-31

Store Furniture and Fixtures Branch ..

Branch

900
900

Branch 2,600
Accounts Receivable .........

2,600

Accounts Receivable 34,600

Sales ................................

34,600

Cash . 40,000
Accounts Receivable

40,000

Purchases .31,600
Accounts Receivable .

31,600

Accounts Payable 36,200

Cash ...

36,200

Accrued Expenses Payable .

Expenses .
Cash ..

250
8,950

Allowance for Doubtful Accounts ..

Branch ..

150

Branch .
Shipments to Branch

1,250

Cash
Branch .

1,000

9,200
150
1,250
1,000

EAGLE CO.
Balance Sheet
January 31, 20x4
Assets

Liabilities

Cash ............................
Accounts Receivable ..
Accts. Rec.-home office .
Merchandise Inventory
Merchandise in Transit .
Total assets

P 1,100
3,600
850
9,800
600
P37,200

Accounts Payable . P 2,400

Accrued expenses .
400
Home Office 14,050
Total Liabilities . P37,200

EAGLE CO.
Income Statement for Branch

For Month Ended January 31, 20x4

Sales .
Cost of Goods Sold:
Purchases
P 3,000
Shipments from home office .
11,450
Shipments from home office in transit ..........
600
Merchandise Available for Sale ..
P15,050
Less merchandise inv. Dec 31, 19X9 ................P9,800
Merchandise in transit ..
600
10,400
Cost of Goods Sold .
Gross Profit
Expenses
Net Loss .. ..

P 6,200

4,650
P 1,550
2,110
P 560

EAGLE CO.
Balance Sheet for Home Office
January 31, 20x4
Assets
Cash
Accounts Receivable P34,000
Less allowance for doubtful accounts .. 1,050
Merchandise Inventory .
Store furniture and fixtures P12,000
Less accumulated depreciation . 3,950
Store furniture and fixtures-branch P 3,900
Less accumulated depreciation
785
Branch office ...
Total Assets

P 9,100
32,950
44,500
8,050
3,315
14,050
P111,765

Liabilities
Accounts Payable .. P29,150
Accrued Expenses ..
750
Total Liabilities ..

P29,900

Stockholders Equity
Capital Stock P50,000
Retained earnings .. 31,865
Total stockholders equity
Total liabilities and stockholders equity

81,865
P111,765

AGLE CO.
Income Statement for Home Office
For Month Ended January 31, 20x4
Sales
Cost of goods sold:
Merchandise inventory, January 1 ..
P46,000
Purchases
31,600

P 34,600

Merchandise available for sale

77,600
Less shipments to branch
12,050
Merchandise available for own sales .
P65,550
Less merchandise inventory, January 31
44,500
Cost of goods sold
Gross Profit
Expenses
Net income from own operations .
Deduct branch net loss
Total Income

21,050
P 13,650
9,325
P 4,225
560
P 3,665

EAGLE CO.
Income Statement for Home Office
For Month Ended January 31, 20x4
Assets
Liabiities and Stockholders Equity
Liabilities
Cash .. . P 10,200
Accounts Payable P30,700
Accounts receivable .. P38,450
Accrued Expenses 1,100
P 31,800
Less allow for doubtFul accounts ..
1,050
37,400
Merchandise Inventory .. 54,900
Stockholders Equity
Store furn. & fixtures P15,900
Capital Stocks P50,000
Less accum depr
4,735
11,165
Retained earnings 31,865
81,865
Total assets P113,665
Total liab. And stockholders equity . P113,665
EAGLE CO.
Combined Income Statement for Home Office and Branch
For Month Ended January 31, 20x4
Sales ..
Cost of goods sold:
Merchandise Inventory, January 1 .
P46,000
Purchases ...
34,600
Merchandise available for sale ...
P80,600
Less merchandise inventory, Jan 31 ...
54,900
Cost of goods sold ...............................
Gross profit ...
Expenses
Net Income ..

P 40,800

25,700
P 15,100
11,435
P 3,665

(a) Branch Books

Jan.

31

Shipments from Office-in Transit

Home Office .

600

Expenses . 475
Home Office .
31
Expenses
35
Home Office ..
1/120 x P3,000, or P25 (depreciation for one month;

600

31

475
35

Asset life, 10 years); 1/90 x P900, or P10 (depreciation

For one month; asset life, 7.5 years)
31

31
31
31

31

Merchandise Inventory
Merchandise in Transit ..
Income Summary

9,800
600

Expenses ..
Accrued Expenses .

350

Sales .
Income Summary ..

6,200

Income Summary .
Shipments from Home Office .
Ship. From Home Office in Trans .
Purchases
Expenses ..

17,160

Home Office ..
Income Summary ...

560

10,400
350
6,200
11,450
600
3,000
2,110
560

(b) Home Office Books:

31
31
31

31

31
31
31
31

Branch .
Shipments to Branch .

600

Branch .
Expenses ...

475

Branch .
Accumulated Depreciation, Store
Furniture and Fixtures Branch ..

35

600
475

35

Expenses .
100
Accumulated Depreciation store
Furniture and Fixtures branch .
1/120 x P12,000, or P100 (depreciation for one
Month; asset life, 10 years)
Income Summary
Merchandise Inventory

46,000

Merchandise Inventory ..
Income Summary ..

44,500

Expenses .
Accrued Expenses .

750

Sales
Purchases
Expenses ..

40,925

100

46,000
44,500
750
31,600
9,325

31
31
31

Branch Income .
Branch ..

560

Income Summary .
Branch Income ...

560

Income Summary .
Retained Earnings ..

3,665

560
560
3,665

Problem IV
1.
Socrates Company
Home Office and Plato Branch
Reconciliation of Reciprocal Ledger Accounts
June 30, 20x4
Investment in
Plato Branch
Ledger
Account
(Debit)
Balances prior to adjustment
P85,000
Add: Merchandise shipped to branch
Less: Acquisition of office equipment by branch
(carried in accounting records of home office) (14,500)
Collection of branch trade accounts receivable
Payment of cash by branch
(22,000)
Adjusted balances
P48,500
2.

(a)

Accounting records of home office:

Office Equipment: Plato Branch
Investment in Plato Branch
To record acquisition of office equipment by branch.
Cash in Transit
Investment in Plato Branch
To record cash in transit from branch.

(b)

(9,000)
_______
P48,500

14,500
14,500
22,000
22,000

Accounting records of branch:

Home Office
9,000
Trade Accounts Receivable
To record collection by home office of branch accounts
receivable.
Inventories in Transit
Home Office
To record shipment of merchandise in transit from
home office.

Problem V
((a)

Home Office
Ledger
Account
(Credit)
P33,500
24,000

9,000

24,000
24,000

BRANCH

HOME OFFICE

Balances before Adjustments ..

Adjustments:
Additions:
Merchandise in transit to branch .
Collection of Home office receivable by Branch
Understatement of branch net income for Nov..
Deductions:
Merchandise return to home office in transit .
Corrected Balances

ACCOUNT
P 8,400

ACCOUNT
P 9,735
615

2,500
90
P10,990

P10,350

640
P10,350

P10,350

(b) Branch Books:

Shipments from Home Office-in Transit .
Home Office ...

615

Home Office Books:

Branch
Accounts Receivable ..

2,500

615

2,500

Branch
Retained Earnings .

90

Merchandise Returns from Branch in Transit .

Branch ..

640

90
640

Multiple Choice Problem

1. d
Branch A
Assets:
Inventory, January 1
Imprest branch fund
Accounts receivable, January 1
Total Assets
Less: Liabilities
Home Office Current Account

P 21,000
2,000
55,000
P 78,000
-0P 78,000

Branch B
P 19,000
1,500
43,500
P 64,000
-0P 64,000

2. b
Branch A
Assets:
Inventory, December 31
Imprest branch fund
Accounts receivable, December 31
Total Assets
Less: Liabilities
Home Office Current Account

P 19,000
2,000
70,000
P 91,000
-0P 91,000

Branch B
P 12,000
1,500
53,500
P 67,000
-0P 67,000

3. d incidentally, the entry in the books of the branch would be as follows:

Profit and loss summary xxx
Home Office Current. Xxx
4. c
January

January 1,

Assets:
Inventory
Petty cash fund
Accounts receivable
Total Assets
Less: Liabilities
Home Office Current Account
5. a refer to No. 4 for computations
6. a
Sales
Less: Cost of goods sold:
SFHO
Less: Inventory, ending
Gross profit
Less: Expenses
Net Loss..

1,20x4

20x5

P 37,000
3,000
43,000
P 83,000
_____-0P 83,000

P 41,000
3,000
49,000
P 93,000
_____-0P 93,000

P 74,000
P67,680
9,180

58,500
P 15,500
6,820
P 8,680

7. a
January 1,
20x6
Assets:
Cash
Inventory
Accounts receivable
Total Assets
Less: Liabilities
Home Office Current Account

P 4,200
9,180
12,800
P 26,180
_____-0P 26,180

8. a nominal accounts have zero beginning balance.

9. d
Branch
Current

H. Office
Current

Unadjusted balance, 6/30/20x4

P 225,770
P 226,485*
Add (Deduct): Adjustments
1 Erroneous recording of branch equipment
3150
2. Insurance premium recorded twice
(
675)
3. Erroneous recording of freight
(
90)
4. Discount on merchandise
(
800)
5. Failure by the branch to record share in advertising
700
6. error by the home office to record remittance of Cebu
3,000
________
Adjusted balance, 6/30/20x4
P 228,770
P 228,770
* The P226,485 is compute simply by working back with P228,770 adjusted balance as the starting point.

P2-07
10. c
Home Office Books
(Branch Current-

Branch Books
(Home Office Current

Unadjusted balance
Add (deduct) adjustments:
In transit
Remittance
Returns
Cash in transit
Expenses - HO
Expenses branch
Error
Adjusted balance

Dr. balance)
P518,575

Cr. balance)
P452,276
10,500

( 17,000)
(
775)
25,000
(

800)

________
P 500,000

12,000
_____224
P 500,000

Home Office Books

(Branch CurrentDr. balance)
P515,000

Branch Books
(Home Office Current
Cr. balance)
P495,750

11. d

Unadjusted balance
Add (deduct) adjustments:
Excess freight
Cash in transit
Returns
Expenses branch
Adjusted balance

750)

( 11,000)
( 4,000)
________

5,000

P 500,000

P 500,000

12. c refer to No. 11 for computations

13. a refer to No. 11 for computations
14. No answer available P495,750
15. d - No entry should be made in the books of the home office, since the freight should be
chargeable to the branch and the payment of the freight was made by the branch.
16. b

Unadjusted balance
Add (deduct) adjustments:
Remittance
Returns
Error by the branch
Expenses branch
Adjusted balance

Home Office Books

(Branch CurrentDr. balance)
P590,000

Branch Books
(Home Office Current
Cr. balance)
P506,700

(40,000)
(15,000)
________

300
28,000

P 535,000

P 535,000

Home Office Books

(Branch Current- Dr.
balance)
P150,000

Branch Books
(Home Office Current
Cr. balance)
P117,420

17. c

Unadjusted balance
Add (deduct) adjustments:
In transit
HO A/R collected by br.

37,500
10,500

Supplies returned
Error in recording Br. NI
Cash sent to branch
to General Expense by HO
Adjusted balance

( 4,500)
( 1,080)
25,000
P 179,920

25,000
P 179,920

Home Office Books

(Branch Current- Dr.
balance)
P40,000

Branch Books
(Home Office Current
Cr. balance)
P31,100

18. d refer to No. 17 for computation.

19. a

Unadjusted balance
Add (deduct) adjustments:
In transit
HO A/R collected by br.
Cash in transit
Error in recording Br. NI
Adjusted balance

5,800
500
2,000
( 3,600)
P38,900

2,000
_______
P38,900

Home Office Books

(Branch Current- Dr.
balance)
P49,600

Branch Books
(Home Office Current
Cr. balance)
P44,00

20. a refer to No. 19 for computations

21. a

Unadjusted balance
Add (deduct) adjustments:
Collection of branch A/R
In transit
Purchase of furniture
Return of excess merchandise
Remittance
Adjusted balance

(
( 1,200)
( 1,500)
( 500)
P46,400

800)
3,200

_______
P46,400

22. b refer to No. 21 for computations

23. (C)
Sales (P350,000 + P100,000).P 450,000
Less: Cost of goods sold:
Purchases (P400,000 + P50,000).
P 450,000
Less: Inventory, ending
90,000
360,000
Gross profit
P 90,000
Less: Expenses
Salaries and commission..
P 70,000
Rent
20,000
Advertising supplies (P10,000 P6,000)
4,000
Other expenses.
5,000
99,000
Net Loss..
P( 9,000)
24. a

In adopting the imprest system for the agency working fund, the home office writes a check to the
agency for the amount of the fund. Establishment of the fund is recorded on the home office
books by a debit to the Agency working fund and credit cash. The agency will request fund
replenishment whenever the fund runs low and at the end of each fiscal period. Such a request is
normally accomplished by an itemized and authenticated statement of disbursements and the
paid vouchers. Upon sending the agency a check in replenishment of the fund, the home office
debits expense or other accounts for which disbursements from the fund were reported and
credits cash.
25. d
Normally, transactions of the agency are recorded in the books of the home office separately
identified with the appropriate agency.
Theories
1. True
2. True
3. False
4. False
5. True

6.
7.
8.
9.
10,

False
False
False
True
True

11.
12.
13.
14.
15.

False
False
True
True
True

16.
17.
18.
19.
20.

b
c
d
a
c

21.
22.
23.
24.
25.

a
b
b
b
a

26.
27.
28.
29.
30.

c
b
d
d
c

31.
32.
33.
34.
35.
36.

b
b
c
c
c
d