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BSA 222 ACCOUNTING FOR SPECIAL TRANSACTIONS

HOME OFFICE AND BRANCH ACCOUNTING

Theories
1. Identification: This accounting topic deals with the recording and
reporting of transactions between a central office and its operating
units that are not separate legal entities.
2. True/False: A branch is considered a separate legal entity from the home
office.
3. Identification: The main purpose of home office and branch accounting is
to determine the financial performance of each branch while maintaining
control over branch operations.
4. True/False: The home office and its branches together constitute a single
accounting entity.
5. Identification: This account is used by the home office to record its
investment and transactions with the branch.
6. Identification: This account is used by the branch to record transactions
with the home office.
7. True/False: The balances of the Investment in Branch account and the Home
Office account should be equal after all inter-office transactions are
properly recorded.
8. Enumeration: Enumerate at least three common transactions between a home
office and a branch.
9. Identification: This type of accounting system treats the branch as an
extension of the home office rather than as an independent entity.
10. True/False: The branch normally maintains its own books of accounts
separate from the home office.
11. Identification: This transaction occurs when the home office provides
funds to the branch to support its operations.
12. True/False: Cash transfers from the home office to the branch increase
the Home Office account in the branch’s books.
13. Identification: This type of transaction involves the transfer of goods
from the home office to the branch for sale.
14. True/False: Merchandise transferred from the home office to the branch is
generally recorded at cost in the absence of specific instructions to the
contrary.
15. Identification: This occurs when the branch collects accounts receivable
that belong to the home office.
16. True/False: When the branch collects receivables for the home office, the
total income of the entity increases.
17. Identification: This term refers to costs incurred by the home office
that are charged to the branch.
18. Enumeration: Enumerate common bases used in allocating home office
expenses to branches.
19. True/False: Allocation of home office expenses to the branch affects the
total income of the combined entity.
20. Identification: This statement is prepared to reconcile differences
between the Home Office account and the Investment in Branch account.
21. True/False: Differences between reciprocal accounts always indicate
fraud.
22. Enumeration: Enumerate common causes of discrepancies between the Home
Office account and the Investment in Branch account.
23. Identification: This situation arises when cash or merchandise is in
transit between the home office and the branch at the end of the
accounting period.
24. True/False: In-transit items require adjusting entries to properly
reconcile inter-office accounts.
25. Identification: This process involves combining the financial records of
the home office and the branch into one set of financial statements.
26. True/False: Inter-office accounts must be eliminated when preparing
combined financial statements.
27. Identification: This type of error occurs when the home office records a
transaction that the branch fails to record.
28. Enumeration: Enumerate the objectives of reconciling home office and
branch accounts.
29. True/False: After combination, branch profit is reported separately in
the entity’s published financial statements.
30. Identification: This accounting concept explains why transactions between
the home office and branch do not result in income for the entity as a
whole.
31. True/False: The main value of home office and branch accounting lies in
providing information for management control rather than external
reporting.

Problem 1
Below are the transactions relating to the sales agency of A Company:
1. The home office established a revolving fund for the sales agency
amounting to ₱15,000.
2. The sales agency accepted customer orders on account and sent them to
the home office for processing. Sales price was ₱25,000 while cost was
₱13,500.
3. The home office collected the account above.
4. The sales agency paid the following from the revolving fund:
Staff salary ₱2,500
Supplies 800
Miscellaneous 500
₱3,800
5. The sales agency’s revolving fund was replenished.
6. The home office closed the profit-related accounts of the sales agency
to determine its profit.

Requirement: Prepare the journal entries in the books of the sales agency and
the home office.

Problem 2
Below are the transactions relating to a branch of B Company:
1. Home office establishes a branch for an initial investment of
₱1,000,000 in cash.
2. Branch acquires equipment for ₱400,000 to be carried in the branch
books. Depreciation for the period amounted to ₱40,000.
3. Branch acquires equipment for ₱200,000 to be carried in the home
office books. Depreciation for the period amounted to ₱20,000.
4. Home office acquires furniture for ₱50,000 to be carried in the branch
books. Depreciation for the period amounted to ₱5,000.
5. Home office acquires furniture for ₱30,000 to be carried in the home
office books, but the branch maintains physical possession and use.
Depreciation for the period amounted to ₱3,000.
 6. Home office transfers inventory worth ₱150,000 to the branch. Home
office pays freight of ₱10,000.
7. Home office transfers inventory worth ₱80,000 to the branch. Branch
pays freight of ₱6,000.
8. Branch purchases inventory worth ₱40,000 on account from a supplier.
Branch pays freight of ₱2,000.
9. Branch makes total sales of ₱500,000 on account.
10. Branch collects ₱400,000 from accounts receivable.
11. Branch remits ₱300,000 cash collections to home office.
12. Branch incurs salaries expense of ₱100,000, one-fourth of which
remains unpaid.
13. Home office allocates ₱10,000 utilities expenses and ₱4,000
advertising expenses to the branch.

Requirements:
1. Prepare the journal entries in the books of the branch and the home
office, including the closing entries.
2. Prepare the individual Statement of Income of the branch.
3. Prepare the individual Statement of Financial Position of the branch.

Problem 3
Below are shown are the trial balances of C Company and its branch, Branch Z.
C Company
Trial Balance
December 31, 2024
Home Office Branch
Debit Credit Debit Credit
Cash ₱1,100,000 ₱- ₱417,000 ₱-
Accounts Receivable 180,000 - 100,000 -
Inventory, Beginning 650,000 - - -
Shipments from Home Office - - 230,000 -
Purchases 72,000 - 40,000 -
Freight-in 22,000 - 18,000 -
Shipments to Branch - 230,000 - -
Investment in Branch 827,000 - - -
Equipment 720,000 - 400,000 -
Accumulated Depreciation-Equipment - 72,000 - 40,000
Furniture 90,000 - 50,000 -
Accumulated Depreciation–Furniture - 9,000 - 5,000
Accounts Payable - 72,000 - 40,000
Salaries Payable - 45,000 - 25,000
Share Capital - 2,000,000 - -
Share Premium - 500,000 - -
Retained Earnings-Beginning - 206,200 - -
Home Office - - - 827,000
Sales - 900,000 - 500,000
Depreciation 168,000 - 68,000 -
Salaries 180,000 - 100,000 -
Utilities 18,000 - 10,000 -
Advertising 7,200 - 4,000 -
₱4,034,200 ₱4,034,200 ₱1,437,000 ₱1,437,000

The home office and the branch have ending inventories of ₱270,000 and
₱150,000, respectively.

Requirements:
1. Prepare the combined Statement of Income.
2. Prepare the combined Statement of Financial Position.
Problem 4
D Company is preparing its 2024 financial statements. The balances of the
reciprocal accounts on December 31, 2024 are as follows:

Investment in Branch ₱156,000

Home Office 70,200

The following information has been gathered:

 A ₱20,000 inventory shipment from the home office in December 2024 was
recorded by the branch only in January 2025.
 The home office collected ₱10,000 accounts receivable on behalf of the
branch but the branch is not yet notified.
 The branch returned damaged merchandise worth ₱30,000 but the home
office has not yet received the shipment.
 The home office failed to record a ₱40,000 cash remittance from the
branch.
 The branch recorded twice a ₱5,000 allocation of overhead cost from the
home office.
 A ₱12,000 freight paid by the home office for inventory shipment to the
branch was recorded by the branch as ₱1,200.

Requirement: Prepare a reconciliation table of the reciprocal accounts.

Problem 5
The unadjusted balance of the Investment in Branch account of E Company is
₱182,000.

Additional information:
 The branch did not record a ₱12,000 credit memo from the home office.
 The branch did not record a ₱9,000 debit memo from the home office.
 The home office erroneously recorded twice a ₱20,000 credit memo from
the branch.
 The home office recorded a ₱30,000 debit memo from the branch as
₱3,000.
 The branch sent by mistake a ₱7,000 credit memo to the home office. The
home office did not record it.

Requirement: Compute the unadjusted balance of the Home office account.

Problem 6
F Company has the following account balances on December 31, 2024:

Investment in Branch ₱95,000

Home Office 132,000

Additional information:
 The home office allocated ₱10,000 utilities expense to the branch which
the branch did not record in full. Instead, the branch sent a wrong
adjusting memo to the home office reducing the charge by ₱2,500 and
setting up a liability for the remaining amount.
 The home office erroneously credited the branch for a return of
shipment of merchandise worth ₱25,000. The branch did not make any
return of merchandise.
  The branch mistakenly received a copy of the home office correcting
entry for item (b) above dated January 03, 2025 and entered a credit in
favor of the home office on December 31, 2024 as a year-end adjusting
entry.
 The branch mistakenly sent the home office a ₱3,000 debit memo for an
apparent remittance of collections which did not happen. The home
office did not record the debit memo.

Requirements:
1. Compute the net adjustment to the Investment in Branch and Home Office
accounts.
2. Prepare a reconciliation table of the reciprocal accounts.

Problem 7
G Company has several branches. On December 31, 2024, Y Branch’s Home Office
account has a balance of ₱145,000.

Additional information:
 The home office charged Y Branch a ₱15,000 shipment which was sent to X
Branch. Y Branch was not notified of the shipment.
 The home office charged W Branch a ₱16,000 shipment which was actually
sent to Y Branch. Y Branch retained the shipment.
 The home office erroneously recorded a ₱5,000 cash remittance from V
Branch as coming from Y Branch.
 The home office charged Y Branch ₱4,000 utilities expense that should
have been charged to U Branch. Y Branch recorded the erroneous debit
memo.

Requirement: Compute the unadjusted balance of the Investment in Y Branch in

the home office books.

Problem 8
H Company has several branches. Account balances relating to T Branch on
December 31, 2024 are as follows:

Investment in T Branch ₱100,000

Home Office 132,000

Additional information:
 S Branch acquired an equipment for ₱30,000 to be maintained in
the home office's books. The home office recorded this as a
transaction with T Branch.
 T Branch acquired an equipment for ₱40,000 to be maintained in
its books. The home office did not record this.
 The home office failed to record a ₱10,000 cash remittance from Q
Branch.
 The home office erroneously charged T Branch a ₱12,000 debit memo
received from P Branch.
 T Branch reversed a previous debit memo from O Branch amounting
to ₱6,000. The home office decided that this charge is
appropriately N Branch’s cost.

Requirement: Compute the adjusted balances of the accounts.

 Problem 9
Below are the transactions relating to a branch of I Company:
1. Home office ships to the branch inventory costing ₱100,000 and bills
the branch at 120% of cost.
2. Home office ships to the branch inventory costing ₱200,000 and bills
the branch at 120% of the cost.
3. Home office ships to the branch inventory costing ₱80,000 and bills
the branch at 120% of the cost. Branch pays freight of ₱6,000.
4. Branch purchases inventory from a supplier for ₱40,000 on account.
Branch pays freight of ₱2,000.
5. Branch makes total sales of ₱500,000 on account.
6. Branch incurs utilities expense of ₱100,000, ₱20,000 of which were
allocated from the home office.

Requirements:
1. Prepare the journal entries in the books of the branch and the home
office, including the closing entries.
2. Prepare the individual Statement of Income of the branch.
3. Prepare the Statement of Income of the branch showing its true profit.

Problem 10
Below are shown are the trial balances of J Company and its branch, M Branch.
C Company
Trial Balance
December 31, 2024
Home Office Branch
Debit Credit Debit Credit
Cash ₱1,100,000 ₱- ₱66,000 ₱-
Accounts Receivable 180,000 - 100,000 -
Inventory, Beginning 300,000 - - -
Shipments from Home Office (billed at
120% above cost) - - 456,000 -
Purchases 1,200,000 - 40,000 -
Freight-in 32,000 - 18,000 -
Shipments to Branch - 380,000 - -
Investment in Branch 600,000 - - -
Allowance for Markup - 76,000 - -
Equipment 720,000 - 400,000 -
Accumulated Depreciation-Equipment - 72,000 - 40,000
Accounts Payable - 72,000 - 40,000
Share Capital - 2,000,000 - -
Retained Earnings-Beginning - 152,000 - -
Home Office - - - 600,000
Sales - 1,600,000 - 500,000
Operating Expenses 220,000 - 100,000 -
₱4,352,000 ₱4,352,000 ₱1,180,000 ₱1,180,000

The ending inventory consists of the following:

 Home Office inventories:
From outside purchases ₱460,000

 Branch inventories:
From outside purchases ₱10,000
From Home Office 24,000

Requirements:
1. Prepare the combined Statement of Income.
 2. Prepare the combined Statement of Financial Position.

Problem 11
Shipments from Home Office are billed at 120% above cost. During the year,
the branch received shipments billed at ₱120,000 and returned damaged goods
billed at ₱18,000. The branch reported ending inventory of ₱30,000 and loss
for the year of ₱10,000 in its individual financial statements.

Requirements:
1. Compute the balance of Allowance for Markup account before year-end
adjustments.
2. Compute the true profit of the branch.

Problem 12
The Home Office bills shipments of merchandise to its branch at a markup of
20% on the billed price. At the beginning of the period, the Allowance for
Markup account has a credit balance of ₱4,000. During the period, the Home
Office made shipments of goods worth ₱240,000 at cost. The branch reported
ending inventory of ₱120,000 at billed price.

Requirements:
1. Compute the realized markup.
2. Compute the year-end adjustment to the Allowance for Markup account to
reflect the true profit of the branch.

Problem 13
The following information is from the records of K Company:

Home Office
Accounts Books Branch Books
Sales ₱1,500,000 ₱600,0000
Purchases 1,200,000 40,000
Shipments to Branch (300,000)
Shipments from Home Office 420,000
Operating Expenses 230,000 90,0000
Beginning Inventory:
From outside purchases 57,000 2,000
From Home Office at 20% above cost 30,000
Ending Inventory:
From outside purchases 460,000 10,000
From Home Office at 20% above cost 280,000

Requirements:
1. Compute the individual profit of the branch.
2. Compute the realized markup.
3. Compute the true profit of the branch.
4. Compute the combined profit of the home office and branch.

Problem 14
The Home Office constantly bills its branch for shipments at 130% of cost.
During the period, shipments to the branch totaled ₱624,000, at billed price.
The Allowance for Markup account had a net increase of ₱36,000 after year-end
adjustments. The branch’s individual financial statements reported gross
profit of ₱12,0000.
Requirements:
1. Compute the true gross profit of the branch.
2. Compute the Cost of Goods Sold of the branch at billed price.
3. Compute the sales of the branch to be included in the combined
financial statements.
4. Compute the Cost of Goods Sold of the branch to be included in the
combined financial statements.

Problem 15
The Home office constantly bills its branch for shipments at 130% of cost.
During the period, shipments to the branch totaled ₱624,000, at billed price.
The Allowance for Markup account had an ending balance of ₱36,000 after year-
end adjustments. The branch’s true gross profit was ₱120,0000.

Requirements:
1. Compute the individual gross profit of the branch.
2. Compute the ending inventory of the branch at cost.
3. Compute the ending inventory of the branch at billed price.

Problem 16
The Home Office consistently bills its branch for shipments at 120% of cost
and prepays freight equal to 5% of the billed price. The following
information relates to the branch:
Accounts Branch Books
Cash and Cash Equivalents, January 01 ₱11,000
Accounts Receivable, January 01 43,000
Inventory, January 01
From outside purchases 9,000
From Home Office (at billed price, including freight-in) 63,000
Equipment (Net), January 01 200,000
Accounts Payable, January 01 60,0000
Sales 300,000
Shipments from Home Office (at billed price, excluding freight) 180,000
Purchases 50,000
Inventory, December 31
From outside purchases 3,000
From Home Office (at billed price, including freight-in) 88,200

Requirements:
1. Compute the balance of Home Office account.
2. Compute the beginning balance of inventory at cost.
3. Compute the understatement/overstatement in the branch’s Cost of Goods
Sold and Gross Profit as far as the Home Office is concered.

Problem 17
Refer to the following information:

Home Office
Accounts Books Branch Books
Beginning Inventory:
From outside purchases ₱120,000 ₱8,000
From Home Office at 110% of cost 33,000
Purchases from Outsiders 300,000 80,000
Shipments to Branch 90,000
Shipments from Home Office 104,000
Beginning Inventory:
 From outside purchases 75,000 40,000
From Home Office at 130% of cost 32,500

Requirements:
1. Compute the shipments in-transit at cost.
2. Compute the shipments in-transit at billed price.
3. Compute the combined Cost of Goods Sold.

Problem 18
The branch acquires its inventory exclusively from the Home Office. Shipments
during the year are billed at 120% of cost.

Home Office
Accounts Books Branch Books
Beginning Inventory ₱40,000 ₱6,250
Allowance for Markup, January 01 1,000 -
Purchases 150,000 66,000
Freight-in - 3,300
Sales 350,000 200,000
Sales to Branch 72,000 -
Operating Expenses 75,000 20,000

Additional Information:
 At year-end, a shipment with a billed price of ₱6,000 and freight of
₱200 was in transit.
 Ending inventories (excluding in-transit) are as follows:
Home Office ₱25,000
Brach at billed price (excluding freight of
₱750) 15,000

Requirement: Compute the combined profit.

Problem 19
The following transactions occurred between the Home Office and its branches:
 The Home Office instructs L Branch to transfer ₱100,000 cash to K
Branch.
 The Home Office transfers inventory worth ₱15,000 to L Branch. Home
Office Pays freight of ₱1,000.
 The Home Office instructs L Branch to transfer the merchandise to K
Branch. L Branch paid freight of ₱300. If the merchandise had been
shipped directly from the Home Office to K Branch, freight would have
only been ₱1,100.

Requirements: Prepare the journal entries in Home Office books and in the
individual books of L Branch and K Branch.
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