Quizzer c) The home office accounts are

reciprocal accounts that must be

1. The home office bills its branch for
eliminated in the preparation of the
merchandise transfers at a price in excess of
enterprise’s financial statements that
cost. In the home office separate financial
are presented in accordance with
statements, the allowance for unrealized
GAAP
profit in branch inventory account would
d) The branch office account on the
appear in the financial statements of the
books of the home office
home office as:
represents the equity interest of
a) Deduction from the cost of goods
the branch office in the net assets
sold
of the home office
b) An operating expense of the current
4. Which of the following would explain why
period
the Investment in Branch account is less
c) Addition to the cost of goods sold
than the Home Office Capital account?
d) Deduction from the investment in
a) None of the above
branch account
b) A home office has received and
2. Which of the following is the only reason
deposited a remittance from a
why a home office cannot report inventory
branch customer but has not yet
shipments to a branch as sales?
notified the branch
a) The principles of conservatism
c) A cash transfer to the branch is in
b) Only inventory transaction
transit
between the company and outside
d) A cash transfer to the home office is
third parties can be considered
in transit
sales
e) An inventory shipment to the branch
c) There is no practicable means of
(at cost) is in transit
determining whether the transfer
5. In a working paper for combined financial
prices approximate those that would
statements of home office and branch, the
occur in an arms-length transactions
branch’s net income is included in:
between independent parties
a) The debit column of the branch
d) The inventory transfer is a
income statement section and the
transaction with a related party
credit column of the home office
3. An enterprise uses a branch accounting
statement of retained earnings
system in which it establishes separate
section
formal accounting systems for its home
b) The credit column of the branch
office operations and its branch office
income statement section and the
operations. Which of the following
debit column of the branch
statements about this arrangement is false?
statement of retained earnings
a) Unrealized profit from internal
section
transfers between the home office
c) Some other manner
and a branch must be eliminated in
d) The debit column of the branch
the preparation of the enterprise’s
income statement section and the
financial statements that are
credit column of the branch
presented in accordance with GAAP
statement of retained earnings
b) The home office account on the
section
books of a branch office represents
6. A home office ships merchandise to its
the equity interest of the home
branch at a transfer price greater than cost.
office in the net assets of the branch
When this merchandise is resold by the
 branch to outside entities, the branch’s profit
will be overstated.
o True
o False
7. If the home office bills shipments to the
branch at prices above home office cost, the
net income reported to the home office by
the branch is overstated from a total
company point of view.
o True
o False
8. Unrealized profits from transactions
between a home office and its branch are
eliminated in preparing combined financial
statements for the enterprise.
o True
o False
9. A closing entry prepared by a branch will
adjust the loading account and record branch
profit or loss in the home office account.
o True
o False
10. The balance of the allowance for
Overvaluation of Inventories: Branch ledger
account is deducted from the balance of the
investment in branch account in the separate
balance sheet of the home office.
o True
o False