BAFINAR - ADVANCED FINANCIAL ACCOUNTING PART I

1. Which of the following generally is not a method of billing merchandise shipments by a home office to a branch?
a. Billing at cost c. Billing at a percentage above cost
b. Billing at a percentage below cost d. Billing at retail selling prices
2. A branch journal entry debiting Home Office and crediting Cash may be prepared for:
a. The branch’s transmittal of cash to the home office only
b. The branch’s acquisition for cash of plant assets to be carried in the home office accounting records only
c. Either a or b
d. Neither a nor b
3. A home office’s Allowance for Overvaluation of Inventories: Branch ledger account, which has a credit balance, is:
a. An asset valuation account c. An equity account
b. A liability account d. A revenue account
4. Does a branch use a Shipments from Home Office ledger account for Inventory under the:
Periodic System Perpetual System Periodic System Perpetual System
a. Yes Yes c. No Yes
b. Yes No d. No No
5. A journal entry debiting Cash in Transit and crediting Investment in Branch is required for:
a. The home office to record the mailing of a check to the branch early in the accounting period
b. The branch to record the mailing of a check to the home office early in the accounting period
c. The home office to record the mailing of a check by the branch on the last day of the accounting period
d. The branch to record the mailing of a check to the home office on the last day of the accounting period
6. For a home office that uses the periodic inventory system of accounting for shipments of merchandise to the
branch, the credit balance of the Shipments to Branch ledger account is displayed in the home office’s separate:
a. Income statement as an offset to Purchases
b. Balance sheet as an offset to Investment in Branch
c. Balance sheet as an offset to Inventories
d. Income statement as revenue
7. If the home office maintains accounts in its general ledger for a branch’s plant assets, the branch debits its
acquisition of office equipment to:
a. Home Office c. Payable to Home Office
b. Office Equipment d. Office Equipment Carried by Home Office
8. In a working paper for combined financial statements of the home office and the branch of a business enterprise,
an elimination that debits Shipments to Branch and credits Shipments from Home Office is required under:
a. The periodic inventory system only
b. The perpetual inventory system only
c. Both the periodic inventory system and the perpetual inventory system
d. Neither the periodic inventory system nor the perpetual inventory system
9. The appropriate journal entry (explanation omitted) for the home office to recognize the branch’s expenditure of
$1,000 for equipment to be carried in the home office accounting records is:
a. Equipment 1,000 c. Investment in Branch 1,000
Investment in Branch 1,000 Cash 1,000
b. Home Office 1,000 d. Equipment: Branch 1,000
Equipment 1,000 Investment in Branch 1,000
10. On January 31, 2005, East Branch of Lyle Company, which uses the perpetual inventory system, prepared the
following journal entry:
Inventories in transit 10,000
Home office 10,000

When the merchandise is received on February 4, 2005, East Branch should:

a. Prepare no journal entry
b. Debit Inventories and credit Home Office, $10,000
c. Debit Home Office and credit Inventories in Transit, $10,000
d. Debit Inventories and credit Inventories in Transit, $10,000

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 11. If a home office bills merchandise shipments to the branch at a markup of 20% on cost, the markup on billed
price is:
a. 16 2/3 % b. 20% c. 25% d. Some other percentage
12. The appropriate journal entry (explanation omitted) in the accounting records of the home office to record a
$10,000 cash remittance in transit from the branch at the end of an accounting period is:
a. Cash 10,000 c. Cash 10,000
Cash in Transit 10,000 Home Office 10,000
b. Cash in Transit 10,000 d. Cash in Transit 10,000
Investment in Branch 10,000 Cash 10,000

Selected balances from the Cebu Company’s Branch A and B are as follows: (#13 to #15)
Accounts Branch A Branch B
Inventory, 1/1/20x4 P21,000 P19,000
Imprest Branch Fund 2,000 1,500
Inventory, 12/31/20x4 19,000 12,000
Accts receivable, 1/1/20x4 55,000 43,500
Merchandise from HO 61,000 47,000
Accts receivable, 12/31/20x4 70,000 53,500
Sales 100,000 80,000
Cash expenses 21,000 14,300

All sales, collections, and expenses are handled at the branch. All cash received from sales and collections are sent
directly to the Home Office. Expenses are paid by the branch from the imprest fund and immediately reimbursed by the
Home Office and credited to the Home office account. All expenses paid the branch are recorded in the books of branch.
13. Compute the balance of the Home Office account in the books of Branch on January 1, 20x4
Branch A Branch B Branch A Branch B
a. P163,000 P67,000 c. P139,000 P111,000
b. P64,000 P78,000 d. P78,000 P64,000
14. Compute the balance of the Home Office account on December 31, 20x4
Branch A Branch B Branch A Branch B
a. P110,000 P152,000 c. P64,000 P78,000
b. P91,000 P67,000 d. P78,000 P64,000
15. The entry in Branch B’s records in order to update the reciprocal Home Office account on December 31, 20x4
assuming net income of the branch is being reported to the home office:
a. Dr. – Home Office Current / Cr. – Profit and Loss c. Dr. – Branch Current / Cr. – Profit and Loss
b. Dr. – Profit and Loss / Cr. – Branch Current d. Dr. – Profit and Loss / Cr. – Home Office
On December 31, 20x4, the branch manager of Beta Company in the Ilocos Region submitted the following data to the
home office in Manila (#16 to #17)
Petty cash fund P3,000 Accounts receivable written off 1,500
Sales 195,000 Inventory, 1/1/20x4 37,000
Shipments from home office 135,000 Inventory, 12/31/20x4 41,000
Account receivable – 1/1/20x4 43,000 Expenses (charged by Home Office) 50,000
Account receivable – 12/31/20x4 49,000
All cash collected on accounts receivable are remitted to the home office
16. The balance of the Home Office Current account on January 1, 20x4 is
a. P72,800 b. P84,500 c. P83,000 d. None of the above
17. On January 1, 20x5, the Branch Current account on the home office books would show a balance of
a. P93,000 b. P43,000 c. P95,500 d. None of the above
Philippine Overseas Corporation has operated a branch in Jordan for one year. Shipments are billed to the branch at cost.
The branch carries its own accounts receivable, makes its own collections, and pays its own expenses. The transactions
for the year are given effect to in the trial balance below:
Accounts Debit Credit
Cash P4,200

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Home Office Current P17,500
Shipments from Home Office 67,680
Accounts receivable 12,800
Expenses 6,820
Sales 74,000
Totals P91,500 P91,500
The branch reported an inventory on December 31, 20x5 of P9,180
18. The net profit of the Jordan Branch for 20x5 was
a. P8,680 b. P9,180 c. P67,180 d. Some other answer
19. On January 1, 20x6, the Branch current account in the Home Office books should have a balance of
a. P26,180 b. P26,680 c. P67,680 d. Some other answer
20. On January 1, 20x6, the Shipments to Branch account in the Home Office books should have an opening balance
of
a. Zero b. P17,500 c. P26,180 d. Some other answer
21. The Petite Branch of Dainty Company submitted trial balance as of December 31, 20x4, after first year of
operations
Accounts Debit Credit
Cash P10,400
Accounts receivable 63,200
Shipments from HO 168,000
Expenses 10,800
Sales P134,400
Home office current 118,000
Totals P252,400 P252,400
Merchandise inventory, P50,400
Shipments to the branch are billed at 140% of cost
The overstatement in the Branch inventory at December 31, 20x4 was
a. P 0 b. P6,000 c. P14,400 d. P33,600
Pangasinan Branch of Malate Company, at the end of its first quarter operations, submitted the following income
statement
Sales P300,000
Cost of sales:
Shipments from HO P280,000
Local purchases 30,000
Total P310,000
Inventory at end 50,000 260,000
Gross profit on sales P40,000
Expenses 35,000
Net income P5,000
Shipments to the branch were billed at 140% of cost. The branch inventory at September 30 amounted to P50,000 of
which P6,600 was locally purchased. Mark up on local purchases, 20% over cost. Branch expenses incurred y Home
Office amounted to P2,500 not yet recorded by the branch
22. Compute the branch ending inventory that should be presented in the combined income statement
a. P36,500 b. P37,600 c. P43,400 d. P50,000
23. The true branch net income
a. P70,100 b. P5,000 c. P2,500 d. None of the above
24. On December 31, 2013, the Investment in Branch account on the home office’s books has a balance of P85,000.
In analyzing the inter-company transactions recorded in each of these accounts for December, you discover the
following discrepancies
 A P10,000 branch remittance to the home office initiated on December 27, 2013, was recorded on the
home office books on January 4, 2014
 A home office merchandise shipment to the branch on December 29, 2013 was recorded by the branch
on January 5, 2014. The cost of this merchandise is P20,000

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  The home office incurred P12,000 of advertising expenses and allocated P5,000 of this amount to the
branch on December 15, 2013. The branch has not recorded this transaction
 A branch customer erroneously remitted P3,000 to the home office. The home office recorded this cash
collection on December 23, 2013. Meanwhile, back at the branch, no entry has been made yet.
 Merchandise costing P43,000 was sent to the branch by the home office on December 10, 2013. The
billing was at cost, but the branch recorded the transaction at P34,000
Compute the following balances as of December 31, 2013
Unadjusted bal - HO account Adjusted balances Unadjusted bal - HO account Adjusted balances
a. P64,000 P95,000 c. P44,000 P75,000
b. P26,000 P16,000 d. P44,000 P78,000