Reference no: EM132861190

Problem 1 - On December 31, the Investment in Branch account on the home office books shows a balance of 150,000. The following facts are ascertained:

1. Merchandise billed at 5,000 is in transit on December 31, from the home office to the branch.

2. The branch collected a home office account receivable for 2,000. The branch did not notify the home office of cash collection.

3. On December 30, the home office mailed a check of 10,000 to the branch but the bookkeeper charged the check as general expense. The branch has not received the check as of December 31.

4. Branch profit for December was recorded by the home office at 8,900 instead of 9,800.

5. Branch returned supplies of 1,000 to the home office but the home office has not yet recorded the receipt of the supplies.

Required -

I. Compute the balance of the Home Office account on the branch books as of December 31 before its adjustment.

II. Prepare the reconciliation statement to compute the adjusted balance on December 31.

Problem 2 - The inter-office accounts between the main office of ABC Company and its branch in Ayala were adjusted to 145,500 as of December 31, 2020. The transactions between the home office and the branch for 2020 were:

1. Remittance by the branch (38,000 was still in transit as of December 31, 2020) 178,000.

2. Shipments to branch (includes goods worth 44,000 that are not yet received by the branch as of December 31, 2020) are 470,000.

3. The home office has not yet informed the branch of its share in the advertising expense amounting to 15,000.

4. Accounts receivable of the branch amounting to 30,000 was collected by home office, net of 4% discount. The branch has not yet been notified.

5. The home office incorrectly credited the branch by 10,000 for the remittance of its Cubao Branch. The Ayala Branch made no entry.

6. The home office corrected the above entry on January 5, 2021, however, the Ayala Branch inadvertently received copy of this memo and entered a credit in favor of the home office as of December 31, 2020.

7. The branch returned merchandise worth 12,500 to the office and was duly acknowledge by the latter during the year.

Required -

I. The unadjusted balance of the Home Office Current account as of December 31, 2020.

II. The adjusted balance of the inter-office accounts as of December 31, 2020.

Problem 3 - The Armami Corp. established a branch store in Ortigas on June 30, 2020. The branch is to receive substantially all merchandise for sale from the home office. During the remainder of 2020, shipments to the branch amounted to 240,000 that included a 20% mark-up on cost. The branch purchased 180,000 additional merchandise for cash and reported unsold merchandise for 145,000. The branch made sales of 420,000, paid expenses of 105,000 and remitted to the home office all sales proceeds. The allowance for overvaluation of branch inventory account on the home office books showed a balance of 22,500 after adjustment.

Required -

I. The branch ending inventory that represented purchase from outsiders.

II. The branch net income as far as the home office is concerned.