[Topic 1] Chapter 13 and Chapter 14 Exam

Question 1

A debit to the Income Summary ledger account and a credit to the Home Office account appear in:

a. The accounting records of the home office to record the net income of the home office
b. The accounting records of the branch to record the net income of the home office
c. The accounting records of the home office to record the net income of the branch
d. The accounting records of the branch to record the net income of the branch

Answer 1

The accounting records of the branch to record the net income of the branch.

Question 2

If excess freight results from a mistake in order for goods by a branch from some other branch failure, the charge should be borne by the Home Office and reported on its books.

Answer 2

FALSE

Question 3

In transactions between branches, a branch records the transfer in the Investment to Branch account.

Answer 3

FALSE

Question 4

The “Shipments to Branch” account is added to the Home Office’s purchases account in determining Home Office cost of goods sold

Answer 4

FALSE.

It is deducted from the Home Office’s purchases account.

Question 5

If the Home Office of ABC Company maintains the accounting records for the plant assets of its branch, and the branch acquired equipment for P355,000. The appropriate journal entry for the branch is:

a. Dr HO Current, Cr Equipment for P355,000
B. Dr Cash, Cr HO Current for P355,000
c. Dr HO Current, Cr Cash for P355,000
d. Dr Equipment, Cr HO Current for P355,000

Answer 5

Dr HO Current, Cr Cash for P355,000

Question 6

When a home office ships merchandise to its branch at a transfer price greater than cost and this merchandise is resold by the branch to outside entities, the branch profit will be overstated.

Answer 6

FALSE.

Cost of goods sold will be overstated but the branch profit will be understated.

Question 7

Unrealized profits from transactions between a Home Office and its branch are eliminated in preparing combined financial statements for the enterprise.

Answer 7

TRUE

Question 8

Depreciable branch assets are normally carried in the books of the ______________.

Answer 8

HOME OFFICE

Question 9

An organization that is normally provided with a working fund and has no separate accounting or business entity or does not require a complete set of books.

Answer 9

AGENCY

Question 10

______________ is the reciprocal account to the Investment in Branch or Branch Current account

Answer 10

HOME OFFICE CURRENT ACCOUNT

Question 11

An organization that possess the authority to engage in transactions as an independent business.

Answer 11

BRANCH

Question 12

The Home Office ledger account in the accounting records of a branch is best described as a component of ________________.

Answer 12

EQUITY

Question 13

Inter-branch transfers of merchandise, like inter-branch transfers of cash, are normally cleared through the _________________.

Answer 13

Home Office Current Account

Question 14

A reconciliation that updates the home office books and the branch books.

Answer 14

RECONCILIATION OF RECIPROCAL ACCOUNTS

Question 15

The account used to monitor prices in excess of costs for intercompany transactions

Answer 15

ALLOWANCE FOR OVERVALUATION OF BRANCH INVENTORY

Question 16

Another term for Allowance of Overvaluation of Branch is:

a. Unrealized intercompany inventory profit
b. Deferred profit
c. Overvaluation of cost of goods sold
d. Both A and B
e. Choices A, B, and C
f. None of the above

Answer 16

a. Unrealized intercompany inventory profit
b. Deferred profit
c. Overvaluation of cost of goods sold

Question 17

In preparing combined financial statements, which of the following accounts are eliminated in the combining process? Branch Income/Loss or Purchases Sent to Branch?

Answer 17

Branch Income/Loss is not eliminated, but Purchases Sent to Branch is eliminated.

Question 18

If branch fixed assets are recorded on the home office’s books, depreciation expense will be charged to the home office books.

Answer 18

FALSE

Question 19

Which of the following statements most correctly describes the types of information that a sales agency would have to collect for the Home Office to properly determine the sales agency’s profitability?

a. Only agency sales and operating expenses
b. Only agency sales, operating expenses, and cost of sales
c. Only agency sales, operating expenses, and the ending balance of accounts receivable
d. Only agency sales, costs of sales, operating expenses, and the actual or average amount of fixed assets located at the agency locations

Answer 19

Only agency sales, costs of sales, operating expenses, and the actual or average amount of fixed assets located at the agency locations

Question 20

An expense item allocated by the home office to a branch is recorded by the branch by a debit to an expense ledger account and credit to cash.

Answer 20

FALSE

Question 21

Branch fixed assets can be carried on the home office’s books under a decentralized accounting system

Answer 21

TRUE