[Topic 1] Chapter 14 Quiz (HO and Branch Accounting)

Question 1

In preparing combined financial statements, branch income or loss are eliminated (brought to a zero balance) in the combining process.

Answer 1

TRUE

Question 2

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

Answer 2

FALSE.

The branch’s profits will be understated.

Question 3

A branch carries a reciprocal ledger account with another branch to facilitate transfers of merchandise and other assets.

Answer 3

FALSE

Question 4

The Allowance for Overvaluation of Branch Inventory branch ledger account at the home office is debited when the home office ships merchandise to the branch at a billed price that exceeds cost.

Answer 4

FALSE.

It is credited.

Question 5

When a branch receives merchandise at transfer prices that include a loading factor and sells that merchandise, its cost of goods sold will be understated and its income will be overstated.

Answer 5

FALSE

Question 6

In the year-end general ledger closing procedures, purchases sent to branch and purchases from home office are closed in arriving at Cost of Sales.

Answer 6

TRUE

Question 7

Branch net loss ______________ the Home Office account.

Answer 7

DECREASES

Question 8

Shipments from home office at billed price ______________ cost of goods sold of the branch.

Answer 8

INCREASES

Question 9

Shipments to branch ______________ cost of goods sold of the home office.

Answer 9

DECREASES

Question 10

Allowance for overvaluation of branch ending inventory ______________ the branch current account in the home office’s balance sheet.

Answer 10

DECREASES

Question 11

Overvaluation of cost of goods sold _____________ the branch income.

Answer 11

INCREASES

Question 12

Realized profit on sales made by branch is also called overvaluation of cost of goods sold.

Answer 12

TRUE

Question 13

The branch current account summarizes the settlement between individual branches.

Answer 13

FALSE

Question 14

Overvaluation of cost of goods sold is an adjustment to reflect true branch net income.

Answer 14

TRUE

Question 15

One of the cited reasons why the home office may bill a branch for merchandise at its retail price is to conceal information concerning branch earnings from branch officials.

Answer 15

TRUE

Question 16

In a combined balance sheet for home office and branch, the balance for Allowance for Overvaluation of Inventories:Branch ledger account is deducted from the balance of the Investment in Branch acccount.

Answer 16

FALSE

Question 17

The Allowance for Overvaluation of Branch Inventory branch ledger account at the home office is debited to close the account at the end of an accounting period.

Answer 17

FALSE.

It is credited.

Question 18

A closing entry prepared by a branch will adjust the loading account and record branch profit or loss in the home office account.

Answer 18

TRUE

Question 19

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

Answer 19

TRUE

Question 20

A home office records shipments to its branch at billing prices and adjusts the loading account at year-end. When this approach is used, the loading account during the period will always be zero.

Answer 20

FALSE