CH4 Advanced PDF

Chapter 4 Accounting for Branches; Combined Financial Statements
True/False Questions
1. 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 a credit to the Home Office account.
Answer: True
2. 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.
Answer: True
3. If the home office bills shipments of merchandise to the branch at 25% above home
office cost and the adjusted balance of the Allowance for Overvaluation of
Inventories: Branch ledger account is $20,400, the amount of branch inventories at
billed prices is $81,600.
Answer: False
4. A debit to the Home Office ledger account and a credit to the Trade Accounts
Receivable account in the accounting records of a branch indicates that the home
office collected accounts receivable of the branch.
Answer: True
5. If branch managers are responsible for ordering merchandise from the home office,
any excess freight costs incurred as a result of interbranch shipments are absorbed by
the appropriate branch rather than by the home office.
Answer: True
6. Start-up costs incurred by a branch in the initial months of operations are appropriately
deferred and amortized in subsequent profitable accounting periods.
Answer: False
7. If the home office carries branch equipment in its accounting records, an acquisition of
equipment by the branch is recorded in the home office accounting records by a debit
to the Investment in Branch ledger account and a credit to the Equipment: Branch
account.
Answer: False
Larsen, Modern Advanced Accounting, Tenth Edition 39

8. Separate financial statements of home office and branch do not meet the needs of
investors, creditors, or other outside users of financial statements.
Answer: True
9. In a working paper for combined financial statements of home office and branch, the
balance of the Shipments to Branch ledger account is eliminated against the balance of
the Investment in Branch account.
Answer: False
10. Freight costs on merchandise shipped, as directed by the home office, by Westside
Branch to Eastside Branch in excess of normal freight costs from the home office to
Eastside Branch are recognized as operating expenses of the home office.
Answer: True
11. A markup of 16 2/3% on billed price is equal to a markup of 14 2/7% on cost of

merchandise shipped to the branch by the home office.
Answer: False
12. If the perpetual inventory system is used by both the home office and the branch, the
reciprocal ledger accounts used by the branch are the Home Office and Shipments
from Home Office accounts.
Answer: False
13. If the home office bills merchandise 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.
Answer: False
14. In a combined balance sheet for home office and branch, the balance of the Allowance
for Overvaluation of Inventories: Branch ledger account is deducted from the balance
of the Investment in Branch account.
Answer: False
40 Larsen, Modern Advanced Accounting, Tenth Edition

Multiple Choice Questions
15. The Shipments to Branch ledger account in the accounting records of the home office
of a business enterprise:
A) Is an asset valuation account
B) Indicates that the home office uses the periodic inventory system
C) Is adjusted at the end of the accounting period to equal the unrealized profit in the
branch's ending inventories
D) Is not displayed in the home office's separate financial statements
Answer: B
16. The Allowance for Overvaluation of Inventories: Branch ledger account of the home
office is debited:
A) When the home office ships merchandise to the branch at a billed price that
exceeds cost
B) In a journal entry to close the account at the end of an accounting period
C) When the branch's ending inventory is recorded in the home office accounting
records
D) In some other circumstances
Answer: D
17. The Western Branch of Rivas Company reported a net income of $60,000 for the
month of January. The appropriate journal entry (explanation omitted) for the home
office of Rivas Company is:
A) Income Summary 60,000
Income: Western Branch 60,000
B) Income: Western Branch 60,000
Income Summary 60,000
C) Investment in Western Branch 60,000
Income: Western Branch 60,000
D) Investment in Western Branch 60,000
Answer: C

18. Both a home office and a branch use the periodic inventory system. If at the end of an
accounting period the balance of the branch's Home Office ledger account does not
agree with the balance of the home office's Investment in Branch account because of a
shipment of merchandise in transit from the home office to the branch:
A) The home office debits Investment in Branch and credits Shipments in Transit to
Branch.
B) The branch debits Home Office and credits Shipments in Transit from Home
Office.
C) The home office debits Shipments in Transit to Branch and credits Investment in
Branch.
D) The branch debits Shipments in Transit from Home Office and credits Home
Office.
Answer: D
19. Among the journal entries (explanation omitted) in the accounting records of the home
office of Price Company was the following:
Office Equipment: Lang Branch 12,500

Investment in Lang Branch 12,500
This journal entry indicates that:

A) The home office acquired office equipment for the branch
B) The home office shipped office equipment to the branch
C) The branch acquired office equipment, which is carried in the accounting records
of the home office
D) None of the foregoing occurred
Answer: C
20. The Income: Branch ledger account is maintained in the accounting records of:
A) The home office only
B) The branch only
C) Both the home office and the branch
D) Neither the home office nor the branch
Answer: A

21. If at the end of an accounting period the balance of the Investment in Branch ledger
account in the accounting records of the home office is $20,000 and the balance of the
Home Office account in the accounting records of the branch (after the branch
recorded closing entries) is $25,500, the most likely explanation for the discrepancy of
$5,500 is a:
A) Remittance of cash to the branch not recorded by the home office
B) Net income of branch not recorded by the home office
C) Net loss of branch not recorded by the home office
D) Collection by the home office of a branch note receivable not recorded by the
branch
Answer: B
22. The Home Office ledger account in the accounting records of a branch is best
described as:
A) A revenue account
B) An equity account
C) A deferred revenue account
D) A liability account
E) None of the foregoing
Answer: B
23. The following journal entry (explanation omitted) appeared in the accounting records
of Marty Corporation's only branch:
Operating Expenses 600,000

Home Office 600,000
The journal entry indicates that:

A) The branch incurred operating expenses for the benefit of the home office
B) The home office incurred operating expenses for the benefit of the branch
C) The branch paid the home office for services rendered to the branch
Answer: B

24. In a working paper for combined financial statements of home office and branch, the
branch's net income is included in:
A) The debit column of the branch income statement section and the credit column of
the branch statement of retained earnings section
B) The credit column of the branch income statement section and the debit column of
the branch statement of retained earnings section
C) The debit column of the branch income statement section and the credit column of
the home office statement of retained earnings section
D) Some other manner
Answer: A
25. 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 home office to record the net income of the branch
C) The accounting records of the branch to record the net income of the branch
D) Some other manner
Answer: C
26. The following journal entry (explanation omitted) appeared in the accounting records
of the home office of Silversmith Company:
Investment in Seaside Branch 8,980

This journal entry indicates that:

A) The branch incurred operating expenses for the benefit of the home office
B) The home office incurred operating expenses for the benefit of the branch
C) The branch paid the home office for services rendered to the branch
Answer: B
27. If both the home office and the branch of a business enterprise use the periodic
inventory system, the home office's Shipments to Branch ledger account:
A) Is a valuation account for the home office's Investment in Branch account
B) Always should have the same balance as the branch's Shipments from Home
Office account
C) Is a revenue account
D) Is a valuation account for the home office's Purchases account
Answer: D
28. If both the home office and the branch of a business enterprise use the perpetual
inventory system, a Shipments to Branch ledger account appears in the accounting
records of:
A) The home office only
B) The branch only
C) Both the home office and the branch
D) Neither the home office nor the branch
Answer: D
29. On January 31, 2006, the home office of Wall Company collected a trade account
receivable of Doris Branch. The accounting for this transaction by Wall Company
should include a:
A) Credit to Trade Accounts Receivable: Doris Branch in the accounting records of
the home office
B) Debit to Cash in Transit in the accounting records of Doris Branch
C) Credit to Investment in Doris Branch in the accounting records of the home office
D) Debit to Receivable from Home Office in the accounting records of Doris Branch
Answer: C

Problems
30. Closing entries for the Columbia Branch of Carolina Company on January 31, 2006,
the end of a fiscal year, were as follows:
Inventories, Jan. 31, 2006 60,000

Sales 300,000
Inventories, Jan. 31, 2005 45,000
Shipments from Home Office 240,000
To record ending inventories and to close beginning
inventories, revenue, and expense ledger accounts.

Home Office 20,000
To close Income Summary ledger account.
Columbia Branch receives all its merchandise from the home office of Carolina
Company at a markup of 20% on billed price.
Prepare journal entries for the home office of Carolina Company on January 31, 2006,
to record the operating results of the Columbia Branch. Show any supporting
computations in the explanations for the entries.
Answer:
2006
Jan. 31 Investment in Columbia Branch 20,000
Income: Columbia Branch 20,000
To record net income reported by Columbia Branch.
31 Allowance for Overvaluation

of Inventories: Columbia Branch 45,000
Realized Gross Profit: Columbia Branch Sales 45,000
To recognize as realized the markup on merchandise
applicable to goods sold by Columbia Branch
[($45,000 + $240,000 – $60,000) x 0.20 = $45,000].
31 Income: Columbia Branch 20,000

Realized Gross Profit: Columbia Branch Sales 45,000
To close Columbia Branch net income and realized
gross profit to Income Summary ledger account.

31. On June 30, 2006, the unadjusted credit balance of the Allowance for Overvaluation of
Inventories: Cyprus Branch ledger account in the accounting records of the home
office of Wilmington Company was $60,000. The home office of Wilmington ships
merchandise to the branch at a markup of 20% on home office cost. For the fiscal year
ended June 30, 2006, the branch had reported a net loss (based on billed prices of
merchandise shipped from home office) of $18,400 and ending inventories (all
received from home office) of $132,000 at billed prices.
Prepare journal entries for the home office of Wilmington Company on June 30, 2006,
to record the foregoing information.
Answer:
2006
June 30 Income: Cyprus Branch 18,400
Investment in Cyprus Branch 18,400
To record net loss reported by branch.
30 Allowance for Overvaluation of Inventories:

Cyprus Branch 38,000
Realized Gross Profit: Cyprus Branch Sales 38,000
applicable to good sold by branch [$60,000 –
($132,000 x 1/6) = $38,000].
30 Realized Gross Profit: Cyprus Branch Sales 38,000

Income: Cyprus Branch 18,400
To close branch net loss and realized gross
profit to Income Summary ledger account.
32. On June 4, 2006, Victoria Company opened its first branch. Separate accounting
records were established for the branch. Both the home office and the branch used the
perpetual inventory system. Among the intracompany transactions were the following:
June 4 Home office mailed a check for $40,000 to the branch. The check was
received by the branch on June 7.
6 Home office shipped merchandise costing $101,300 to the branch at a
billed price of $130,000. The branch received the merchandise on June
9.
10 The branch acquired a truck for $18,000. The home office maintains the
plant assets of the branch in its accounting records. The home office was
notified on June 10 that the acquisition was made.
Prepare journal entries for the foregoing intracompany transactions in the accounting
records of (a) the home office, and (b) the branch of Victoria Company.
Answer:
a.
Journal entries in accounting records of Home Office:
2006
June 4 Investment in Branch 40,000
Cash 40,000
To record remittance to branch.
6 Investment in Branch 130,000

Inventories 101,300
Allowance for Overvaluation of Inventories:
Branch 28,700
To record shipment of merchandise to branch.
10 Trucks: Branch 18,000

Investment in Branch 18,000
To record acquisition of truck by branch.
b.
Journal entries in accounting records of branch:
2006
June 7 Cash 40,000
Home Office 40,000
To record receipt of cash from home office.
9 Inventories 130,000
Home Office 130,000
To record receipt of merchandise from home office.
10 Home Office 18,000

Cash 18,000
To record acquisition of truck, to be carried in
accounting records of home office.

33. On October 5, 2006, Brentwood Company established the Palisades Branch.

Following are the initial transactions between the home office and Palisades Branch:
Oct. 5 Home office sent $5,000 to the branch for an imprest cash account.
8 Home office shipped merchandise costing $80,000 to the branch,
billed at a markup of 20% of home office cost.
10 Branch acquired store fixtures for $3,000 cash and a note payable of
$10,000; both the fixtures and the note payable will be carried in the
accounting records of the home office.
Both the home office and the Palisades Branch use the perpetual inventory system.
Prepare journal entries for the foregoing transactions in the accounting records of the
(a) home office, and (b) Palisades Branch of Brentwood Company.
Answer:
a.
Journal entries in accounting records of home office:
2006
Oct. 5 Investment in Palisades Branch 5,000
Cash 5,000
To record remittance for imprest cash account for
branch.
8 Investment in Palisades Branch 96,000

Inventories 80,000
Palisades Branch ($80,000 x 0.20) 16,000
To record shipment of merchandise to branch.
10 Store Fixtures: Palisades Branch 13,000

Investment in Palisades Branch 3,000
Notes Payable 10,000
To record acquisition of store fixtures by branch.

b.
Journal entries in accounting records of branch:
2006
Oct. 5 Cash 5,000
Home Office 5,000
To record receipt of cash from home office.
Home Office 96,000
To record receipt of merchandise from home office.
10 Home Office 3,000

Cash 3,000
To record acquisition of store fixtures, to be carried in
accounting records of home office.
34. For the fiscal year ended August 31, 2006, the South Bay Branch of Torrance
Company reported a net income of $60,000. Inventories of South Bay Branch on
August 31, 2006, in the amount of $125,000 had been billed to the branch by the home
office of Torrance Company at a markup of 25% above home office cost. On August
31, 2006, prior to adjustment, the Allowance for Overvaluation of Inventories: South
Bay Branch ledger account had a credit balance of $75,000 in the accounting records
of the home office.
Prepare August 31, 2006, journal entries for the home office of Torrance Company to
record the South Bay Branch's operating results for the year ended that date.

Answer:
2006
Aug. 31 Investment in South Bay Branch 60,000
Income: South Bay Branch 60,000
To record net income reported by South Bay Branch.
31 Allowance for Overvaluation of Inventories:

South Bay Branch ($75,000 – $25,000) 50,000
Realized Gross Profit: South Bay Branch Sales 50,000
applicable to goods sold by South Bay Branch.
31 Income: South Bay Branch 60,000

Realized Gross Profit: South Bay Branch Sales 50,000
To close South Bay Branch net income and realized
gross profit to Income Summary ledger account.
35. Newfoundland, Inc., has a branch in Boston. On April 1, 2006, the accounting records
of the home office of Newfoundland had a ledger account, Allowance for
Overvaluation of Inventories: Boston Branch, with a credit balance of $36,600. During
April, merchandise costing $110,000 was shipped to the Boston Branch and billed at
20% above home office cost. The branch reported a net income of $9,600 for April,
and branch inventories on April 30 were $162,000 at billed prices.
a. Prepare a working paper to compute the cost of the branch inventories on April 1,
2006, assuming a uniform markup on all shipments of merchandise to the branch.
b. Prepare a home office journal entry to adjust the Allowance for Overvaluation of
Inventories: Boston Branch ledger account on April 30, 2006.
Answer:
a. $183,000 ($36,600 ÷ 0.20 = $183,000) cost of branch inventories, Apr. 1, 2006.
b. Allowance for Overvaluation of Inventories:

Boston Branch 31,600
Realized Gross Profit: Boston Branch Sales 31,600
To adjust allowance account as follows:
Balance, Apr. 1, 2006 $36,600

Increase during April ($110,000 x 0.20) 22,000
Balance before adjustment $58,600
Less: Balance required, April 30, 2006: $162,000
x 1/6 (1/5 markup on cost is equal to 1/6 markup
on billed price) 27,000
Required reduction of Allowance ledger account $31,600

36. The home office of Carnival Company bills its only branch at 30% above home office
cost for all merchandise shipped to the branch. During 2006, the home office shipped
merchandise to the branch at billed prices of $104,000. Branch inventories for 2006
were as follows:
Jan. 1 Dec. 31
From home office (at billed prices) $32,500 $44,200
From outside suppliers 34,000 41,200
The home office uses the perpetual inventory system.
Prepare journal entries (including adjusting entries) for the home office of Carnival
Company for 2006 to reflect the foregoing information.
Answer:
Investment in Branch 104,000
Inventories 80,000
Allowance for Overvaluation of Inventories: Branch 24,000
To record shipment of merchandise to branch billed at 30%
above cost.
Allowance for Overvaluation of Inventories: Branch 21,300

Realized Gross Profit: Branch Sales 21,300
To adjust Allowance account as follows:
Balance, Jan. 1, 2006 [$32,500 x 3/13 (a 30% markup on cost

equals a 3/13 markup on billed prices)] 7,500
Increase during Year 2006 ($104,000 x 3/13) 24,000
Balance before adjustment $31,500
Less: Balance required, Dec. 31, 2006 ($44,200 x 3/13) 10,200
Required reduction of Allowance ledger account balance $21,300
37. The following ledger account was in the accounting records of the County Branch of
City Company on December 31, 2006:
Home Office
Date Explanation Debit Credit Balance
2006
Jan. 1 Balance 40,000 cr
Mar. 10 Cash remitted to home office 10,000 30,000 cr
31 Merchandise returned to home office 2,650 27,350 cr
June 6 Merchandise received from home office 14,400 41,750 cr
Oct. 10 Supplies received from home office 2,600 44,350 cr
Dec. 20 Acquisition of fixtures 9,250 35,100 cr
31 Net income 7,770 42,870 cr
The home office of City Company used the perpetual inventory system, and billed the
branch for merchandise shipments at 25% above home office cost.

Prepare journal entries to record the above indicated transactions and events in the
accounting records of the home office of City Company. Adjusting entries are not
required.
Answer:
2006
Mar. 10 Cash 10,000
Investment in County Branch 10,000
To record cash remitted by branch.
County Branch 530
To record merchandise returned by branch. Cost of
merchandise: $2,650 x 0.80 = $2,120.
June 6 Investment in County Branch 14,400

County Branch 2,880
Inventories 11,520
To record shipment of merchandise to branch. Cost of
merchandise: $14,400 x 0.80 = $11,520.
Oct. 10 Investment in County Branch 2,600

Inventory of Supplies 2,600
To record shipment of supplies to branch.
Dec. 20 Fixtures: County Branch 9,250

To record acquisition of fixtures by branch.
31 Investment in County Branch 7,770

Income: County Branch 7,770
To record net income reported by branch.

38. Included in the accounting records of the home office and the only branch,
respectively, of Socrates Company were the following ledger accounts for June, 2006:
Investment in Plato Branch

2006
May 31 Balance 51,000 dr
June 6 Shipment of merchandise 30,500 81,500 dr
20 Receipt of cash 11,500 70,000 dr
26 Collection of branch trade account 9,000 61,000 dr
receivable
30 Shipment of merchandise 24,000 85,000 dr
Home Office
2006
May 31 Balance 51,000 cr
June 8 Receipt of merchandise 30,500 81,500 cr
18 Payment of cash 11,500 70,000 cr
27 Acquisition of office equipment 14,500 55,500 cr
30 Payment of cash 22,000 33,500 cr
a. Prepare a working paper to reconcile the reciprocal ledger accounts to corrected

balances.
b. Prepare journal entries on June 30, 2006, for the (1) home office, and (2) Plato
Branch of Socrates Company. The branch uses the perpetual inventory system.
Answer:
a.
SOCRATES COMPANY
Home Office and Plato Branch
Reconciliation of Reciprocal Ledger Accounts
June 30, 2006
Investment in
Plato Branch Home Office
Ledger Ledger
Account Account
Balances prior to adjustment $85,000 dr $33,500 cr
Add: Merchandise shipped to branch 24,000
Less: Acquisition of office equipment by branch
(carried in accounting records of home office) (14,500)
Collection of branch trade accounts receivable (9,000)
Payment of cash by branch (22,000) _______
Adjusted balances $48,500 dr $48,500 cr

b. (1) Accounting records of home office:

Office Equipment: Plato Branch 14,500
Investment in Plato Branch 14,500
To record acquisition of office equipment by branch.
Cash in Transit 22,000

Investment in Plato Branch 22,000
To record cash in transit from branch.
(2) Accounting records of branch:

Home Office 9,000
Trade Accounts Receivable 9,000
To record collection by home office of branch accounts
receivable.
Inventories in Transit 24,000

Home Office 24,000
To record shipment of merchandise in transit from
home office.

Case
39. As a CPA and audit manager of Royal & Percy, LLP, you have been requested by John
James, president of James Company, a nonpublic enterprise, to write a memo to James
Company's accounting staff explaining the purpose of the Allowance for
Overvaluation of Inventories: Post Street Branch ledger account and the typical
journal entries in the account. James Company has just established Post Street Branch,
its first branch, and is planning for the home office to ship merchandise to the branch
at a markup of 20% above home office cost.
Write the memo requested by John James.
Answer:
Post Street Branch ledger account
Purpose and Typical Journal Entries
The purpose of the Allowance for Overvaluation of Inventories: Post Street Branch
ledger accounting in the accounting records of the home office of James Company is
to maintain a record of unrealized intracompany profit in the inventories of the Post
Street Branch, so that inventories and pre-tax income will not be overstated in the
combined financial statements of the home office and Post Street Branch of James
Company. Typical journal entries in the account are credits for the unrealized markup
over home office cost in the billed price of merchandise shipped to the branch, and an
end-of-period debit to reduce the credit balance of the account to the amount of the
unrealized intracompany profit in the branch's ending inventories. To illustrate,
assume that the home office of James Company shipped merchandise with a home
office cost of $120,000 to Post Street Branch at a markup of 20% on home office cost.
The home office would prepare the following journal entry under the perpetual
inventory system used by James Company (explanation omitted):
Investment in Post Street Branch ($120,000 x 1.20) 144,000

Inventories 120,000
Post Street Branch ($120,000 x 0.20) 24,000
Assuming no other shipments of merchandise to the branch by the home office during
the relevant accounting period and an ending inventory of the branch at billed prices
of $60,000, the home office would prepare the following end-of-period adjusting entry
(explanation omitted):

Post Street Branch [$24,000 – ($60,000 x 1/6)] 14,000
Realized Gross Profit: Post Street Branch Sales 14,000
The foregoing journal entry would leave a balance of $10,000 ($24,000 – $14,000 =
$10,000) in the allowance account, equal to the $10,000 unrealized intracompany
profit in the branch's ending inventory.

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Chapter 4 Accounting for Branches; Combined Financial Statements

Larsen, Modern Advanced Accounting, Tenth Edition 39

11. A markup of 16 2/3% on billed price is equal to a markup of 14 2/7% on cost of

40 Larsen, Modern Advanced Accounting, Tenth Edition

Multiple Choice Questions

Larsen, Modern Advanced Accounting, Tenth Edition 41

Office Equipment: Lang Branch 12,500

This journal entry indicates that:

42 Larsen, Modern Advanced Accounting, Tenth Edition

Operating Expenses 600,000

The journal entry indicates that:

Larsen, Modern Advanced Accounting, Tenth Edition 43

Investment in Seaside Branch 8,980

This journal entry indicates that:

Larsen, Modern Advanced Accounting, Tenth Edition 45

Inventories, Jan. 31, 2006 60,000

Income Summary 20,000

31 Allowance for Overvaluation

31 Income: Columbia Branch 20,000

46 Larsen, Modern Advanced Accounting, Tenth Edition

30 Allowance for Overvaluation of Inventories:

30 Realized Gross Profit: Cyprus Branch Sales 38,000

6 Investment in Branch 130,000

10 Trucks: Branch 18,000

10 Home Office 18,000

48 Larsen, Modern Advanced Accounting, Tenth Edition

33. On October 5, 2006, Brentwood Company established the Palisades Branch.

8 Investment in Palisades Branch 96,000

10 Store Fixtures: Palisades Branch 13,000

Larsen, Modern Advanced Accounting, Tenth Edition 49

10 Home Office 3,000

50 Larsen, Modern Advanced Accounting, Tenth Edition

31 Allowance for Overvaluation of Inventories:

31 Income: South Bay Branch 60,000

b. Allowance for Overvaluation of Inventories:

Balance, Apr. 1, 2006 $36,600

Larsen, Modern Advanced Accounting, Tenth Edition 51

Allowance for Overvaluation of Inventories: Branch 21,300

Balance, Jan. 1, 2006 [$32,500 x 3/13 (a 30% markup on cost

branch for merchandise shipments at 25% above home office cost.

Larsen, Modern Advanced Accounting, Tenth Edition 53

June 6 Investment in County Branch 14,400

Oct. 10 Investment in County Branch 2,600

Dec. 20 Fixtures: County Branch 9,250

31 Investment in County Branch 7,770

54 Larsen, Modern Advanced Accounting, Tenth Edition

Investment in Plato Branch

a. Prepare a working paper to reconcile the reciprocal ledger accounts to corrected

Larsen, Modern Advanced Accounting, Tenth Edition 55

b. (1) Accounting records of home office:

Cash in Transit 22,000

(2) Accounting records of branch:

Inventories in Transit 24,000

56 Larsen, Modern Advanced Accounting, Tenth Edition

Write the memo requested by John James.

Investment in Post Street Branch ($120,000 x 1.20) 144,000

Allowance for Overvaluation of Inventories:

profit in the branch's ending inventory.

58 Larsen, Modern Advanced Accounting, Tenth Edition

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