70.2K

Verified Solution

Link Copied!

Question 3 (34 marks)

A- Habiba Company has a single branch in Southwest. On March 1, 2020, the home ofce accounting records included an Allowance for Overvaluation of Inventories: Southwest Branch ledger account with a credit balance of $32,000. During March, the following transactions occurred:

1. On March 4, the home office shipped merchandise costing $66,000 to the Southwest Branch and billed it at a price representing a 40% markup on the billed price.
2. On March 8, the branch sold 70% of the merchandise received from the home office on march 4 for $90,000 cash.
3. On March 15, the branch sold 20% of the merchandise received from the home office on march 4 to Hope company for $30,000 on credit.
4. On March 22, the home office informed the branch that it had collected 50% of the amount owed by Hope company.
5. On March 28, the branch paid operating expenses of $10,000 cash.
6. On March 29, Hope company paid the remaining amount due to Southwest branch,
7. On March 30, the home office allocated operating expenses of $4,000 to the branch.

Required:

1. Prepare a working paper for the home office to analyze the flow of merchandise to Southwest branch during March 2020.
2. Prepare all required entries, including closing and adjusting entries, for the foregoing intracompany transactions in the accounting records of (a) the home office and (b) the Southwest Branch.
3. Reconstruct a three-column ledger account Allowance for overvaluation of inventories: Southwest branch for the home office of Habiba Company. (16 Marks)

Answer & Explanation Solved by verified expert

See Answer