Tillman Textile Company has a single branch in Toledo. On March 1, 2005, the home office accounting records included an Allowance for Overvaluation of Inventories: Toledo Branch ledger account with a credit balance of $32,000. During March, merchandise costing

$36,000 was shipped to the Toledo Branch and billed at a price representing a 40%

markup on the billed price. On March 31, 2005, the branch prepared an income statement indicating a net loss of $11,500 for March and ending inventories at billed prices of

$25,000.

a. Prepare a working paper to compute the home office cost of the branch inventories on March 1, 2005, assuming a uniform markup on all shipments to the branch.

b. Prepare a journal entry to adjust the Allowance for Overvaluation of Inventories:

Toledo Branch ledger account on March 31, 2005, in the accounting records of the home office.