Question
4. The home office of Loza Co., which uses the perpetual inventory system, bills shipments of merchandise to the Arada Branch at a markup of
4. The home office of Loza Co., which uses the perpetual inventory system, bills shipments of merchandise to the Arada Branch at a markup of 25% on the billed price. On August 31, 2018, the credit balance of the home offices Allowance for Overvaluation of Inventories: Arada Branch ledger account was Br.60, 000. On September17, 2018, the home office shipped merchandise to the branch at a billed price of Br. 400,000. The branch reported an ending inventory, at billed price, of Br.160, 000 on September30, 2018. Instructions a) Prepare journal entries involving the Allowance for Overvaluation of Inventories: Arada Branch ledger account of the home office of Loza Company on September 17 and 30, 2018. Show supporting computations in the explanations for the entries. b) With all the necessary information given, if you have to prepare the combined financial statements for Loza, how would you do it (Describe the procedure)?
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