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Question(s) / Instruction(s):

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

Date

Explanation

Debit

Credit

Balance

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 receivable

 

9,000

61,000 dr

 

30

Shipment of merchandise

24,000

 

85,000 dr

 

 

 

 

 

Home Office

Date

Explanation

Debit

Credit

Balance

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.

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.

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