Answered: overvaluation

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

SPLINTER Co. has two merchandise outlets, its main store in Donatello and its Rafael branch. For control purposes, all purchases are made by Donatello main store and shipped to Rafael branch at cost plus 10%. On January 1, 2018, the inventories in Donatello and Rafael are $13, 600 and $3,960, respectively. During 2018, Donatello purchased merchandise costing $40,000 and shipped 40% of it to the branch. At Year Ended 2018, the following journal entry to prepare the books for the next accounting period was prepared:

Sales	32, 000
Inventory	4, 840
Inventory	3,960
Shipments from main store	17,600
Expenses	10, 480
Main Store	4,800

What is the amount of overvaluation that was realized from the branch sales?

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