Answer:
Journal entries
Date Particulars Debit Credit
31, Dec 19 Investment in Branch Office $132,000
To Inventories $110,000
To Allowance for Overvaluation of $20,000
Inventories
31, Dec 19 Profit and loss $18,400
To Investment in Branch Office $18,400
31, Dec 19 Allowance for Overvaluation $10,000
of Inventories
To Realized Gross Profit: Branch Sales $10,000
Workings
1. Unrealized Inter-company Inventory Profit = (132,000/120) * 20 = $22,000
Shipment to Branch = 132,000 - 22,000 = $110,000
2. Unrealized Inter-company Inventory Profit = (60,000/120) * 2 = $10,000
