For the Fiscal Year Ended August 31, 2006, the South

Essay

For the fiscal year ended August 31, 2006, the South Bay Branch of Torrance Company reported a net income of $60,000. Inventories of South Bay Branch on August 31, 2006, in the amount of $125,000 had been billed to the branch by the home office of Torrance Company at a markup of 25% above home office cost. On August 31, 2006, prior to adjustment, the Allowance for Overvaluation of Inventories: South Bay Branch ledger account had a credit balance of $75,000 in the accounting records of the home office.
Prepare August 31, 2006, journal entries for the home office of Torrance Company to record the South Bay Branch's operating results for the year ended that date.