Which of the Following Is Correct with Respect to Closing

question 146

Multiple Choice

Which of the following is correct with respect to closing out overapplied manufacturing overhead to Cost of Goods Sold versus closing it out to Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold?

• A) The balance in the Work-in-Process account after allocation will be higher if the overapplied overhead is closed out by allocating it to all appropriate accounts.
• B) The balance in the Work-in-Process account after allocation will be the same under either method.
• C) Operating income will be higher if all of the overapplied overhead is closed out to Cost of Goods Sold.
• D) Cost of Goods Sold will be lower if the overapplied overhead is closed out by allocating it to the inventory accounts as well as to Cost of Goods Sold.

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Definitions:

Straight-Line Depreciation

An accounting method that allocates the cost of an asset evenly over its useful life.

Voting Stock

Shares in a company that give the shareholder the right to vote on company matters, such as electing the board of directors.

Fair Value Option

An election that allows companies to report specific financial assets and liabilities at their fair values, with changes in fair value recognized in the income statement.

Acquisition Method

A set of procedures used in accounting to consolidate the financial statements of two companies in the event of a merger or acquisition.