Sharp Company's Records Show That Overhead Was Overapplied by $10,000

question 2

Multiple Choice

Sharp Company's records show that overhead was overapplied by $10,000 last year.This overapplied overhead was closed out to the Cost of Goods Sold account at the end of the year.In trying to determine why overhead was overapplied by such a large amount,the company has discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error.Given the above information,which of the following statements is true?

• A) Manufacturing overhead was actually overapplied by $16,000 for the year.
• B) The company's net income is understated by $6,000 for the year.
• C) Under the circumstances posed above,the error in recording depreciation would have no effect on net income for the year.
• D) The amount of $6,000 in depreciation should have been charged to Work in Process rather than to administrative expense.

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Definitions:

Adjusted Trial Balance

A list of all accounts and their balances after adjustments are made for accruals, deferrals, and errors to prepare for financial statement generation.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been deducted from total revenue.

Service Revenue

Income earned by a company for the services it has provided to its customers.

Common Stock

Represents ownership shares in a corporation, giving holders a claim on part of the company's profits and assets.