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:

Net New Equity

The difference between equity capital raised by issuing new shares and the equity capital repurchased or retired over a specific period.

Operating Cash Flow

Funds arising from an enterprise's standard operational processes, demonstrating whether the enterprise can generate adequate positive cash flow to support and increase its activities.

Millions

A numerical unit representing one thousand thousand, or 1,000,000, often used to quantify currency, population, or other large-scale counts.

Net Working Capital

The difference between a company's current assets and its current liabilities, indicating short-term financial health and liquidity.