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

question 38

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 described above, the error in recording depreciation would have no effect on net income for the year.
• D) The $6,000 in depreciation should have been charged to Work in Process rather than to administrative expense.

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Definitions:

Financial Statements

Records that outline the financial activities and condition of a business, person, or other entity.

Proprietary Fund

A type of fund used in governmental accounting that is used to account for activities similar to those found in the private sector, where the payment of fees by external users for goods or services provided by the fund is the principal source of revenue.

Special Tax Levy

A tax imposed for a specific purpose, often by local or state governments, beyond regular taxing mechanisms.

Environmental Preservation

Actions and policies aimed at protecting the natural environment from degradation and pollution to ensure its health and sustainability for future generations.