The Approach Often Used When Dealing with Small Amounts of Underallocated

question 79

Multiple Choice

The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________ approach.

• A)adjusted allocation-rate
• B)proration
• C)write-off to cost of goods sold
• D)Both A and B are correct.

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Definitions:

Capital Balance

The amount of money that an entity has in its capital account, reflecting the net worth contributed by the owners/shareholders plus retained earnings.

Bonus Method

An accounting method for recording partnership transactions where a new partner's investment is more than or less than the book value of the capital they are entitled to.

Capital Balance

The amount of capital recorded in a company's accounts, representing the sum of the initial capital invested and additional contributions, minus any withdrawals.

Goodwill

An intangible asset that arises when a business is acquired for more than the fair value of its net identifiable assets, representing future economic benefits.