Cooper Company had overapplied factory overhead of $2,000 last year.Assuming the amount was considered small enough not to materially distort net income,the entries needed to close factory overhead are:
A)Factory Overhead 2,000 Applied Factory Overhead 2,000
Applied Factory Overhead 2,000
Cost of Goods Sold 2,000.
B)Factory Overhead 2,000 Under- and Overapplied
Factory Overhead 2,000.
Cost of Goods Sold 2,000
Under- and Overapplied
Factory Overhead 2,000.
C)Factory Overhead 2,000 Under- and Overapplied
Factory Overhead 2,000
Under- and Overapplied Factory
Overhead 2,000
Cost of Goods Sold 2,000
D)Factory Overhead 2,000 Applied Factory Overhead 2,000
Applied Factory Overhead 2,000
Cost of Goods Sold 2,000

Question

Quizplus · Accepted Answer

When factory overhead is overapplied, it means that the actual overhead costs were less than what was applied to the products. The correct way to close this overapplied amount is to debit the Factory Overhead account and credit the Under- and Overapplied Factory Overhead account for the overapplied amount. Then, this balance is cleared by debiting the Under- and Overapplied Factory Overhead account and crediting the Cost of Goods Sold, thereby reducing the cost of goods sold by the overapplied amount. This reflects the adjustment needed to correct the overapplied overhead, making choice C correct.

Cooper Company Had Overapplied Factory Overhead of $2,000 Last Year