The following information relates to Wells Fargo for July 2008:
Assuming underapplied or overapplied overhead is transferred to cost of goods sold at the end of the period, which of the following would be the entry to the cost of goods sold account?
A) $80 000 debit
B) $80 000 credit
C) $40 000 credit
D) $40 000 debit

Question

The following information relates to Wells Fargo for July 2008: 
Assuming underapplied or overapplied overhead is transferred to cost of goods sold at the end of the period, which of the following would be the entry to the cost of goods sold account?
A) $80 000 debit 
B) $80 000 credit 
C) $40 000 credit 
D) $40 000 debit

Quizplus · Accepted Answer

The entry to the cost of goods sold account for underapplied overhead is a debit, and for overapplied overhead, it is a credit. Since we don't know whether the overhead was overapplied or underapplied, we need to calculate the amount of the adjustment first. Therefore, we need more information to determine whether the adjustment is to increase or decrease cost of goods sold. However, since option D only represents a debit to cost of goods sold, it is the best choice.

The Following Information Relates to Wells Fargo for July 2008