During the current accounting period,O'Hare applied $14,500 of estimated overhead cost to production.Actual overhead costs were $14,325.Assuming that the balance in the Manufacturing Overhead is insignificant,the recognition of the transaction to close that account will:
A) Decrease cost of goods sold and increase stockholders' equity.
B) Increase cost of goods sold.
C) Decrease stockholders' equity.
D) Decrease total assets and total liabilities.

Question

Quizplus · Accepted Answer

Since the estimated overhead applied to production ($14,500) exceeded the actual overhead costs ($14,325), there is an over-applied overhead balance. Closing the Manufacturing Overhead account involves recognizing this over-applied balance by transferring it to Cost of Goods Sold and increasing Stockholders' Equity. Therefore, option A is the correct choice. Option B is incorrect since the transaction would decrease, not increase, cost of goods sold. Option C is incorrect because stockholders' equity would actually increase, not decrease. Option D is incorrect because this transaction does not affect total assets or total liabilities.

During the Current Accounting Period,O'Hare Applied $14,500 of Estimated Overhead