Figure 4-7 The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances:
Refer to Figure 4-7. If Manufacturing overhead was $12,000 overapplied and considered immaterial, what is the journal entry?
A) Cost of Goods Sold $12,000 Manufacturing Overhead $12,000
B) Manufacturing Overhead $12,000 Cost of Goods Sold $12,000
C) Manufacturing Overhead $12,000 Raw Materials $2,000 Work in Process $4,000 Finished Goods $1,000 Cost of Goods Sold $5,000
D) Raw Materials $2,000 Work in process $4,000 Finished Goods $1,000 Cost of Goods Sold $5,000 Manufacturing Overhead $12,000
E) Manufacturing Overhead $12,000 Work in Process $4,800 Finished Goods $1,200 Cost of Goods Sold $6,000

Question

Figure 4-7 The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances:
 Refer to Figure 4-7. If Manufacturing overhead was $12,000 overapplied and considered immaterial, what is the journal entry?
A) Cost of Goods Sold $12,000 Manufacturing Overhead $12,000 
B) Manufacturing Overhead $12,000 Cost of Goods Sold $12,000 
C) Manufacturing Overhead $12,000 Raw Materials $2,000 Work in Process $4,000 Finished Goods $1,000 Cost of Goods Sold $5,000 
D) Raw Materials $2,000 Work in process $4,000 Finished Goods $1,000 Cost of Goods Sold $5,000 Manufacturing Overhead $12,000 
E) Manufacturing Overhead $12,000 Work in Process $4,800 Finished Goods $1,200 Cost of Goods Sold $6,000

Quizplus · Accepted Answer

Since the amount overapplied is considered immaterial, the most common practice is to simply debit or credit the Manufacturing Overhead account with the amount overapplied. In this case, since the Manufacturing Overhead was overapplied by $12,000, we will debit Manufacturing Overhead with $12,000 and credit Cost of Goods Sold with $12,000 to adjust for the overapplied overhead. Therefore, the correct journal entry is Option B: Manufacturing Overhead $12,000 Cost of Goods Sold $12,000.

Figure 4-7 the Cherokee Company Uses a Predetermined Overhead Rate