Question

At the current year-end, Hardly Company found that its overhead was underapplied by $2,500, and this amount was not deemed to be a material amount. Based on this information, Hardly should A. Close the $2,500 to Cost of Goods Sold. B. Close the $2,500 to Finished Goods Inventory. C. Do nothing about the $2,500, since it is not material, and it is likely that overhead will be overapplied by the same amount next year. D. Carry the $2,500 to the income statement as "Other Expense". E. Carry the $2,500 to the next period.

Answer 1

Answer:

A. Close the $2,500 to Cost of Goods Sold.

Explanation:

The journal entry to record the under applied overhead is shown below:

Cost of goods sold A/c Dr $2,500

            To Manufacturing overhead A/c $2,500

(Being the under-applied overhead is recorded)

Since we have to record the under-applied, we debited the cost of goods sold account and credited the manufacturing overhead account

So, we close the cost of goods sold for $2,500