Question

A company is a manufacturer that completed numerous transactions during the month, some of which are shown below: a. Manufacturing overhead costs incurred on account, $80,000. b. Depreciation was recorded for the month, $35,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). c. Prepaid insurance expired during the month, $2,500 (75% related to production, and 25% related to selling and administration). d. Applied $116,000 of manufacturing overhead to production during the month. e. Closed over- (or under-) applied overhead to cost of goods sold. Determine the net changes in the Retained Earnings account after recording the above transactions. (All answers are whole numbers -- unless specified otherwise. You should NOT include the $ sign or a comma. E.g., you should type 1000 for one thousand. Negative numbers should be added with a minus sign, e.g., -1000 for a decrease or loss of one thousand.) Net changes in Retained Earnings = $

Answer 1

net changes in retained earnings is -45500

depreciation expense=35000*20%=-7000

80% related to factory equipment which is not affected the retained earnings

prepaid insurance expense during the month -2500

100% of prepaid insurance is affected to the retained earnings

under applied overhead=budgeted overhead-actual overhead

under applied overhead=80000-116000=-36000

an under applied overhead occurs when budgeted overhead is less than actual overhead

under applied overhead is added to the cost of goods sold.to adjust the retained earnings it should be deducted.

so the net change will be=-7000-2500-36000=-45500