In its first year of operation, Montreal Printing Shop estimated manufacturing overhead costs and activity in order to determine a predetermined overhead rate. At year end, overhead was over-applied by $3,500. It has been decided this over-applied overhead is material at the end of the year and the amount should be allocated among 10% work-in- process, 25% finished goods, and the rest to the cost of goods sold. Prepare the adjusting entry to close out the over-applied overhead.