Problem 3-17 (Algo) Cost Flows; T-Accounts; Income Statement [LO3-2, LO3-3, LO3-4] Supreme Videos, Incorporated, produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1, are given below. Supreme Videos, Incorporated Balance Sheet January 1 Assets Current assets: Cash Accounts receivable Inventories: Raw materials (film, costumes) Videos in process Finished videos awaiting sale Prepaid insurance Total current assets Studio and equipment Less accumulated depreciation Total assets Liabilities and Stockholders' Equity Accounts payable Capital stock Retained earnings Total liabilities and stockholders' equity $ 78,000 117,000 $ 45,000 23,000 96,000 164,000 12,000 760,000 225,000 $ 504,000 285,000 371,000 535,000 $ 906,000 $ 117,000 789,000 $ 906,000 Because the videos differ in length and in complexity of production, the company uses a job-order costing system to determine the cost of each video produced. Studio (manufacturing) overhead is charged to videos on the basis of camera-hours of activity. The company's predetermined overhead rate for the year is based on a cost formula that estimated $270,000 in manufacturing overhead for an estimated allocation base of 6,000 camera-hours. The following transactions occurred during the year: a. Film, costumes, and similar raw materials purchased on account, $200,000. b. Film, costumes, and other raw materials used in production, $215,000 (80% of this material was considered direct to the videos in production, and the other 20% was considered indirect). c. Utility costs incurred in the production studio, $87,000. d. Depreciation recorded on the studio, cameras, and other equipment, $99,000. Three-fourths of this depreciation related to production of the videos, and the remainder related to equipment used in marketing and administration. e. Advertising expense incurred on account, $145,000. f. Costs for salaries and wages were incurred as follows: Direct labor (actors and directors) Indirect labor (carpenters to build sets, costume designers, and so forth) Administrative salaries $ 97,000 $ 125,000 $ 110,000 g. Prepaid insurance expired during the year, $8,500 (75% related to production of videos, and 25% related to marketing and administrative activities). h. Miscellaneous marketing and administrative expenses incurred, $10,100. i. Studio (manufacturing) overhead was applied to videos in production. The company used 7,800 camera-hours during the year. j. Videos that cost $565,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment. k. Sales for the year totaled $955,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $615,000. I. Collections from customers during the year totaled $865,000. m. Payments to suppliers on account during the year, $515,000; payments to employees for salaries and wages, $322,000. Required: 1. Prepare a T-account for each account on the company's balance sheet and enter the beginning balances. 2. Record the transactions directly into the T-accounts. Key your entries to the letters (a) through (m) above. 3. Is the Studio (manufacturing) Overhead account underapplied or overapplied for the year? By how much? 4. Prepare a schedule of cost of goods manufactured. 5. Prepare a schedule of cost of goods sold. 6. Prepare an income statement for the year. Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Prepare a T-account for each account on the company's balance sheet and enter the beginning balances. Record the transactions directly into the T-a Debit Beginning Balance Ending Balance Cash Credit Accounts Receivable Debit Credit Beginning Balance Ending Balance Raw Materials Prepaid Insurance Debit Credit Debit Credit Beginning Balance Beginning Balance Ending Balance Ending Balance Beginning Balance Ending Balance Beginning Balance Ending Balance Videos in Process Finished Goods Debit Credit Debit Credit Beginning Balance Ending Balance Studio and Equipment Accumulated Depreciation Debit Credit Debit Credit Beginning Balance Ending Balance Studio Overhead Depreciation Expense Debit Credit Debit Credit Beginning Balance Beginning Balance Ending Balance Ending Balance Insurance Expense Advertising Expense Debit Credit Debit Credit Beginning Balance Beginning Balance Miscellaneous Expense Debit Credit Beginning Balance Beginning Balance Ending Balance Administrative Salaries Expense Debit Credit Cost of Goods Sold Sales Debit Credit Debit Credit Beginning Balance Beginning Balance Ending Balance Ending Balance Beginning Balance Ending Balance Salaries & Wages Payable Debit Credit Beginning Balance Ending Balance Accounts Payable Debit Credit Retained Earnings Capital Stock Debit Credit Debit Credit Beginning Balance Beginning Balance Ending Balance Ending Balance Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Is the Studio (manufacturing) Overhead account underapplied or overapplied for the year? By how much? Manufacturing overhead was by for the year. < Req 1 and 2 Req 4 > Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Prepare a schedule of cost of goods manufactured. Supreme Videos, Incorporated Schedule of Cost of Goods Manufactured Direct materials: Total raw materials available Raw materials used in production Direct materials used in production Total manufacturing costs added to production Total manufacturing costs to account for Cost of goods manufactured Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Prepare a schedule of cost of goods sold. Supreme Videos, Incorporated Schedule of Cost of Goods Sold Req 4 Req 6 > Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Prepare an income statement for the year. Supreme Videos, Incorporated Income Statement For the Year Ended December 31 Selling and administrative expenses: