Problem 3-17 Cost Flows; T-Accounts; Income Statement [LO3-2, LO3-3, LO3-4] Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1, are given below Supreme Videos, Inc. Balance Sheet January 1 Assets Current assets: Cash Accounts receivable Inventories: s 73,000 112,000 Raw materials (film, costumes) $40,000 32,000 91,000 Videos in process Finished videos awaiting sale 163,000 11,000 359,000 Prepaid insurance Total current assets Studio and equipment 750,000 220,000 Less accumulated depreciation 530,000 Total assets $889,000 Liabilities and Stockholders' Equity Accounts pavable Capital stock Retained earnings $179,000 $430,000 280,000 710,000 Total liabilities and stockholders' equity $889,000 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 $250,000 in manufacturing overhead for an estimated allocation base of 5,000 camera-hours. The following transactions occurred during the year: a. Film, costumes, and similar raw materials purchased on account, $195,000 b. Film, costumes, and other raw materials used in production, $210,000 (80% of this material was considered direct to the videos in production, and the other 20% was considered indirect) c. Utility costs incurred on account in the production studio, $82,000 d. Depreciation recorded on the studio, cameras, and other equipment, $94,000. 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, $140,000 f. Costs for salaries and wages were incurred on account as follows Direct labor (actors and directors) Indirect labor (carpenters to build sets, $ 92,000 costume designers, and so forth) Administrative salaries $ 120,000 $ 105,000 g. Prepaid insurance expired during the year, $8,000 (75% related to production of videos, and 25% related to marketing and administrative activities) h. Miscellaneous marketing and administrative expenses incurred on account, $9,600 i. Studio (manufacturing) overhead was applied to videos in production. The company used 7,000 camera-hours during the year j. Videos that cost $560,000 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 $945,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $610,000 I. Collections from customers during the year totaled $860,000 m. Payments to suppliers on account during the year, $510,000; payments to employees for salaries and wages, $301,000 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 . 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- accounts Cash Accounts Receivable 73,000 860,000 112.000 ) 945,000 Beg. Bal Beg. Bal k. End. Bal 933,000 End. Bal 1,057,000 Raw Materials Prepaid Insurance Beg. Bal 40,000 Beg. Bal 11.000 195,000 End. Bal 235,000 End. Bal 11,000 Videos in Process Finished Goods 32,000 168,000 | 92.0000 350,000 Beg. Bal Beg. Bal 91,000 560,000 End. Bal 651,000 End. Bal 642,000 Studio and Equipment Accumulated Depreciation Beg. Bal 750,000 Beg. Bal End. Bal End. Bal 750,000 Studio Overhead Depreciation Expense Beg. Bal 42,000 82,000 70,500 120,000 6,000 29,500 350,000 Beg. Bal 23,500 C. End. Bal 23,500 End. Bal Insurance Expense Advertising Expense 140,000 Beg. Bal 2,000 Beg. Bal 2,000 140,000 Miscellaneous Expense Administrative Salaries Expense Beg. Bal 9,600 Beg. Bal 105,000 9,600 End. Bal 105,000 Cost of Goods Sold Sales Beg. Bal Beg. Bal 610,000 945,000 k. End. Bal 610,000 End. Bal 945,000 Salaries &Wages Payable Accounts Payable Beg. Bal Beg. Bal. 105,000 End. Bal. 105,000 End. Bal. Retained Earnings Capital Stock Beg. Bal Beg. Bal 430,000 End. Bal 430,000 End. Bal. Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Prepare a schedule of cost of goods manufactured Supreme Videos, Inc Schedule of Cost of Goods Manufactured Direct materials $ 32,000 * Beginning finished goods inventory Add: Ending videos in process inventory Total raw materials available Add: Ending videos in process inventory Raw materials used in production Add: Ending videos in process inventory 40,000 195,000 235,000 (67,000) 168,000 Direct labor Manufacturing overhead applied to work in process> Total manufacturing costs Add: Ending work in process inventory 92,000 350,000 610,000 (82,000) 528,000 (82,000) $ 560,000 Less: Beginning work in process inventory Cost of goods manufactured