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. $ 63,000 102,000 Supreme Videos, Inc. Balance Sheet January 1 Assets Current assets: Cash Accounts receivable Inventories: Raw materials (film, costumes) $ 30,000 Videos in process 45,000 Finished videos awaiting sale 81,000 Prepaid insurance Total current assets Studio and equipment 730,000 Less accumulated depreciation 210,000 Total assets Liabilities and Stockholders' Equity Accounts payable Capital stock $420,000 Retained earnings 270,000 Total liabilities and stockholders' equity 156,000 9,000 330,000 520,000 $850,000 $160,000 690,000 $850,000 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 $280,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours. The following transactions occurred during the year: a. Film, costumes, and similar raw materials purchased on account, $185,000. b. Film, costumes, and other raw materials used in production, $200,000 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect). c. Utility costs incurred on account in the production studio, $72,000. d. Depreciation recorded on the studio, cameras, and other equipment, $84,000. 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, $130,000. f. Costs for salaries and wages were incurred on account as follows: $ 82,000 Direct labor (actors and directors) Indirect labor (carpenters to build sets, costume designers, and so forth) Administrative salaries $ 110,000 $ 95,000 g. Prepaid insurance expired during the year, $7,000 (80% related to production of videos, and 20% related to marketing and administrative activities). h. Miscellaneous marketing and administrative expenses incurred on account, $8,600. i. Studio (manufacturing) overhead was applied to videos in production. The company used 7,250 camera-hours during the year. j. Videos that cost $550,000 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 $925,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $600,000. 1. Collections from customers during the year totaled $850,000. m. Payments to suppliers on account during the year, $500,000; payments to employees for salaries and wages, $285,000. 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. 3. Is the Studio (manufacturing) Overhead account underapplied or overapplied for the year? 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. 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 Beg. Bal. 63,000 850,000 Beg. Bal. k. Accounts Receivable 102,000 925,000 850,000 1. 500.000 m. 285,000 m. End. Bal 128,000 End. Bal. 177,000 Raw Materials 30,000 185.000 Prepaid Insurance 9,000 Beg. Bal. Beg. Bal. a 200,000 lb 7,000 g End. Bal. 15,000 End. Bal 2,000 Beg. Bal. Beg. Bal. Ib Videos in Process 45,000 170,000 550,000 82,000 290,000 Finished Goods 81,000 550,000 600,000 ff 1. End. Bal. 31,000 End. Bal 37,000 Studio and Equipment 730,000 Beg. Bal Beg. Bal. Accumulated Depreciation 210,000 84,000 d. End. Bal. 294,000 End Ral 730 0001 Depreciation Expense 420,000 Beg. Bal. Beg. Bal m. Studio Overhead 160.000 500,000 185,000 a. 72,000 C. 130.000 e 8,600 h End. Bal. 420,000 End. Bal. 55,600 Insurance Expense Advertising Expense Beg. Bal 9 Beg. Bal. e. 1,400 130,000 1,400 130,000 Miscellaneous Expense Administrative Salaries Expense Beg. Bal. Beg. Bal. 8,600 95,000 8,600 End. Bal 95,000 Cost of Goods Sold Sales Beg. Bal. Beg. Bal. K 600.000 925,000K. End. Bal. 600,000 End. Bal. 925,000 Salaries & Wages Payable Beg. Bal. Beg. Bal. m. m 285,000 Accounts Payable 160,000 500,000 185,000 a. 72,000C 130,000 e. 8,600 h. End. Bal. 285,000 8,600 h. End. Bal. 55,600 Capital Stock Retained Earnings 270,000 Beg. Bal. Beg. Bal. 420,000 End. Bal. 270,000 End. Bal. 420,000 Supreme Videos, Inc. Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory 30,000 Add: Purchases of raw materials 185,000 Total raw materials available 215,000 Less: Ending raw materials inventory 15,000 Raw materials used in production 200,000 Less: Indirect materials 30,000 Direct labor Manufacturing overhead applied to work in process Total manufacturing costs Add: Beginning work in process inventory 170,000 82,000 261,400 261,400 Less: Ending work in process inventory Cost of goods manufactured Supreme Videos, Inc. Schedule of Cost of Goods Sold