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

$

82,000

Accounts receivable

121,000

Inventories:

Raw materials (film, costumes)

$

49,000

Videos in process

22,000

Finished videos awaiting sale

100,000

171,000

Prepaid insurance

12,800

Total current assets

386,800

Studio and equipment

768,000

Less accumulated depreciation

229,000

539,000

Total assets

$

925,800

Liabilities and Stockholders' Equity

Accounts payable

$

128,800

Capital stock

$

508,000

Retained earnings

289,000

797,000

Total liabilities and stockholders' equity

$

925,800

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 $360,000 in manufacturing overhead for an estimated allocation base of 9,000 camera-hours. The following transactions occurred during the year:

a.Film, costumes, and similar raw materials purchased on account, $204,000.

b.Film, costumes, and other raw materials used in production, $219,000 (75% of this material was considered direct to the videos in production, and the other 25% was considered indirect).

c.Utility costs incurredon account in the production studio, $91,000.

d.Depreciation recorded on the studio, cameras, and other equipment, $103,000. 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, $149,000.

f.Costs for salaries and wages were incurredon account as follows:

Direct labor (actors and directors)

$

101,000

Indirect labor (carpenters to build sets,

costume designers, and so forth)

$

129,000

Administrative salaries

$

114,000

g.Prepaid insurance expired during the year, $8,900 (70% related to production of videos, and 30% related to marketing and administrative activities).

h.Miscellaneous marketing and administrative expenses incurred on account, $10,500.

i.Studio (manufacturing) overhead was applied to videos in production. The company used 9,500 camera-hours during the year.

j.Videos that cost $569,000 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 $963,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $619,000.

l.Collections from customers during the year totaled $869,000.

m.Payments to suppliers on account during the year, $519,000; payments to employees for salaries and wages, $326,000.

Required:

1.Do 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. Do a schedule of cost of goods manufactured.

5. Do the schedule of cost of goods sold.

6. Do an income statement for the year.