Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The companys balance sheet accounts as of January 1, the beginning of its fiscal year, are given below:

Supreme Videos, Inc. Balance Sheet January 1
Assets
Current assets:
Cash		$78,000
Accounts receivable		117,000
Inventories:
Raw materials (film, costumes)	$45,000
Videos in process	23,000
Finished videos awaiting sale	96,000	164,000
Prepaid insurance		12,000
Total current assets		371,000
Studio and equipment	760,000
Less accumulated depreciation	225,000	535,000
Total assets		$906,000
Liabilities and Stockholders' Equity
Accounts payable		$117,000
Capital stock	$504,000
Retained earnings	285,000	789,000
Total liabilities and stockholders' equity		$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 companys 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 were recorded for the year:

a.	Film, costumes, and similar raw materials purchased on account, $200,000.
b.	Film, costumes, and other raw materials issued to 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 for account.
d.	Depreciation recorded on the studio, cameras, and other equipment, $99,000. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration.
e.	Advertising expense incurred, $145,000 for account.
f.	Costs for salaries and wages were incurred as follows:

Direct labor (actors and directors)	$	97,000
Indirect labor (carpenters to build sets,
costume designers, and so forth)	$	125,000
Administrative salaries	$	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 for account.
i.	Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,800 camera-hours of activity 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.
l.	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.
n.	Make an entry in the T-accounts to close any balance in the Studio Overhead account to Cost of Goods Sold.

Required:
1&2.	Prepare a T-account for each account on the companys balance sheet, and enter the beginning balances. Make an entry directly into the T-accounts for transactions (a) through (m).

3.

Was the Studio (manufacturing) Overhead account underapplied or overapplied for the year?

Manufacturing overhead was

overapplied

by

for the year.

4.	Prepare an income statement for the year.

SUPREME VIDEOS, INC.
Income Statement
For the Year Ended December 31
Sales of videos
Cost of goods sold
Gross margin		0
Selling and administrative expenses:
Depreciation expense
Advertising expense
Administrative salaries
Insurance expense
Miscellaneous expense
		0
Net operating income		$0