Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The companys 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 companys 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:

1. Film, costumes, and similar raw materials purchased on account, $204,000.
2. 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).
3. Utility costs incurred on account in the production studio, $91,000.
4. 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.
5. Advertising expense incurred on account, $149,000.
6. Costs for salaries and wages were incurred on 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

7. Prepaid insurance expired during the year, $8,900 (70% related to production of videos, and 30% related to marketing and administrative activities).
8. Miscellaneous marketing and administrative expenses incurred on account, $10,500.
9. Studio (manufacturing) overhead was applied to videos in production. The company used 9,500 camera-hours during the year.
10. 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.
11. 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.
12. Collections from customers during the year totaled $869,000.
13. Payments to suppliers on account during the year, $519,000; payments to employees for salaries and wages, $326,000.

Required:

1. Prepare a T-account for each account on the companys 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.

Prepare a T-account for each account on the companys balance sheet and enter the beginning balances. Record the transactions directly into the T-accounts.

CASH

ACCOUNTS RECEIVABLE

RAW MATERIALS

PREPAID INSURANCE

VIDEOS IN PROCESS

FINISHED GOODS

STUDIO AND EQUIPMENT

ACCUMULATED DEPRECIATION

STUDIO OVERHEAD

DEPRECIATION EXPENSE

INSURANCE EXPENSE

ADVERTISING EXPENSE

MISCELLANEOUS EXPENSE

ADMINISTRATIVE SALARIES EXPENSE

COST OF GOODS SOLD

SALES

SALARIES AND WAGES PAYABLE

ACCOUNTS PAYABLE

RETAINED EARNINGS

CAPITAL STOCK

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

Manufacturing overhead was

by

for the year.

Prepare a schedule of cost of goods manufactured.

Supreme Videos, Inc.
Schedule of Cost of Goods Manufactured
Direct materials:
Total raw materials available
Raw materials used in production
Total manufacturing costs
Cost of goods manufactured

Prepare a schedule of cost of goods sold.

Supreme Videos, Inc.
Schedule of Cost of Goods Sold

Prepare an income statement for the year.

SUPREME VIDEOS, INC.
Income Statement
For the Year Ended December 31
Selling and administrative expenses: