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 $70,000 Accounts receivable 109,000 Inventories: Raw materials (film, costumes) $37,000 Videos in process 52,000 Finished videos awaiting sale 88,000 177,000 Prepaid insurance 10,400 Total current assets 366,400 Studio and equipment 744,000 Less accumulated depreciation 217,000 527,000 Total assets $893,400 Liabilities and Stockholders' Equity Accounts payable $189,400 Capital stock $427,000 Retained earnings 277,000 704,000 Total liabilities and stockholders' equity $893,400

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 $240,000 in manufacturing overhead for an estimated allocation base of 5,000 camera-hours. The following transactions were recorded for the year:

a. Film, costumes, and similar raw materials purchased on account, $192,000

. b. Film, costumes, and other raw materials issued to production, $207,000 (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, $79,000 for account.

d. Depreciation recorded on the studio, cameras, and other equipment, $91,000. 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, $137,000 for account.

f. Costs for salaries and wages were incurred as follows: Direct labor (actors and directors) $ 89,000 Indirect labor (carpenters to build sets, costume designers, and so forth) $ 117,000 Administrative salaries $ 102,000

g. Prepaid insurance expired during the year, $7,700 (75% related to production of videos, and 25% related to marketing and administrative activities).

h. Miscellaneous marketing and administrative expenses incurred, $9,300 for account.

i. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,000 camera-hours of activity during the year.

j. Videos that cost $557,000 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 $939,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $607,000.

l. Collections from customers during the year totaled $857,000.

m. Payments to suppliers on account during the year, $507,000; payments to employees for salaries and wages, $292,000.

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?

4. Prepare an income statement for the year.

Beg. Bal. Beg. Bal. Beg. Bal. End. Beg. Bal. End. Bal. Raw Materials Videos in Process Studio and Equipment Accounts Receivable Beg. Bal. End. Bal 00000 Prepaid insurance Beg. Bal. End. Bal. Finished Good 88,000 Beg. Bal. End. Bal. Accumulated Depreciation Beg. Bal