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Supreme Videos, Incorporated, produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1, are given below. Supreme
Supreme Videos, Incorporated, produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1, are given below. Supreme Videos, Incorporated Balance Sheet January 1 Assets Current assets: Cash $ 64,000 Accounts receivable 103,000 Inventories: Raw materials (film, costumes) S 31,000 Videos in process 46,000 Finished videos awaiting sale 82,000 159,000 Prepaid insurance 9,200 Total current assets 335,200 Studio and equipment 732,000 Less accumulated depreciation 211,000 521,000 Total assets $ 856,200 Liabilities and Stockholders' Equity Accounts payable $ 164,200 Capital stock $ 421,000 Retained earnings 271,000 692,000 Total liabilities and stockholders' $ 856,200 equity 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 camerahours of activity. The company's 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 camerahours. The following transactions occurred during the year: a. Film, costumes, and similar raw materials purchased on account, $186,000. b. Film, costumes, and other raw materials used in production, $201,000 (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, $73,000. d. Depreciation recorded on the studio, cameras, and other equipment, $85,000. Three- fourths of this depreciation related to production of the videos, and the remainder related to equipment used in marketing and administration. Advertising expense incurred on account, $131,000. f. Costs for salaries and wages were incurred as follows: 9 Direct labor (actors and directors) $ 83,000 Indirect labor {carpenters to build sets, costume $ designers, and so forth) 111,000 Administrative salaries $ 96,000 g. Prepaid insurance expired during the year, $7,100 (75% related to production of videos, and 25% related to marketing and administrative activities). h. Miscellaneous marketing and administrative expenses incurred, $8,700. i. Studio (manufacturing) overhead was applied to videos in production. The company used 6,800 camera-hours during the year. j. Videos that cost $551,000 to produce according to their job cost sheets were transferred to the nished videos warehouse to await sale and shipment. k. Sales for the year totaled $927,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $601,000. 1. Collections from customers during the year totaled $851,000. m. Payments to suppliers on account during the year, $501,000; payments to employees for salaries and wages, $286,000. 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? 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
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