Reference no: EM132657242

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 $72,000
Accounts receivable 111,000

Inventories:

Raw materials (film, costumes) $39,000
Videos in process 31,000
Finished videos awaiting sale 90,000 160,000
Prepaid insurance 10,800
Total current assets 353,800
Studio and equipment 748,000
Less accumulated depreciation 219,000 529,000
Total assets $882,800

Liabilities and Stockholders' Equity

Accounts payable $174,800
Capital stock $429,000
Retained earnings 279,000 708,000
Total liabilities and stockholders' equity $882,800

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 $315,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours.

The following transactions occurred during the year:
a. Film, costumes, and similar raw materials purchased on account, $194,000.

b. Film, costumes, and other raw materials used in production, $209,000 (75% of this material was considered direct to the videos in production, and the other 25% was considered indirect).

c. Utility costs incurred in the production studio, $81,000.

d. Depreciation recorded on the studio, cameras, and other equipment, $93,000. 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, $139,000.

f. Costs for salaries and wages were incurred as follows:

Direct labor (actors and director) $91,000
Indirect labor (carpenters to build sets,
costume designers, and so forth) $119,000
Administrative salaries $104,000

g. Prepaid insurance expired during the year, $7,900 (70% related to production of videos, and 30% related to marketing and administrative activities).

h. Miscellaneous marketing and administrative expenses incurred, $9,500.
i. Studio (manufacturing) overhead was applied to videos in production. The company used 8,000 camera-hours during the year.

j. Videos that cost $559,000 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 $943,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $609,000.

L.Collections from customers during the year totaled $859,000.

m. Payments to suppliers on account during the year, $509,000; payments to employees for salaries and wages, $300,000.

Required:

Question 1. Prepare a T-account for each account on the company's balance sheet and enter the beginning balances.

Question 2. Record the transactions directly into the T-accounts. Key your entries to the letters (a) through (m) above.

Question 3. Is the Studio (manufacturing) Overhead account underapplied or overapplied for the year? By how much?

Question 4. Prepare a schedule of cost of goods manufactured.

Question 5. Prepare a schedule of cost of goods sold.

Question 6. Prepare an income statement for the year.