Question

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				$	79,000
Accounts receivable					118,000
Inventories:
Raw materials (film, costumes)	$	46,000
Videos in process		24,000
Finished videos awaiting sale		97,000			167,000
Prepaid insurance					12,200
Total current assets					376,200
Studio and equipment		762,000
Less accumulated depreciation		226,000			536,000
Total assets				$	912,200
Liabilities and Stockholders' Equity
Accounts payable				$	121,200
Capital stock	$	505,000
Retained earnings		286,000			791,000
Total liabilities and stockholders' equity				$	912,200

  

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 $294,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours. The following transactions occurred during the year:

1. Film, costumes, and similar raw materials purchased on account, $201,000.
2. Film, costumes, and other raw materials used in production, $216,000 (80% of this material was considered direct to the videos in production, and the other 20% was considered indirect).
3. Utility costs incurred on account in the production studio, $88,000.
4. Depreciation recorded on the studio, cameras, and other equipment, $100,000. 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, $146,000.
6. Costs for salaries and wages were incurred on account as follows:

Direct labor (actors and directors)	$	98,000
Indirect labor (carpenters to build sets, costume designers, and so forth)	$	126,000
Administrative salaries	$	111,000

7. Prepaid insurance expired during the year, $8,600 (75% related to production of videos, and 25% related to marketing and administrative activities).
8. Miscellaneous marketing and administrative expenses incurred on account, $10,200.
9. Studio (manufacturing) overhead was applied to videos in production. The company used 8,600 camera-hours during the year.
10. Videos that cost $566,000 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 $957,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $616,000.
12. Collections from customers during the year totaled $866,000.
13. Payments to suppliers on account during the year, $516,000; payments to employees for salaries and wages, $323,000.

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. 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.

Cash Accounts Receivable Beg. Bal. Beg. Bal. End. Bal End, Bal Raw Materials Prepaid Insurance Beg. Bal. Beg. Bal. End. Bal. End. Ba Videos in Process Finished Goods Beg. Bal. Beg. Bal. End. Bal End. Bal. Studio and Equipment Accumulated Depreciation Beg. Bal. Beg. Bal. End. Bal. End. Bal. Studio Overhead Depreciation Expense Beg. Bal. Bea Bal End. Bal End. Bal. Insurance Expense Advertising Expense Beg. Bali Beg. Bal. Miscellaneous Expense Administrative Salaries Expense Beg. Bal. Beg. Bal. End. Bal. Cost of Goods Sold Sales Beg. Bal. Beg. Bal. L N End. Bal. End. Bal. Salaries & Wages Payable Accounts Payable Beg. Bal. Beg. Bal. End. Bal. End. Bal. Retained Earnings Capital Stock Beg Bal. Beg. Bal. End. Bal. End. Bal.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. $ 42.00 Predetermined Overhead rate $294,000/7,000 Hours Part 1 and 2 Part 3 Cash Sales Credit Debit Credit Actual Overheads: Debit Beginning Balance $ 957,000 $ 79,000 m $ 866,000 m $ 516,000 $ 323,000 Ending Balance $ 43,200 $ 88,000 $ 75,000 $ 126,000 $ 6,450 $ 338,650 A $ 361,200 B $ 106,000 Indirect Material $200,000*15% Utility Cost Depreciation $84,000*3/4 Indirect Labor Insurance $7,000*80% Acutal Overheads Applied Overheads 7250 Hours $40 Overapplied Overhead Cost of Goods Sold Credit $ 616,000 Overapplied Debit Accounts Receivable $ 22,550 Credit Debit Beginning Balance k $ 866,000 $ 22,550 B-A $ 118,000I $ 957,000 Ending $ 593,450 Part 4 Cost of Goods Manufactured Depreciation Expense Debit Credit Cost of Goods Manufactured Ending Balance $ 209,000 d $100,000*1/4 $ 25,000 $ 24,000 Raw material Credit Debit Beginning Balance $ 216,000 Insurance Expense $ 46,000 b $ 201,000 Debit Credit g $8,600*25% $ 2,150 Video in process inventory, beginning Direct materials: Direct materials inventory, beginning Direct materials purchases Cost of direct materials available for use Direct materials inventory, ending Cost of direct materials placed in production Direct labor Factory overhead Applied Total manufacturing costs Total work in process during period Video in process inventory, ending Cost of goods manufactured $ 46,000 $ 201,000 $ 247,000 $ -74,200 $ 172,800 $ 98,000 $ 361,200 Ending Balance $ 31,000 Advertising Expense Work in Process Debit Credit $ 632,000 $ 656,000 $ -90,000 Credit $ 146,000 Debit Beginning Balance b$216,000*80% $ 566,000 $ 566,000 $ 24,000 $ 172,800 $ 98,000 $ 361,200 Part 5 Cost of Goods Sold i 8,600*$42 Admin Salaries Expense Debit $ 111,000 Credit Ending Balance $ 90,000 Finished Videos Inventory, Beginning Add: Cost of Goods Manufactured Cost of Goods Available for Sale Less: Finished Videos inventory, ending Unadjusted Cost of Goods Sold Less: Overapplied Overhead Adjusted Cost of Goods Sold $ 97,000 $ 566,000 $ 663,000 $ -47,000 $ 616,000 $ 22,550 $ 593,450 Finished Goods Misc Expense Credit Debit Credit Debit Beginning Balance $ 616,000 $ 10,200 $ 97,000 k $ 566,000 Part 6 Income Statement

$ 957,000 $ -593,450 $363,550 Ending Balance $ 47,000 $ 361,200 Prepaid Insurance Studio Overhead Debit Credit b $216,000 20% $ 43,200 18,600 $42 $ 88,000 d $100,0003/4 S 75,000 $ 126,000 R$8,600975% $ 6,450 Cost of Goods sold (Balance) $ 22,550 Sales Revenue Less: Cost of Goods sold Gross Margin Less: Selling and Administrative Expense Depreciation Expense Insurance Expense Advertising Expense Admin Salaries Expense Misc Expense Net Income Credit Debit Beginning Balance $ 12,200 $ 3,600 $ 25,000 $ 2,150 $ 146,000 $ 111,000 $ 10,200 $ -294,350 $ 69,200 Ending Balance $ 3,600 Studio and Equipment Credit Debit Beginning Balance $ 762,000 Endine Balance $ 762.000 Acc Dep-Studio and Equipment Debit Credit Beginning Balance $ 226,000 $ 100,000 Ending Balance $ 325,000 Debit S Accounts Payable Credit 516,000 Beginning Balance m $ 121,200 $ 201.000 $ 88,000 $ 146,000 $ 10,200 Ending Balance $ 50,400 Capital Stock Debit Credit Beginning Balance $ 505,000 Ending Balance $ 505,000 Retained Earning Credit Beginning Balance $ 286,000 Ending Balance $ 286,000 Salaries and Wages Payable Debit Credit $ 323,000F S 335,000 Ending Balance $ 12,000