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				$	81,000
Accounts receivable					120,000
Inventories:
Raw materials (film, costumes)	$	48,000
Videos in process		21,000
Finished videos awaiting sale		99,000			168,000
Prepaid insurance					12,600
Total current assets					381,600
Studio and equipment		766,000
Less accumulated depreciation		228,000			538,000
Total assets				$	919,600
Liabilities and Stockholders' Equity
Accounts payable				$	124,600
Capital stock	$	507,000
Retained earnings		288,000			795,000
Total liabilities and stockholders' equity				$	919,600

  

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 $320,000 in manufacturing overhead for an estimated allocation base of 8,000 camera-hours. The following transactions occurred during the year:

1. Film, costumes, and similar raw materials purchased on account, $203,000.
2. Film, costumes, and other raw materials used in production, $218,000 (70% of this material was considered direct to the videos in production, and the other 30% was considered indirect).
3. Utility costs incurred on account in the production studio, $90,000.
4. Depreciation recorded on the studio, cameras, and other equipment, $102,000. 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, $148,000.
6. Costs for salaries and wages were incurred on account as follows:

Direct labor (actors and directors)	$	100,000
Indirect labor (carpenters to build sets, costume designers, and so forth)	$	128,000
Administrative salaries	$	113,000

7. Prepaid insurance expired during the year, $8,800 (70% related to production of videos, and 30% related to marketing and administrative activities).
8. Miscellaneous marketing and administrative expenses incurred on account, $10,400.
9. Studio (manufacturing) overhead was applied to videos in production. The company used 9,400 camera-hours during the year.
10. Videos that cost $568,000 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 $961,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $618,000.
12. Collections from customers during the year totaled $868,000.
13. Payments to suppliers on account during the year, $518,000; payments to employees for salaries and wages, $325,000.

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.

Complete this question by entering your answers in the tabs below. Req 1 and 2 Req 3 Reg 3 Req 4 Reg4 Reg 5 Req 5 Req 6 Reg 6 Prepare a T-account for each account on the company's balance sheet and enter the beginning balances. Record the transactions directly into the T- accounts. Cash Accounts Receivable Beg. Bal. Beg. Bal. End. Bal. End. Bal. Raw Materials Prepaid Insurance Beg. Bal. Beg. Bal. End. Bal. End. Bal. 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.

Answer 1

Answer-1 & 2:

Cash Account receivable Raw materials Beg Bal Beg Bal Beg Bal $868,000 $961,000 $ 81,000 $ 949,000 $ 431,000 $ 106,000 $ 120,000 $1,081,000 $ 213,000 $203,000 $ 48,000 $ 251,000 $ 33,000 $ 868,000 $218,000 $ 518,000 $ 325,000 Videos in process Finished goods Beg Bal Prepaid insurance $ 12,600 $ 8,800 $ 3,800 Beg Bal Beg Bal $568,000 $152,600 $ 100,000 $376,000 $ 21,000 $ 173,600 $ 273,600 $ 649,600 $ 81,600 $ 99,000 $ 667,000 $ 49,000 $618,000 $ 568,000 Studio and equipments Studio overhead Beg Bal $ 766,000 Beg Bal Accumulated depreciation $ 228,000 $ 102,000 $ 330,000 Beg Bal $ 65,400 $ 90,000 $ 76,500 $128,000 $ 6,160 $376,000 Advertising expense $ - $ 65,400 $ 155,400 $ 231,900 $ 359,900 $ 366,060 $ 19,940) Depreciation expense Insurance expense Beg Bal Beg Bal Beg Bal $ $ 25,500 $ 25,500 $ 2,640 $ 2,640 $ 148,000 $ 148,000

Miscellaneous expense Administrative salaries expense Cost of goods sold Beg Bal Beg Bal Beg Bal $ 10,400 $ 10,400 $ 113,000 $ 113,000 $618,000 $ 618,000 Sales Account payable Beg Bal Beg Bal Beg Bal $ 961,000 $ 961,000 Salaries and wages payable $ $ 100,000 $ 100,000 $ 128,000 $ 228,000 $ 113,000 $ 341,000 $325,000 $ 16,000 Capital stock $ 507,000 $ 203,000 $ 90,000 $ 148,000 $ 10,400 $ 124,600 $ 327,600 $ 417,600 $ 565,600 $ 576,000 $ 58,000 Retained earnings $518,000 Beg Bal $ 288,000 Beg Bal

Answer-3:

See, there is credit balance of $9,940 in studio overhead account which means it is over-applied of overhead.

Answer-4:

SUPREME VIDEOS COST OF GOODS MANUFACTURED SCHEDULE Direct Material used: Beginning Raw material inventory $ 48,000 Add: cost of raw material purchased 203,000 Total raw material available $ 251,000 Less: Ending Raw material inventory 33,000 Total raw material used $ 218,000 Less: Indirect material used 65,400 Direct labour Manufacturing overhead applied to video in process Total manufacturing cost Add: Beginning work-in-process inventory $ 152,600 100,000 376,000 628,600 21,000 649,600 81,600 568,000 Less: Ending work-in-process inventory Cost of goods manufactured $