Question

Star Videos, Inc., produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1 are given below Star Videos, Inc. Balance Sheet January 1 Assets Cash $ 81,800 100.000 Skipped $17,200 57,400 85,800 Roos Accounts receivable Inventories: Raw materials (Film, costumes) Videos in process Finished videos awaiting sale Prepaid insurance Studio and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Betained earnings Total liabilities and stockholders' equity 160,00 12.650 588. $947,258 $20. 744,250 $947,258 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 ($40 per camera-hour) is based on a cost formula that estimated $280,000 in manufacturing overhead for an estimated allocation base of 7000 camera-hours. Any underapplied or overapplied overhead is closed to cost of goods sold. The following transactions were recorded for the year a. Film, costumes, and similar raw materials purchased on account. $195,500 b. Film, costumes, and other raw materials issued to production, $209,500 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect). c. Utility costs incurred (on account) in the production studio, $85.800. d. Depreciation recorded on the studio, cameras, and other equipment, $106.000. 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 (on account). $175.000 1. Salaries and wages paid in cash as follows:

Answer 1

1							Transaction Analysis
						For the Year Ended December 31
							Cash	Accounts Receivable	Raw Materials	Videos in Process	Finished Goods	Manufacturing Overhead	Prepaid Insurance	Studio & Equipment (net)	=	Accounts Payable	Retained Earnings
		Beginning balance @1/1					81000	104000	17200	57400	85800		12650	588000	=	203000	744250
	(a)	Raw material purchases							195500						=	195500
	(b)	Raw materials used							-209500	178075		31425			=
										(209500*0.85)		(209500*0.15)
	(c)	Utility costs										85800			=	85800
	(d)	Depreciation charges			(Note:1)							79500		-106000	=		-26500
	(e)	Advertising			(Note:2)										=	175000	-175000
	(f)	Salaries & wages			(Note:3)		-284500			89200		82500			=		-112800
	(g)	Prepaid insurance			(Note:4)							6965	-9950		=		-2985
	(h)	Miscellaneous marketing													=	10350	-10350
	(i)	Applied overhead								290000		-290000			=
		(Camera hours*Predetermined overhead rate)								(7250*40)		(7250*40)
	(j)	Transfer completed videos to finished goods								-566000	566000				=
	(k)	Sales			(Note:5)			1000000							=		1000000
	(l)	Transfer finished goods to cost of goods sold				(Note:6)					-611070				=		-611070
	(m)	Cash collections from customers					950000	-950000							=
	(n)	Payment to suppliers					-556000								=	-556000
	(o)	Over applied overhead adjusted to cost of goods sold (Note:7)										3810			=		3810
		Ending balances @ 12/31					190500	154000	3200	48675	40730	0	2700	482000	=	113650	809355
	Note:1-Journal entry for depreciation
					Debit	Credit
	Manufacturing overhead			(106000*3/4)	79500
	Depreciation expense			(106000*1/4)	26500
	Accumulated depreciation					106000
	Note:2-Journal entry for advertisng expense
					Debit	Credit
	Advertising expense				175000
	Accounts payable					175000
	Note:3-Journal entry for salaries and wages
					Debit	Credit
	Videos in process				89200
	Manufacturing overhead				82500
	Salaries and wages expense				112800
	Cash					284500