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 $ 83,000 122,000 Supreme Videos, Inc. Balance Sheet January 1 Assets Current assets i Cash Accounts receivable Inventories: Raw materials (film, costumes) Videos in process Finished videos awaiting sale Prepaid insurance Total current assets Studio and equipment Less accumulated depreciation Total asseto Liabilities and stockholders' Equity Accounts payable Capital stock Retained earnings Total liabilities and stockholders' equity $ 50,000 23,000 101,000 174,000 13,000 392,000 770,000 230,000 540,000 $932,000 $133,000 $509,000 290.000 799,000 $932,000 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 $240,000 in manufacturing overhead for an estimated allocation base of 6,000 camera-hours. The following transactions occurred during the year:

Answer 1

1 & 2.

Accounts Receivable Beg Balance k 122,000 965,000 870,000 End Balance 217,000 Prepaid Insurance Beg Balance 13,000 9,000 6 End Balance 4,000 Finished Goods Beg Balance i 101,000 570,000 620,000 k End Balance 51,000 Accumulated Depreciation Beg Balance 230,000 104000 d End Balance 334,000

Depreciation expense Beg Balance d 26000 End Balance 26000 Advertising expense Beg Balance 150000 End Balance 150000 Administrative Salaries expense Beg Balance f 115,000 End Balance 115000 Sales Beg Balance 965,000 k End Balance 965,000

Accounts payable Beg Balance 133,000 205000 a F 520,000 92000 150000 e 10,600 h End Balance 70,600 Capital Stock Beg Balance 509,000 End Balance 509,000

Cash Beg Balance 83,000 870,000 1 847,000 m End Balance 106,000 Raw Materials Beg Balance 50,000 a 205000 220000 b End Balance 35,000 Videos in Process Beg Balance b 23,000 176000 570,000 f 102,000 i 360000 End Balance 91,000

Studio and equipment Beg Balance 770,000 End Balance 770,000 Studio Overhead Beg Balance b 44000 360000 b c d 92000 78000 f 130,000 6,750 hn End Balance 9250 Insurance Expense Beg Balance un 2,250 End Balance 2,250

Miscellaneous Expense Beg Balance h 10,600 End Balance 10,600 Cost of goods sold Beg Balance k 620,000 End Balance 620,000 Salaries and Wages Payable Beg Balance 327,000 347,000 € End Balance 20,000

Retained Earnings Beg Balance 290,000 End Balance 290,000

3.

Manufacuting overhead was

Overapplied

by

9250

for the year

4.

Supreme Videos Inc
Schedule of Cost of Goods Manufactured
Direct Materials
Beginning raw materials	50,000
Add: Purchase of raw materials	205000
Total raw materials	255,000
Less: Ending raw material inventory	35,000
Raw materials used in production	220,000
Less: Indirect materials	44000	176,000
Direct Labor		102,000
Manufacturing overhead applied to work in process		360000
Total Manufacturing costs		638,000
Add: Beginning videos in process inventory		23,000
		661,000
Less Ending videos in process inventory		91000
Cost of goods manufactured		570,000

5.

Supreme Videos Inc
Schedule of Cost of Goods Sold
Beginning finished goods inventory	101,000
Add: Cost of goods manufactured	570,000
Cost of goods available for sale	671,000
Less: Ending finished goods inventory	51,000
Unadjusted cost of goods sold	620,000
Less:Overapplied overhead	9250
Adjusted cost of goods sold	610,750

6.

Supreme Videos Inc
Income Statement
For the year ended December 31
Sales		965,000
Cost of Goods Sold		610,750
Gross Margin		354,250
Selling and administrative expenses
Depreciation expense	26,000
Advertising expense	150,000
Administrative Salaries expense	115,000
Insurance Expense	2,250
Miscellaneous Expense	10,600
		303,850
Net operating Income		50,400

Calculation:

In order to prepare the T accounts first we need to input the beginning balance for the balance sheet provided and then include the amounts respective from the transactions.

Most of the amounts can be directly inferred from the transactions provided except of the following:

Studio Overhead = $240,000 ÷ 6,000 hours = $40 per hour;

9,000 hours × $40 per hour = $360,000

Videos in process = 220000 x 80% = 176,000

3.

Overapplied overhead : It is the calculated ending balane of the T account - Studio Overhead

Studio Overhead
Beg Balance
b	44000	360000	i
c	92000
d	78000
f	130,000
g	6,750
End Balance		9250

4.

Schedule of Cost of Goods Manufactured:

To prepare the Schedule of Cost of Goods Manufactured, we need to take the Beginning raw materials and then add the Purchase of raw materials. Then deduct the Ending raw material inventory and Indirect materials. Also we need to add the Direct Labor and the Manufacturing overhead applied to work in process to get the Total Manufacturing costs. To that we need to add the Beginning videos in process inventory and deduct the Ending videos in process inventory to get the cost of goods manufactured

The cost of goods manufactured from this schedule prepared = $570,000 agrees with transaction “j.” Hence we can confirm that the calculation is correct.

5.

Schedule of Cost of Goods Sold

To prepare the Schedule of Cost of Goods Sold, we need to take the Beginning finished goods inventory and then add the Cost of goods manufactured to get the Cost of goods available for sale. Then we need to deduct the Ending finished goods inventory to get the Unadjusted cost of goods sold

The unadjusted cost of goods sold = $620,000 agrees with transaction “k.” Hence we can confirm that the calculation is correct.

Then we need to deduct the Overapplied overhead to get the Adjusted cost of goods sold