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. $ 89,000 107,600 Star Videos, Inc. Balance Sheet January 1 Assets Cash 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 Retained earnings Total liabilities and stockholders' equity $ 10,600 50,600 91,800 153,000 10,000 583,000 $ 942,600 $ 216,000 726,600 $ 942,600 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 ($40 per camera-hour) is based on a cost formula that estimated $280,000 in manufacturing overhead for an estimated allocation base of 7,000 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, $190,000. b. Film, costumes, and other raw materials issued to production, $196,000 (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, $88,000. d. Depreciation recorded on the studio, cameras, and other equipment, $110,800. 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), $170,500. f. Salaries and wages paid in cash as follows:

Answer 1

Requirement 1 Star Videos, Inc. Transaction Analysis For the year ended December 31 Cash Accounts Receivable Raw Materials Work in Process Finished Goods Manufacturing Overhead Studio & Prepaid Insurance Equipment (net) 10,000 $ 583,000 Accounts Payable Retained Earnings $ 89,000 $ 50,600 $ 91,800 $ 726,600 107,600 $ $ $ 10,600 $ 190,000 (196,000) $ $ $ 216,000 $ 190,000 166,600 $ $ $ 29,400 88,000 83,100 $ $ (110,800) $ 88,000 $ 170,500 $ $ $ 11,500 $ $ (263,000) $ 92,800 $ $ 68,000 5,530 $ Beginning Balance @1/1 Raw Material purchase (b) Raw Material used (C) Utility costs (d) Depreciation charges (e) Advertising Salaries and wages (g) Prepaid Insurance (h) Miscellaneous marketing (i) Applied Overhead (7250*40) ) Transfer completed videos to finished goods (k) Sales Transfer finished goods to cost of goods sold (m) Cash collection from customers (n) Payment to suppliers () Over applied Overhead $ 15970 Ending balances @12/31 (27,700) (170,500) (102,200) (2,370) (11,500) (7,900) $ OOSTEWE SESSO $ (290,000) $ $ 290,000 (578,000) $ 578,000 $ 1,016,000 $ $ 1,016,000 (623,910) $ (623,910) 966,000 $ $ $ (966,000) (537,000) $ (537,000) 15,970 $ $ 15,970 820,390 $ 255,000 $ $ 45,890$ 157,600 $ 4,600 $ 22,000 $ $ 2,100 $ 472,200 $ 139,000 $ 50,600 Requirement 2 Star Videos, Inc. Schedule of Cost of Goods Manufactured For the year ended December 31 Beginning Videos in Process Direct Materials: Beginning Raw Materials $ 10,600 Add-Purchase of raw materials $ 190,000 Total raw materials available for use $ 200,600 Less- Ending raw materials $ (4,600) Total raw materials used $ 196,000 Less- Indirect materials used $ (29,400) Direct Materials used Direct Labor Applied Manufacturing Overhead Total Manufacturing costs added to production Total manufacturing costs to account for Less- Ending Videos in Process Cost of Goods manufactured $ $ $ 166,600 92,800 290,000 $ $ $ $ 549,400 600,000 (22,000) 578,000

Requirement 3 Star Videos, Inc. Schedule of Cost of Goods sold For the year ended December Beginning Finished Goods Add-Cost of goods manufactured Cost of Goods available for sale Less- Ending finished goods Cost of Goods sold Less-Overapplied manufacturing Overhead Adjusted Cost of Goods sold $ $ $ $ $ $ $ 91,800 578,000 669,800 (45,890) 623,910 (15,970) 607,940 S $ $ 1,016,000 (607,940) 408,060 Requirement 4 Star Videos, Inc. Income Statement For the year ended December 31 Sales Less- Adjusted Cost of Goods sold Gross Profit Less-Selling and administrative expenses Depreciation charges Advertising Salaries and wages Prepaid Insurance Miscellaneous marketing Total Selling and administrative expenses Net Income $ $ $ $ $ 27,700 170,500 102,200 2,370 11,500 $ 314,270 93,790 $