Star Videos, Inc., produces short musical videos for sale to retail outlets. The

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 $ 89,200 Accounts receivable 106,600 Inventories: Raw materials (film, costumes) $ 13,400 Videos in process 47,400 Finished videos awaiting sale 80,400 141,200 Prepaid insurance 8,350 Studio and equipment (net) 610,000 Total assets $ 955,350 Liabilities and Stockholders’ Equity Accounts payable $ 238,000 Retained earnings 717,350 Total liabilities and stockholders’ equity $ 955,350 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: Film, costumes, and similar raw materials purchased on account, $229,000. Film, costumes, and other raw materials issued to production, $230,500 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect). Utility costs incurred (on account) in the production studio, $92,600. Depreciation recorded on the studio, cameras, and other equipment, $104,400. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration. Advertising expense incurred (on account), $143,000. Salaries and wages paid in cash as follows: Direct labor (actors and directors) $ 96,000 Indirect labor (carpenters to build sets, costume designers, and so forth) $ 75,500 Administrative salaries $ 103,000 Prepaid insurance expired during the year, $7,450 (70% related to production of videos, and 30% related to marketing and administrative activities). Miscellaneous marketing and administrative expenses incurred (on account), $13,850. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year. Videos that cost $578,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment. Sales for the year totaled $954,000 and were all on account. The total cost to produce the videos that were sold according to their job cost sheets was $623,910. Collections from customers during the year totaled $904,000. Payments to suppliers on account during the year, $608,000. Underapplied or overapplied overhead $__?__. Required: 1. Prepare a transaction analysis that records all of the above transactions. 2. Prepare a schedule of cost of goods manufactured for the year. 3. Prepare a schedule of cost of goods sold for the year. 4. Prepare an income statement for the year.

Explanation / Answer

overapplied overhead $ 3810

1) Journal Entries: Date Accounts title Debit $ Credit $ 1 RM 229000 AP 229000 (RM on account) 2 WIP 195925 Manuf O/H 34575 RM 230500 (RM allotted to WIP & Manuf O/h) 3 Manuf O/H 92600 AP 92600 (utility cost on account) 4 Manuf O/H 78300 Adminis & Mark. 26100 Depreciation cost 104400 (depreciation apportioned to factory & administration) 5 Adminis & Mark. 143000 AP 143000 (advertisement exp. incurred on account) 6 WIP 96000 Manuf O/H 75500 Adminis & Mark. 103000 Payroll exp 274500 (salary exp made in cash) 7 Manuf O/H 5215 Adminis & Mark. 2235 Insurance exp 7450 (insurance exp made) 8 Adminis & Mark. 13850 Miscel. Exp 13850 (Miscel exp made) 9 WIP 290000 Manuf O/H 290000 (Manuf O/H applied) 10 FG Inventory 578000 WIP 578000 (finished goods transferred) 11 AR 954000 Sales 954000 (sales booked on account) 12 COGS 623910 FG Inventory 623910 (COGS booked) 13 Cash 904000 AR 904000 (collection from AR) 14 AP 608000 Cash 608000 (payment to AP)

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.