Supreme Videos, Inc., produces short musical videos for sale to retail outlets.
ID: 2392801 • Letter: S
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 Accounts receivable Inventories: 63,000 102,000 aw materials (film, costumes) 30,000 45,000 81,000 Videos in process 156,000 9,000 330,000 Finished videos awaiting sale Prepaid insurance Total current assets 730,000 210,000 Studio and equipment Less accumulated depreciation Total assets 520,000 $850,000 Liabilities and Stockholders Equity $160,000 Accounts payable Capital stock Retained earnings Total liabilities and stockholders' equity $420,000 270,000 690,000 $850,000 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 $280,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours. The following transactions occurred during the year: a. Film, costumes, and similar raw materials purchased on account, $185,000 b. Film, costumes, and other raw materials used in production, $200,000 (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, $72,000 d. Depreciation recorded on the studio, cameras, and other equipment, $84,000. Three-fourths of this depreciation related to production of the videos, and the remainder related to equipment used in marketing and administration e. Advertising expense incurred on account, $130,000Explanation / Answer
T-ACCOUNTS CASH Ref Description Debit Credit Beginning balance $63,000 l Accounts receivable $850,000 m Payment to suppliers $500,000 Payment of salaries and wafes m Payment of salaries and wages $285,000 ACCOUNTS RECEIVABLE Ref Description Debit Credit Beginning balance $102,000 k Sales on account $925,000 l Cash collection $850,000 RAW MATERIALS Ref Description Debit Credit Beginning balance $30,000 a Purchase on account $185,000 b Issued for production $200,000 VIDEO IN PROCESS Ref Description Debit Credit Beginning balance $30,000 b Direct material $170,000 (0.85*200000) f Direct labor $82,000 i Applied Overhead $290,000 (7250*(280000/7000) j Transferred out to finished inventory $550,000 FINISHED VIDEO AWAITING SALE Ref Description Debit Credit Beginning balance $81,000 j Transferred in from work in process $550,000 k Transferred to Cost of goods sold $600,000 PREPAID INSURANCE Ref Description Debit Credit Beginning balance $9,000 g Insurance expense $7,000 STUDIO AND EQUIPMENT Ref Description Debit Credit Beginning balance $730,000 ACCUMULATED DEPRECIATION Ref Description Debit Credit Beginning balance $210,000 d Depreciation expenses $84,000 ACCOUNTS PAYABLE Ref Description Debit Credit Beginning balance $160,000 a Raw material purchase $185,000 c Utility costs $72,000 e Advertising expense on account $130,000 h Miscelleneous expenses on account $8,600 m Cash payment $500,000 CAPITAL STOCK Ref Description Debit Credit Beginning balance $420,000 RETAINED EARNINGS Ref Description Debit Credit Beginning balance $270,000 MANUFACTURING OVERHEAD Ref Description Debit Credit b Indirect material $30,000 ($200000*(1-0.85) c Utility costs $72,000 d Depreciation -production $63,000 (84000*(3/4) f Indirect labor $110,000 g Insurance expense $5,600 (7000*0.8) i Applied Overhead $290,000 Ending Balance $9,400 SALES & ADMINISTRATION EXPENSE Ref Description Debit Credit d Depreciation-Sales & admin $ 21,000 (84000*(1/4) e Advertising expense on account $130,000 f Administrative Salaries $95,000 g Insurance expense $1,400 (7000*0.2) h Miscelleneous expenses on account $8,600 SALARIES AND WAGES PAYABLE Ref Description Debit Credit f Salaries and wages expenses $287,000 (82000+110000+95000) m Cash payment $285,000 SALES REVENUE Ref Description Debit Credit k Sales on account $925,000 COST OF GOODS SOLD Ref Description Debit Credit k Finished goods $600,000 OVERHEAD is overapplied Amount overapplied $9,400
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