Star Videos, Inc., produces short musical videos for sale to retail outlets. The
ID: 2411601 • Letter: S
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 $ 92,000
Accounts receivable 115,600
Inventories:
Raw materials (film, costumes) $ 17,800
Videos in process 60,200
Finished videos awaiting sale 91,200 169,200
Prepaid insurance 12,600
Studio and equipment (net) 603,000
Total assets $ 992,400
Liabilities and Stockholders’ Equity
Accounts payable $ 211,000
Retained earnings 781,400
Total liabilities and stockholders’ equity $ 992,400
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, $208,500.
Film, costumes, and other raw materials issued to production, $219,500 (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, $81,600.
Depreciation recorded on the studio, cameras, and other equipment, $90,000. 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), $155,500.
Salaries and wages paid in cash as follows:
Direct labor (actors and directors) $ 99,200
Indirect labor (carpenters to build sets, costume designers, and so forth) $ 100,500
Administrative salaries $ 102,400
Prepaid insurance expired during the year, $10,050 (70% related to production of videos, and 30% related to marketing and administrative activities).
Miscellaneous marketing and administrative expenses incurred (on account), $10,350.
Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
Videos that cost $548,000 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 $1,060,000 and were all on account.
The total cost to produce the videos that were sold according to their job cost sheets was $591,810.
Collections from customers during the year totaled $1,010,000.
Payments to suppliers on account during the year, $585,000.
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.
PLEASE SHOW ALL WORK AND BOLD ANSWERS. THANK YOU!!
Prepare a transaction analysis that records all of the above transactions. (Amounts to be deducted should be indicated by a minus sign.)
Prepare a schedule of cost of goods manufactured for the year.
Prepare a schedule of cost of goods sold for the year.
Prepare an income statement for the year.
Explanation / Answer
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 92000 115600 17800 60200 91200 12600 603000 = 211000 781400 (a) Raw material purchases 208500 = 208500 (b) Raw materials used -219500 186575 32925 = (219500*0.85) (219500*0.15) (c) Utility costs 81600 = 81600 (d) Depreciation charges (Note:1) 67500 -90000 = -22500 (90000*3/4) (90000*1/4) (e) Advertising (Note:2) = 155500 -155500 (f) Salaries & wages (Note:3) -302100 99200 100500 = -102400 (g) Prepaid insurance (Note:4) 7035 -10050 = -3015 (10050*0.70) (10050*0.30) (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 -548000 548000 = (k) Sales (Note:5) 1060000 = 1060000 (l) Transfer finished goods to cost of goods sold (Note:6) -591810 = -591810 (m) Cash collections from customers 1010000 -1010000 = (n) Payment to suppliers -585000 = -585000 (o) Overapplied overhead adjusted to cost of goods sold (Note:7) = Ending balances @ 12/31 214900 165600 6800 87975 47390 -440 2550 513000 = 81950 955825 Note:1-Journal entry for depreciation Debit Credit Manufactuting overhead (90000*3/4) 67500 Depreciation expense (90000*1/4) 22500 Accumulated depreciation 90000 Note:2-Journal entry for advertisng expense Debit Credit Advertising expense 155500 Accounts payable 155500 Note:3-Journal entry for salaries and wages Debit Credit Videos in process 99200 Manufacturing overhead 100500 Salaries and wages expense 102400 Cash 302100 Note:4-Journal entry for prepaid insurance expired Debit Credit Insurance expense (10050*0.30) 3015 Manufacturing overhead (10050*0.70) 7035 Prepaid insurance 10050 Note:5-Journal entry for sales Debit Credit Accounts receivable 1060000 Sales 1060000 Note:6-Journal entry for cost of goods sold Debit Credit Cost of goods sold 591810 Finished videos 591810 Note:7-Under or over applied overhead Indirect materials 32925 Utility 81600 Depreciation 67500 Indirect labor 100500 Prepaid insurance expired 7035 Actual overhead incurred 289560 Applied overhead 290000 Overapplied overhead=Applied overhead-Actual overhead=290000-289560=$ 440 2 Schedule of cost of goods manufactured Direct material used 186575 Direct labor 99200 Manufacturing overhead 289560 Total manufacturing cost 575335 Add:Videos in process,beginning 60200 635535 Less:Videos in process ,ending 87975 Cost of goods manufactured 547560 3 Schedule of cost of goods sold Cost of goods manufactured 547560 Add:Finished Videos ,beginning 91200 Total finished videos available for sale 638760 Less:Finished Videos ,ending 47390 Cost of goods sold 591370 4 Income statement Sales 1060000 Less: Cost of goods sold Unadjusted cost of goods sold 591810 Overapplied overhead -440 591370 Gross profit 468630 Less: Expenses Depreciation 22500 Advertising expense 155500 Administrative salaries 102400 Insurance expense 3015 Miscellaneous marketing and admin exp 10350 293765 Net income 174865
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