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:

1. Film, costumes, and similar raw materials purchased on account, $229,000.
2. 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).
3. Utility costs incurred (on account) in the production studio, $92,600.
4. 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.
5. Advertising expense incurred (on account), $143,000.
6. 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

7. Prepaid insurance expired during the year, $7,450 (70% related to production of videos, and 30% related to marketing and administrative activities).
8. Miscellaneous marketing and administrative expenses incurred (on account), $13,850.
9. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
10. 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.
11. Sales for the year totaled $954,000 and were all on account.
12. The total cost to produce the videos that were sold according to their job cost sheets was $623,910.
13. Collections from customers during the year totaled $904,000.
14. Payments to suppliers on account during the year, $608,000.
15. Underapplied or overapplied overhead $__?__.

Required:

1. Prepare a transaction analysis that records all of the above transactions.

Answer 1

	Star Videos, Inc.
	Transaction Analysis
	For the Year Ended December 31
		Cash	Accounts Receivable	Raw Materials	Videos in Process	Finished Videos	Manufacturing Overhead	Prepaid Insurance	Studio & Equipment (net)	=	Accounts Payable	Retained Earnings
	Beginning balance @ 1/1	89200	106600	13400	47400	80400	0	8350	610000	=	238000	717350
a)	Raw material purchases			229000						=	229000
b)	Raw materials used			-230500	195925		34575			=
c)	Utility costs						92600			=	92600
d)	Depreciation charges						78300		-104400	=		-26100
e)	Advertising									=	143000	-143000
f)	Salaries & wages	-274500			96000		75500			=		-103000
g)	Prepaid insurance expired						5215	-7450		=		-2235
h)	Miscellaneous marketing									=	13850	-13850
i)	Applied overhead				290000		-290000			=
j)	Transfer completed videos to finished goods				-578000	578000				=
k)	Sales		954000							=		954000
l)	Transfer finished goods to cost of goods sold					-623910				=		-623910
m)	Cash collections from customers	904000	-904000							=
n)	Payment to suppliers	-608000								=	-608000
o)	Overapplied overhead						3810			=		3810
	Ending balances @12/31	110700	156600	11900	51325	34490	0	900	505600	=	108450	763065