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				$	88,000
Accounts receivable					114,600
Inventories:
Raw materials (film, costumes)	$	20,000
Videos in process		51,800
Finished videos awaiting sale		97,200			169,000
Prepaid insurance					10,750
Studio and equipment (net)					598,000
Total assets				$	980,350
Liabilities and Stockholders’ Equity
Accounts payable				$	189,000
Retained earnings					791,350
Total liabilities and stockholders’ equity				$	980,350

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, $189,500.
2. Film, costumes, and other raw materials issued to production, $200,000 (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, $93,800.
4. Depreciation recorded on the studio, cameras, and other equipment, $112,400. 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), $153,000.
6. Salaries and wages paid in cash as follows:

Direct labor (actors and directors)	$	102,800
Indirect labor (carpenters to build sets, costume designers, and so forth)	$	71,500
Administrative salaries	$	97,800

1. Prepaid insurance expired during the year, $8,550 (70% related to production of videos, and 30% related to marketing and administrative activities).
2. Miscellaneous marketing and administrative expenses incurred (on account), $11,700.
3. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
4. Videos that cost $586,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.
5. Sales for the year totaled $998,000 and were all on account.
6. The total cost to produce the videos that were sold according to their job cost sheets was $632,470.
7. Collections from customers during the year totaled $948,000.
8. Payments to suppliers on account during the year, $538,000.
9. 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.

Answer 1