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.)

Star Videos, Inc. 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 $92,000 $115,600 $17,800 $60,200 $91,200 $12,600 $603,000 = $211,000 $781,400 (a) Raw material purchases = (b) Raw materials used = (c) Utility costs = (d) Depreciation charges = (e) Advertising = (f) Salaries & wages = (g) Prepaid insurance = (h) Miscellaneous marketing = (i) Applied overhead = (j) Transfer completed videos to finished goods = (k) Sales = (l) Transfer finished goods to cost of goods sold = (m) Cash collections from customers = (n) Payment to suppliers = (o) = Ending balances @ 12/31 = Prepare a schedule of cost of goods manufactured for the year. Star Videos, Inc. Schedule of Cost of Goods Manufactured For the Year Ended December 31 Total manufacturing costs Cost of goods manufactured Prepare a schedule of cost of goods sold for the year. Star Videos, Inc. Schedule of Cost of Goods Sold For the Year Ended December 31 Prepare an income statement for the year. Star Videos, Inc. Income Statement For the Year Ended December 31

Answer 1

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