Answered Essay: Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The company's balance sheet accounts

Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The companys balance sheet accounts as of January 1, the beginning of its fiscal year, are given below: Supreme Videos, Inc. Balance Sheet January 1 Assets Current assets: Cash Accounts receivable Inventories $63,000 102,000 Raw materials (film, costumes) Videos in process Finished videos awaiting sale $30,000 45,000 81,000 156,000 9,000 330,000 520,000 $850,000 Prepaid insurance Total current assets Less accumulated Total assets 730,000 210,000 Studio and equipment depreciation Liabilities and Stockholders Equity Accounts payable Capital stock Retained eamings $160,000 690,000 $850,000 $420,000 270,000 Total liabilities and stockholders equity 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 companys 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 were recorded for the year:

Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The company’s balance sheet accounts as of January 1, the beginning of its fiscal year, are given below: Supreme Videos, Inc. Balance Sheet January 1 Assets Current assets: Cash Accounts receivable Inventories $63,000 102,000 Raw materials (film, costumes) Videos in process Finished videos awaiting sale $30,000 45,000 81,000 156,000 9,000 330,000 520,000 $850,000 Prepaid insurance Total current assets Less accumulated Total assets 730,000 210,000 Studio and equipment depreciation Liabilities and Stockholders’ Equity Accounts payable Capital stock Retained eamings $160,000 690,000 $850,000 $420,000 270,000 Total liabilities and stockholders’ equity 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 were recorded for the year:

Expert Answer

 

Solution:

1&2) Preparing T-Accounts for each Account on the Balance Sheet and Entering the Entries From (a) to (m):

Cash
Bal. $63,000 $785,000 (m)
(i) $850,000
Bal. $128,000
Accounts Receivable
Bal. $102,000 $850,000 (i)
(k) $925,000
Bal. $177,000
Raw Materials
Bal. $30,000 $200,000 (b)
(a) $185,000
Bal. $15,000
Prepaid Insurance
Bal. $9,000 $7,000 (g)
Bal. $2,000
Videos in Process
Bal. $45,000 $550,000 (j)
(b) $170,000
(f) $82,000
(i) $290,000
Bal. $37,000
Finished Goods
Bal. $81,000 $600,000 (k)
(j) $550,000
Bal. $31,000
Studio and Equipment
Bal. $730,000
Accumulated Depreciation
$210,000 Bal.
$84,000 (d)
$294,000 Bal.
Studio Overhead
(b) $30,000 $290,000 (i)*
(c) $92,000
(d) $63,000
(f) $110,000
(g) $5,600
(n) $9,400 $9,400 Bal.

(i) frac{$280,000}{7,000 Hours} = $40 Per Hour Rightarrow 7,250 hours *$40 per hour = $290,000

Depreciation Expense
(d) $21,000
Insurance Expense
(g) $1,400
Advertising Expense
(e) $130,000
Miscellaneous Expense
(h) $8,600
Administrative Salary Expense
(f) $95,000
Sales
$925,000 (k)
Cost of Goods Sold
(k) $60,000 $9,400 (n)
Bal. $590,600
Accounts Payable
(m) $500,000 $160,000 Bal.
$185,000 (a)
$72,000 (c)
$130,000 (e)
$8,600 (f)
$55,600 Bal.
Salaries and Wages Payable
(m) $285,000 $287,000 (f)
$2,000 Bal.
Capital Stock
$420,000 Bal.
Retained Earnings
$270,000 Bal.

3) Manufacturing Overhead was Overapplied by $9,400 for the Year.

4) Preparing and Income Statement for the Year:

Supreme Videos, Inc.

Income Statement

For the Year Ended December 31

Sales of videos $925,000
Cost of Goods Sold ($600,000 – $9,400) $590,600
Gross Margin $334,400
Selling and administrative expenses:
Depreciation expense $12,000
Advertising expense $130,000
Administrative salaries $95,000
Insurance expense $1,400
Miscellaneous expense $8,600 $256,000
Net operating income $78,400

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