Star Videos, Inc., produces short musical videos for sale toretail outlets. The company’s balance sheet accounts as of January1 are given below. Star Videos, Inc. Balance Sheet January 1 AssetsCash $ 89,200 Accounts receivable 106,600 Inventories: Rawmaterials (film, costumes) $ 13,400 Videos in process 47,400Finished videos awaiting sale 80,400 141,200 Prepaid insurance8,350 Studio and equipment (net) 610,000 Total assets $ 955,350Liabilities and Stockholders’ Equity Accounts payable $ 238,000Retained earnings 717,350 Total liabilities and stockholders’equity $ 955,350 Because the videos differ in length and incomplexity of production, the company uses a job-order costingsystem to determine the cost of each video produced. Studio(manufacturing) overhead is charged to videos on the basis ofcamera-hours of activity. The company’s predetermined overhead ratefor the year ($40 per camera-hour) is based on a cost formula thatestimated $280,000 in manufacturing overhead for an estimatedallocation base of 7,000 camera-hours. Any underapplied oroverapplied overhead is closed to cost of goods sold. The followingtransactions were recorded for the year: Film, costumes, andsimilar raw materials purchased on account, $229,000. Film,costumes, and other raw materials issued to production, $230,500(85% of this material was considered direct to the videos inproduction, and the other 15% was considered indirect). Utilitycosts incurred (on account) in the production studio, $92,600.Depreciation recorded on the studio, cameras, and other equipment,$104,400. Three-fourths of this depreciation related to actualproduction of the videos, and the remainder related to equipmentused in marketing and administration. Advertising expense incurred(on account), $143,000. 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 Prepaid insurance expiredduring the year, $7,450 (70% related to production of videos, and30% related to marketing and administrative activities).Miscellaneous marketing and administrative expenses incurred (onaccount), $13,850. Studio (manufacturing) overhead was applied tovideos in production. The company recorded 7,250 camera-hours ofactivity during the year. Videos that cost $578,000 to produceaccording to their job cost sheets were transferred to the finishedvideos warehouse to await sale and shipment. Sales for the yeartotaled $954,000 and were all on account. The total cost to producethe videos that were sold according to their job cost sheets was$623,910. Collections from customers during the year totaled$904,000. Payments to suppliers on account during the year,$608,000. Underapplied or overapplied overhead $__?__. Required: 1.Prepare a transaction analysis that records all of the abovetransactions. 2. Prepare a schedule of cost of goods manufacturedfor the year. 3. Prepare a schedule of cost of goods sold for theyear. 4. Prepare an income statement for the year.
