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.

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 under applied or over applied overhead is closed to cost of goods sold. The following transactions were recorded for the year:
a. Film, costumes, and similar raw materials purchased on account, $183,000.
b. Film, costumes, and other raw materials issued to production, $210,000 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect).
c. Utility costs incurred (on account) in the production studio, $78,000.
d. Depreciation recorded on the studio, cameras, and other equipment, $82,000. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration.
e. Advertising expense incurred (on account), $131,000.
f. Salaries and wages paid in cash as follows:
Direct labor (actors and directors) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $84,000
Indirect labor (carpenters to build sets,
costume designers, and so forth) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $105,000
Administrative salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $95,000
g. Prepaid insurance expired during the year, $7,000 (70% related to production of videos, and 30% related to marketing and administrative activities).
h. Miscellaneous marketing and administrative expenses incurred (on account), $9,600.
i. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
j. Videos that cost $565,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.
k. Sales for the year totaled $930,000 and were all on account.
l. The total cost to produce the videos that were sold according to their job cost sheets was $610,000.
m. Collections from customers during the year totaled $880,000.
n. Payments to suppliers on account during the year, $515,000.
o. Under applied or over applied overhead $ ___?___ .
Required:
1. Using Exhibit 3A-2 as your guide, prepare a transaction analysis that records all of the above transactions. Calculate the ending balances at December 31 for all balance sheet accounts.
Exhibit 3A-2: Sapphire Company: Completed Transaction Analysis

2. Using Exhibit 3A-3 as your guide, prepare a schedule of cost of goods manufactured for the year. If done correctly, your cost of goods manufactured should equal what amount mentioned in the transactions above?
Exhibit 3A-3: Sapphire Company: Schedule of Cost of Goods Manufactured

3. Using Exhibit 3A-4 as your guide, prepare a schedule of cost of goods sold for the year. If done correctly, your unadjusted cost of goods sold should equal what amount mentioned in the transactions above?
Exhibit 3A-4: Sapphire Company: Schedule of Cost of Goods Sold

4. Using Exhibit 3A-5 as your guide, prepare an income statement for the year.
Exhibit 3A-5: Sapphire Company: Income Statement

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Star Videos, Inc. Balance Sheet January 1 Assets Cash Accounts receivable $73,000 96,000 $33,000 47,000 Raw materials (film, costumes) Videos in process Finished videos awaiting sale Prepaid insurance Studio and equipment (net) Total assets. 78,000 158,000 8,000 530,000 $865,000 Liabilities and Stockholders' Equity Accounts payable Retained earnings Total liabilities and stockholders' equity $150,000 715,000 $865,000 Sapphire Company Transaction Analysis For the Month Ended January 31 Accounts Retained Cash Materials Pocess Goods Overhead Expenses PP&E (net)Payable Eornings 3,000 $240,000 4,000 $280,000 Raw Work in Finished Manufacturing Prepaid 5 Transoctions 6 Beginning balances 1/1 7 (a) Raw material purchases 8 (b) Raw materials used in production 9 c) Salaries and wages 10 (d) Utility costs 11 (e) Depreciation 12 (f) Advertising 13 (8) Expiration of prepaid insurance 14 (h) Manufacturing overhead applied $ 15,000 8,000 5,000 13,000 80,000 (78,000) 70,000 80,000 8,000 45,000 15,000 28,000 (135,000) 68,000 (22,000) 15,000 40,000) (12,000) (18,000) (200) (18,000) 800 1,000) (102,500) 10anufactured 102,500 (235,000 235,000 16 i Sales 17 (k) Cost of goods sold 18 Payments to creditors 19 (m) Overapplied overhead 20 Ending ballances 1/31 21 320,000 320,000 (245,000) 5,700 2,000 $200,000$ 7,000 $308,500 245,000) (92,000) (92,000) S 90,000 10,000 10500$ 3,000S Sapphire Company Schedule of Cost of Goods Manufactured For the Month Ended January 31 5 Direct materials 6 Beginning raw materials inventory (D6) 7 Add: Purchases of raw materials (D7) 8 Total raw materials available 9 Deduct: Ending raw materials inventory (D20) 10 Raw materials used production 11 Deduct: Indirect materials included in manufacturing overhead (G8) 12 Direct labor (E9) 13 Manufacturing overhead applied to work in process (E14) $ 8,000 80,000 88,000 10,000 78,000 8,000 $ 70,000 68,000 102,500 240,500 5,000 245,500 10,500 235,000 14 Total manufacturing costs 15 Add: Beginning work in process inventory (E6) 16 17 Deduct: Ending work in process inventory (E20) 18 Cost of goods manufactured 19 Sapphire Company Schedule of Cost of Goods Sold For the Month Ended January 31 2 15 Beginning finished goods inventory (F6) Add: Cost of goods manufactured (F15) 7 Cost of goods available for sale 8 Deduct: Ending finished goods inventory (F20) 9 Unadjusted cost of goods sold 10 Deduct: Overapplied overhead (G19) 11 Adjusted cost of goods sold 12 $ 13,000 235,000 248,000 3,000 245,000 5,700 $ 239,300 6 Sapphire Company Income Statement For the Month Ended January 31 2 5 Sales (L16) 6 Cost of goods sold 7 Gross margin 8 Selling and administrative expenses 9 Salaries expense (L9) 10 Depreciation expense (L11) 11 Advertising expense (L12) 12 Insurance expense (L13) 13 Net operating income 14 $ 320,000 239,300 80,700 $ 22,000 12,000 18,000 200 52,200 $ 28,500