PROBLEM $3-17$ Cost Flows; T$-$Accounts; Income Statement $\backslash (\backslash$triangle $\backslash )$ LO$3-2,\backslash (\backslash$triangle $\backslash )$ LO$3-3,\backslash (\backslash$triangle $\backslash )$ LO$3-4$

Supreme 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 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 based on camera$-$hours of activity. The company's predetermined overhead rate for the year is based on a cost formula that estimated $\backslash (\backslash$$ $280,000\backslash )$ in manufacturing overhead for an estimated allocation base of $7,000$ camera$-$hours. The following transactions occurred during the year: a$.$ Film, costumes, and similar raw materials purchased on account, $\backslash (\backslash$$ $185,000\backslash ).$

b$.$ Film, costumes, and other raw materials used in production, $\backslash (\backslash$$ $200,000\backslash )(\backslash (85\backslash \%\backslash )$ of this material was direct to the videos in production, and the other $\backslash (15\backslash \%\backslash )$ was indirect$).$

c$.$ Utility costs incurred in the production studio, $\backslash (\backslash$$ $72,000\backslash ).$

d$.$ Depreciation on the studio, cameras, and other equipment, $\backslash (\backslash$$ $84,000\backslash ).$ Three$-$fourths of this depreciation related to production of the videos, and the remainder related to equipment used in marketing and administration.

e$.$ Advertising expense incurred, $\backslash (\backslash$$ $130,000\backslash ).$

f$.$ Costs for salaries and wages were incurred as follows:

Direct labor $($actors and directors$)$

g$.$ Prepaid insurance expired during the year, $\backslash (\backslash$$ $7,000\backslash )(\backslash (80\backslash \%\backslash )$ related to production of videos, and $\backslash (20\backslash \%\backslash )$ related to marketing and administrative activities$).$

h$.$ Miscellaneous marketing and administrative expenses incurred, $\backslash (\backslash$$ $8,600\backslash ).$

i$.$ Studio $($manufacturing$)$ overhead was applied to videos in production. The company used $7,250$ camera$-$hours during the year.

j$.$ Videos costing $\backslash (\backslash$$ $550,000\backslash )$ to produce were transferred to the finished videos warehouse.

k$.$ Sales for the year totaled $\backslash (\backslash$$ $925,000\backslash )$ and were all on account. The total cost to produce these videos was $\backslash (\backslash$$ $600,000\backslash ).$

$1.$ Collections from customers during the year, $\backslash (\backslash$$ $850,000\backslash ).$

m $.$ Payments to suppliers on account during the year, $\backslash (\backslash$$ $500,000\backslash )$; payments to employees for salaries and wages, $\backslash (\backslash$$ $285,000\backslash ).$

Required:

$1.$ Prepare a T$-$account for each account on the company's balance sheet and enter the beginning balances.

$2.$ Record the transactions in the T$-$accounts. Prepare new T$-$accounts as needed. Key your entries to the letters $($a$)$ through $($m$)$ above. Compute the ending balance in each account.

$3.$ Is the Studio $($manufacturing$)$ Overhead account underapplied or overapplied? Make an entry in the T$-$accounts to close the Studio Overhead account to Cost of Goods Sold.

$4.$ Prepare a schedule of cost of goods manufactured. If done correctly, the cost of goods manufactured should agree with which of the above transactions?

$5.$ Prepare a schedule of cost of goods sold. If done correctly, the unadjusted cost of goods sold should agree with which of the above transactions?

$6.$ Prepare an income statement.