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 $ 88,800 Accounts receivable 114,400 Inventories: Raw materials (film, costumes) $ 26,800 Videos in process 64,000 Finished videos awaiting sale 80,400 171,200 Prepaid insurance 11,450 Studio and equipment (net) 598,000 Total assets $ 983,850 Liabilities and Stockholders’ Equity Accounts payable $ 188,000 Retained earnings 795,850 Total liabilities and stockholders’ equity $ 983,850
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Star Videos, Inc., produces short musical videos for sale to retail outlets. The company’s
| Star Videos, Inc. | |||||
| Balance Sheet | |||||
| January 1 | |||||
| Assets | |||||
| Cash | $ | 88,800 | |||
| 114,400 | |||||
| Inventories: | |||||
| Raw materials (film, costumes) | $ | 26,800 | |||
| Videos in process | 64,000 | ||||
| Finished videos awaiting sale | 80,400 | 171,200 | |||
| Prepaid insurance | 11,450 | ||||
| Studio and equipment (net) | 598,000 | ||||
| Total assets | $ | 983,850 | |||
| Liabilities and |
|||||
| Accounts payable | $ | 188,000 | |||
| 795,850 | |||||
| Total liabilities and stockholders’ equity | $ | 983,850 | |||
|
|
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)
- Film, costumes, and similar raw materials purchased on account, $219,000.
- Film, costumes, and other raw materials issued to production, $231,000 (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, $94,800. 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), $144,000.
- Salaries and wages paid in cash as follows:
| Direct labor (actors and directors) | $ | 89,400 |
| Indirect labor (carpenters to build sets, costume designers, and so forth) | $ | 92,000 |
| Administrative salaries | $ | 111,600 |
- Prepaid insurance expired during the year, $10,950 (70% related to production of videos, and 30% related to marketing and administrative activities).
- Miscellaneous marketing and administrative expenses incurred (on account), $13,850.
- Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
- Videos that cost $562,000 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 $1,126,000 and were all on account.
- The total cost to produce the videos that were sold according to their job cost sheets was $606,790.
- Collections from customers during the year totaled $1,076,000.
- Payments to suppliers on account during the year, $522,000.
- 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.
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