Question

The law firm of Furlan and Benson accumulates costs associated with individual cases, using a job order cost system. The following transactions occurred during July:
July 3 Charged 175 hours of professional (lawyer) time at a rate of $150 per hour to the Obsidian Co. breech of contract suit to prepare for the trial.
10 Reimbursed travel costs to employees for depositions related to the Obsidian case, $12,500.
14 Charged 260 hours of professional time for the Obsidian trial at a rate of $185 per hour.
18 Received invoice from consultants Wadsley and Harden for $30,000 for expert testimony related to the
Obsidian trial.
27 Applied office overhead at a rate of $62 per professional hour charged to the Obsidian case.
31 Paid administrative and support salaries of $28,500 for the month.
31 Used office supplies for the month, $4,000 31. Paid professional salaries of $74,350 for the month.
31 Billed Obsidian $172,500 for successful defense of the case
A. Provide the journal entries for each of these transactions.
B. How much office overhead isover- or underapplied?
C. Determine the gross profit onthe Obsidian case, assuming that over- or underapplied officeoverhead is closed monthly to cost of services.
Chart Of Accounts Furlan and Benson General Ledger
Assets
110 Cash
121 Accounts Receivable
125 Notes Receivable
126 Interest Receivable
132 Work in Process
133 Office Overhead
141 Supplies
142 Prepaid Insurance
143 Prepaid Expenses
191 Office Equipment
192 Accumulated Depreciation-OfficeEquipment
Liabilities
210 Accounts Payable
221 Utilities Payable
231 Notes Payable
236 Interest Payable
241 Lease Payable
251 Salaries Payable
252 Consultant Fees Payable
Equity
311 Common Stock
340 Retained Earnings
351 Dividends
390 Income Summary
Revenue
410 Fees Earned
610 Interest Revenue
Expenses
510 Cost of Services
520 Salaries Expense
532 Insurance Expense
533 Utilities Expense
534 Office Supplies Expense
540 Administrative Expenses
560 Depreciation Expense-OfficeEquipment
590 Miscellaneous Expense
710 Interest Expense

Answer 1

Answer:

3-Jul

Dr Work in process 25,500

Cr Salaries payable 25,500

10-Jul

Dr Work in process 12,500

Cr Cash 12,500

14-Jul

Dr Work in process 48,100

Cr Salaries payable 48,100

18-Jul

Dr Work in process 30,000

Cr Consultant fees payable 30,000

27-Jul

Dr Work in process 26,660

Cr Office overhead 26,660

31-Jul

Dr Office overhead 28,500

Cr Cash 28,500

31-Jul

Dr office overhead 4,000

Cr Supplies 4,000

31-Jul

Dr Salaries payable 74,350

Cr Cash 74,350

31-Jul

Dr Accounts receivable 172,500

Cr Fees earned 172,500

31-Jul

Dr Cost of services 142,760

Cr Work in process 142,760

b. $5,840 Over applied

c. Gross profit $35,580

Explanation:

Furlar and Benson General Journal

3-Jul

Dr Work in process 25,500

(170 hours ×150 per hour)

Cr Salaries payable 25,500

10-Jul

Dr Work in process 12,500

Cr Cash 12,500

14-Jul

Dr Work in process 48,100

(260 hours ×185 per hour)

Cr Salaries payable 48,100

18-Jul

Dr Work in process 30,000

Cr Consultant fees payable 30,000

27-Jul

Dr Work in process 26,660

(170 hours +260 hours)*62

Cr Office overhead 26,660

31-Jul

Dr Office overhead 28,500

Cr Cash 28,500

31-Jul

Dr office overhead 4,000

Cr Supplies 4,000

31-Jul

Dr Salaries payable 74,350

Cr Cash 74,350

31-Jul

Dr Accounts receivable 172,500

Cr Fees earned 172,500

31-Jul

Dr Cost of services 142,760

(25,500+12,500+48,100+30,000+26,660)

Cr Work in process 142,760

b. Calculation for how much office overhead isover- or underapplied

(28,500+4,000)-26,660

=32,500-26,660

=$5,840

Therefore the office overhead is over applied with $5,840

C. Calculation to Determine the gross profit on the Obsidian case

Fees earned 172,500

Less Cost of services (136,920)

(142,760-5,840)

Gross profit $35,580

Therefore the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services will be $35,580