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 420 hours of professional (lawyer) time to the Obsidian Co. breech of contract suit to prepare for the trial, at a rate of $150 per hour.
10.	Reimbursed travel costs to employees for depositions related to the Obsidian case, $18,500.
14.	Charged 310 hours of professional time for the Obsidian trial at a rate of $260 per hour.
18.	Received invoice from consultants Wadsley and Harden for $77,900 for expert testimony related to the Obsidian trial.
27.	Applied office overhead at a rate of $70 per professional hour charged to the Obsidian case.
31.	Paid administrative and support salaries of $36,300 for the month.
31.	Used office supplies for the month, $12,300.
31.	Paid professional salaries of $189,600 for the month.
31.	Billed Obsidian $331,900 for successful defense of the case.

a. Provide the journal entries for each of these transactions. If an amount box does not require an entry, leave it blank.

July 3	Work in Process
	Salaries Payable
July 10	Work in Process
	Cash
July 14	Work in Process
	Salaries Payable
July 18	Work in Process
	Consultant Fees Payable
July 27	Work in Process
	Office Overhead
July 31 Admin. sal.	Office Overhead
	Cash
July 31 Supplies	Office Overhead
	Supplies
July 31 Prof. sal.	Salaries Payable
	Cash
July 31 Billed	Accounts Receivable
	Fees Earned
July 31 Cost	Cost of Services
	Work in Process

b. How much office overhead is over- or underapplied? Enter your answer as a positive number.
$ Underapplied

c. Determine the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services.
$

Answer 1

a.

	Account Titles	Debit	Credit
Jul-03	Work in Process	$                 63,000
	Salaries Payable		$            63,000
Jul-10	Work in Process	$                 18,500
	Cash		$            18,500
Jul-14	Work in Process	$                 80,600
	Salaries Payable		$            80,600
Jul-18	Work in Process	$                 77,900
	Consultant Fees Payable		$            77,900
Jul-27	Work in Process	$                 51,100		=(420+310)*70
	Office Overhead		$            51,100
July 31 Admin. sal.	Office Overhead	$                 36,300
	Cash		$            36,300
July 31 Supplies	Office Overhead	$                 12,300
	Supplies		$            12,300
July 31 Prof. sal.	Salaries Payable	$               189,600
	Cash		$         189,600
July 31 Billed	Accounts Receivable	$               331,900
	Fees Earned		$         331,900
July 31 Cost	Cost of Services	$               291,100		=63000+18500+80600+77900+51100
	Work in Process		$         291,100

b.

Actual Office overhead = $36300+12300 = $48600
Over applied overhead = $51100-48600 = $2500

c.
Gross Profit = $331900 - (291100 - 2500) = $43300