Question

The following are the job cost related accounts for the law firm of Colaw Associates

And their manufacturing equivalents:

Law firm accounts

Supplies

Salaries and Wages Payable

Operating Overhead

Service Contracts in Process

Cost of Completed Service Contracts

Manufacturing Firm Accounts

Raw Materials

Factory Wages Payable

Manufacturing Overhead

Work in Process

Cost of Goods Sold

Cost data for the month of March follow.

1. Purchased supplies on account $1800

2. Issued supplies $1200 (60% direct and 40% indirect)

3. Assigned labor costs based on time cards for the month which indicated labor costs of $70,000 (80% direct and 20% indirect)

4. Operating overhead costs incurred for cash totaled $40,000

5. Operating overhead is applied at a rate of 90% of direct labor cost.

6. Work completed totaled $75,000

Instructions

1. Journalize the transactions for March. (Omit explanations.)

2. Determine the balance of the Service Contracts in Process account. (Use a T-account)

Hints: This is a little different than what we did in lecture as this is for a service company, not a manufacturer. Use the following accounts to make your entries and answer (b)  

• Cash

• Supplies

• Accounts Payable

• Service Salaries and Wages Payable

• Service Contracts in Process (Replaces the Work In Process Account)

• Operating Overhead ( Replaces Manufacturing Overhead)

• Cost of Completed Service Contracts (COGS) – This is related to the last transaction

Answer 1

No	Account titles & Explanation					Debit	Credit
1)	Supplies					1,800
	Accounts payable						1,800
2)	Service Contracts In process					720
	operating overhead					480
	supplies						1,200
3)	Service Contracts In process					56000
	operating overhead					14000
	Salaries and wages payable						70,000
4)	operating overhead					40,000
	cash						40,000
5)	Service Contracts In process					50400
	operating overhead						50400
6)	Cost of completed service contracts					75,000
	Service Contracts In process						75,000
b)	T- Account
	Service contracts in process
	2)	720	6)	75,000
	3)	56000
	5)	50400
	Bal	32,120
	Balance of service contracts in process accounts					32,120