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:

Jul.	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, $12,850
	14	Charged 260 hours of professional time for the Obsidian trial at a rate of $180 per hour
	18	Received invoice from consultants Wadsley and Harden for $29,000 for expert testimony related to the Obsidian trial
	27	Applied office overhead at a rate of $60 per professional hour charged to the Obsidian case
	31	Paid administrative and support salaries of $29,240 for the month
	31	Used office supplies for the month, $4,390
	31	Paid professional salaries of $73,050 for the month
	31	Billed Obsidian $181,400 for successful defense of the case

Required:

A.	Provide the journal entries for each of these transactions. Refer to the Chart of Accounts for exact wording of account titles.
B.	How much office overhead is over- or underapplied?
C.	Determine the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services.

Chart of Accounts

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-Office Equipment 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-Office Equipment 590 Miscellaneous Expense 710 Interest Expense

Journal

A. Provide the journal entries for each of these transactions. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Final Question

B. How much office overhead is over- or 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

	Date	General Journal				Debit	Credit
	3-Jul	Work in process				26250
		Salaries payable					26,250
	10-Jul	Work in process				12,850
		cash					12,850
	14-Jul	Work in process				46800
		Salaries payable					46,800
	18-Jul	work in process				29,000
		Consultant fees payable					29,000
	27-Jul	Work in process				26100
		office overhead					26,100
	31-Jul	office overhead				29,240
		Cash					29,240
	31-Jul	office overhead				4,390
		Supplies					4,390
	31-Jul	Salaries payable				73,050
		cash					73,050
	31-Jul	Accounts receivable				181,400
		Fees earned					181,400
	31-Jul	Cost of services				141,000
		work in process					141,000
	b)	office overhead under applied				7,530
	c)	Gross profit				32,870
		(181400 - (141000+7530)