May 2. Charged 200 hours of professional (lawyer) time to the Peterson Co. breech of contract suit to prepare for the trial, at a rate of $140 per hour.
7. Reimbursed travel costs to employees for depositions related to the Peterson case, $14,600.
11. Charged 300 hours of professional time for the Peterson trial at a rate of $175 per hour.
16. Received invoice from consultants Davis and Harris for $40,000 for expert testimony related to the Peterson trial.
21. Applied office overhead at a rate of $50 per professional hour charged to the Peterson case.
31. Paid secretarial and administrative salaries of $26,000 for the month.
31. Used office supplies for the month, $6,000.
31. Paid professional salaries of $38,640 for the month.
31. Billed Peterson $185,000 for successful defense of the case.
a. Provide the journal entries for each of the above transactions.
b. How much office overhead is over- or underapplied?
c. Determine the gross profit on the Peterson case, assuming that over- or underapplied office overhead is closed monthly to cost of services.
Answer:
a.
May 2 Work in Process (200 hrs. × $140) 28,000
Salaries Payable 28,000
7 Work in Process 14,600
Cash 14,600
11 Work in Process (300 hrs. × $175) 52,500
Salaries Payable 52,500
16 Work in Process 40,000
Consultant Fees Payable 40,000
21 Work in Process (500 hrs. × $50) 25,000
Office Overhead 25,000
31 Office Overhead 26,000
Cash 26,000
31 Office Overhead 6,000
Supplies 6,000
31 Salaries Payable 38,640
Cash 38,640
31 Accounts Receivable 185,000
Fees Earned 185,000
31 Cost of Services 160,100
Work in Process* 160,100
* $28,000 + $14,600 + $52,500 + $40,000 + $25,000
b. Office overhead incurred ($26,000 + $6,000)………………… $32,000
Office overhead applied………………………………………… 25,000
Underapplied overhead…………………………………………… $ 7,000
c. Fees earned……………………………………………………… $185,000
Cost of services*…………………………………………………… 167,100
Gross profit………………………………………………………… $ 17,900
* $160,100 + $7,000. Assumes the over- or underapplied office overhead is
closed to cost of services monthly.