Loomis and Associates, a CPA firm, uses job costing. During January, the firm provided audit services for two clients and billed those clients for the services performed. Springsteen Productions was billed for 4,000 hours at $100 per hour, and RCI Records was billed for 2,000 hours at $100 per hour. Direct labor costs were $60 per hour. Of the 6,400 hours worked in January, 400 hours were not billable. The firm assigns overhead to jobs at the rate of $20 per billable hour. During January, the firm incurred actual overhead of $140,000. The firm incurred marketing and administrative costs of $20,000. All transactions were on account.
a. Show how Loomis and Associates’ accounting system would record these revenues and costs using journal entries.
b. Prepare an income statement for January like the one in Exhibit 2.5.