Preparing Various Adjusting Entries
Sweeney & Associates, a large marketing firm, adjusts its accounts at the end of each month. The following information is available for the year ending December 31,2011:
1. A bank loan had been obtained on December 1. Accrued interest on the loan at December 31 amounts to $1,200. No interest expense has yet been recorded.
2. Depreciation of the firm’s office building is based on an estimated life of 25 years. The building was purchased in 2007 for $330,000.
3. Accrued, but unbilled, revenue during December amounts to $64,000.
4. On March 1, the firm paid $1,800 to renew a 12-month insurance policy. The entire amount was recorded as Prepaid Insurance.
5. The firm received $ 14,000 from King Biscuit Company in advance of developing a six-month marketing campaign. The entire amount was initially recorded as Unearned Revenue. At December 31, $3,500 had actually been earned by the firm.
6. The company’s policy is to pay its employees eveiy Friday. Since December 31 fell on a Wednesday, there was an accrued liability for salaries amounting to $2,400.
a. Record the necessary adjusting journal entries on December 31,2011.
b. By how much did Sweeney&Associates’s net income increase or decrease as a result of the adjusting entries performed in part a? (Ignore income taxes.)
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