EXERCISE 4.7

Preparing Various Adjusting Entries

Sweeney & Allen, a large marketing firm, adjusts its accounts at the end of each month. The following information is available for the year ending December 31.

1. A bank loan had been obtained on December 1. Accrued interest on the loan at December 31 amounts to $1,500. No interest expense has yet been recorded.

2. Depreciation of the firms office building is based on an estimated life of 30 years. The building was purchased four years ago for $450,000.

3. Accrued, but unbilled, revenue during December amounts to $75,000.

4. On March 1, the firm paid $2,400 to renew a 12-month insurance policy. The entire amount was recorded as Prepaid Insurance.

5. The firm received $15,000 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, $9,000 had actually been earned by the firm.

6. The companys policy is to pay its employees every Friday. Since December 31 fell on a Wednesday, there was an accrued liability for salaries amounting to $1,900.

1. Record the necessary adjusting journal entries on December 31.page 175

2. By how much did Sweeney & Allens net income increase or decrease as a result of the adjusting entries performed in part a? (Ignore income taxes.)