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. A bank loan had been obtained on December 1. Accrued interest on the loan at December 31 amounts to $1,120. No interest expense has yet been recorded. Depreciation of the firm’s office building is based on an estimated life of 30 years. The building was purchased four years ago for $310,000. Accrued, but unbilled, revenue during December amounts to $70,000. On March 1, the firm paid $1,300 to renew a 12-month insurance policy. The entire amount was recorded as Prepaid Insurance. 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, $4,200 had actually been earned by the firm. The company’s policy is to pay its employees every Friday. Since December 31 fell on a Wednesday, there was an accrued liability for salaries amounting to $2,500. a. Record the necessary adjusting journal entries on December 31. b. By how much did Sweeney & Allen’s net income increase or decrease as a result of the adjusting entries performed in part a? (Ignore income taxes.)

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter6: Business Expenses

Section: Chapter Questions

Problem 43P

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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.

A bank loan had been obtained on December 1. Accrued interest on the loan at December 31 amounts to $1,120. No interest expense has yet been recorded.
Depreciation of the firm’s office building is based on an estimated life of 30 years. The building was purchased four years ago for $310,000.
Accrued, but unbilled, revenue during December amounts to $70,000.
On March 1, the firm paid $1,300 to renew a 12-month insurance policy. The entire amount was recorded as Prepaid Insurance.
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, $4,200 had actually been earned by the firm.
The company’s policy is to pay its employees every Friday. Since December 31 fell on a Wednesday, there was an accrued liability for salaries amounting to $2,500.

a. Record the necessary adjusting journal entries on December 31.

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

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