A. Sweeney & Associates, a large marketing firm, adjusts its accounts at the end

Question

A. Sweeney & Associates, a large marketing firm, adjusts its accounts at the end of each month. The following information is available:

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 2001 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 the 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 every Friday. Since December 31 fell on a Wednesday, there was an accrued liability for salaries amounting to $2,400.

Instructions:

a. Record the necessary adjusting journal entries on December 31, 2005.

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

Explanation / Answer

For number three my credit account might be called sales not yet billed.
#4. Debit Ins Exp $150, credit prepaid ins $150. Nice try good thoughts
#5. I think you need to take the word rent out of both the debit and credit entry
B. I think they are meaning each individual entry effect on net income
1. exp -1200
2. exp -1100
3. inc 64000
4. exp - 150
5. inc 3500
6. exp 2400
so $62,750. Did it in my head so you might want to check.

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