Exercise 4.7 (Algo) Preparing Various Adjusting Entries (LO4-1, LO4-2, LO4-3, LO4-4, LO4-5, LO4-6, LO4-9)

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 $1,240. 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 $340,000.
3. Accrued, but unbilled, revenue during December amounts to $72,000.
4. On March 1, the firm paid $1,500 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, $2,700 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 $2,700.

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

b. 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.)