Question: 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 $1,270. 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 $340,000.
Accrued, but unbilled, revenue during December amounts to $73,000.
- 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, $3,500 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 $2,300.
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.)