Final answer:
Sweeney & Allen's net income increased by $62,400 as a result of the adjusting entries made on December 31, which accounted for accrued interest, depreciation, unbilled revenues, insurance expense, earned revenue from advance payment, and accrued salaries.
Step-by-step explanation:
Adjusting Journal Entries for Sweeney & Allen
To properly adjust the accounts for the year, we need to make five adjusting journal entries on December 31:
- Interest Expense 1,500
Interest Payable 1,500
(To record accrued interest on the bank loan) - Depreciation Expense 15,000
Accumulated Depreciation—Building 15,000
(To record depreciation for the year: 450,000 / 30 years = 15,000) - Accounts Receivable 75,000
Service Revenue 75,000
(To record accrued unbilled revenue) - Insurance Expense 200
Prepaid Insurance 200
(To record insurance expense for the year: 2,400 / 12 months * 10 months = 200 remaining as prepaid) - Unearned Revenue 6,000
Service Revenue 6,000
(To recognize revenue earned from the amount previously recorded as unearned) - Salaries Expense 1,900
Salaries Payable 1,900
(To record accrued salaries)
Total expenses recorded are 1,500 + 15,000 + 200 + 1,900 = 18,600 and total revenues recorded are 75,000 + 6,000 = 81,000. The net increase in income due to adjusting entries is 81,000 - 18,600 = 62,400.
Net Income Effect from Adjusting Entries
Sweeney & Allen’s net income increased by 62,400 as a result of the adjusting entries. This increase comes from recognizing accrued revenues that were not previously billed and earned revenue from the advance payment, offset by the expenses for accruing interest, depreciation, insurance, and salaries.