[jenpriceless104]

HERE IS THE QUESTION:
Sweeney & Associates, a large marketing firm, adjusts its accounts at the end of each month. The following information is available for the year ending December 31, 2009: 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 build-ing was purchased in 2005 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 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. a. Record the necessary adjusting journal entries on December 31, 2009. b. By how much did Sweeney & Associates’s net income increase or decrease as a result of the adjusting entries performed in part a? ( Ignore income taxes.)

HERE IS WHAT I DID:
1) Interest Expense (Debit) 1,200
Interest Payable (Credit) 1,200

2) Depreciation Expense (Debit) 1,100
Accumulated Depreciation (credit) 1,100

3) Accounts Receivable (Debit) 64,000
Accumulated Revenue (credit)64,000

4) Insurance Expense (Debit) 150
Unexpected Insurance (Credit) 150

5)

6) Wages Expense ((debit) 2400
Wages payable (credit) 2400

I would like someone to tell me if this looks correct. I was also a little stumped on number 5? Thanks to anyone who can help!

[pready]

1 and 2 are correct.
3. The Credit should be an appropriate Revenue Account.
4. The Credit should be to PrePaid Insurance.
5. Debit Unearned Revenue for the amount earned and Credit the appropriate Revenue Account for the amount earned.
6. This is correct.

Also you need to add revenues to net income and deduct expense accounts from net income to get amount of increase or decrease.

[morgaine300]

Yes. For 3 & 4 you're using titles names that don't exist.

All revenue is essentially "accumulated" because to accumulate means to keep adding something up. So all year your are accumulating all revenues and expenses. So the fact that it's done as an adjusting entry doesn't really change that the revenue is earned, just like any other revenue. Meaning you're using the same account as where your other revenue is going, whatever they are calling that account. (Fees earned, service revenue, whatever.) We don't separate it into a "special" account just cause it's an adjusting entry.

As for "unexpected insurance" - you don't title accounts based on "cirumstances." It wasn't unexpected anyway. But even if it was, we don't separate out accounts simply because something might have been unexpected. It would use the same account name as any other time you use it.

If the insurance was purchased earlier in the year, it was put into prepaid insurance. Now that another month has gone by and expired, then it comes back out of the prepaid insurance and gets expensed. Again, the circumstances don't change the account names. It was in prepaid insurance, so it comes out of prepaid insurance.

And yes, you add revenues and deduct expenses. Is it not logical that if you are earning revenues that it's a positive to you, and when you incur expenses it goes against that as a negative? That is, don't try to turn it into something fancy and complicated just because it's accounting.

Adjusting entries ALL involve revenue and expense accounts. That's why they're having you determine what affect on net income they had - to show you what would be missing out if you didn't record these. Books like to do that.

[pready]

3 and 5 are added to net income.
1, 2, 4, and 6 are deducted from net income