The Effect of Ignoring Adjustments on Net Income For each of the following independent situations, determine whether the effect of ignoring the required adjustment will result in an understatement (U), will result in an overstatement

(O), or will have no effect (NE) on net income for the period.

Effect on Situation Net Income Example: Taxes owed but not yet paid are ignored. O 1. A company fails to record depreciation on equipment. __________ 2. Sales made during the last week of the period are not recorded. __________ 3. A company neglects to record the expired portion of a prepaid insurance __________ policy. (Its cost was originally recorded in an asset account.) __________ 4. Interest due but not yet paid on a long-term note payable is ignored. __________ 5. Commissions earned by salespeople but not payable until the 10th of the following month are ignored. __________ 6. A landlord receives cash on the date a lease is signed for the rent for the fi rst six months and records Unearned Rent Revenue. The landlord fails to make any adjustment at the end of the fi rst month. __________ AppendixLO1