Prepaid Expense Adjusting Entries }
Best Company had the following items that require adjustment at year-end:

a. Cash for equipment rental in the amount of \(\$ 3,800\) was paid in advance. The \(\$ 3,800\) was debited to prepaid rent when paid. At year-end, \(\$ 2,950\) of the prepaid rent had been used.

b. Cash for insurance in the amount of \(\$ 8,200\) was paid in advance. The \(\$ 8,200\) was debited to prepaid insurance when paid. At year-end, \(\$ 1,850\) of the prepaid insurance was still unused.
\section*{Required:}
1. Prepare the adjusting journal entries needed at December 31 .
2. What is the effect on the financial statements if these adjusting entries are not made?
3. What is the balance in prepaid rent and insurance expense at December 31 (assume this is the first insurance policy the company ever took out)?
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OBJECTIVE 4 Cornerstone Exercise