DEFERRED EXPENSE ADJUSTING ENTRIES Best Company had the following items that require adjustment at year-end.

a. Cash for equipment rental in the amount of $4,200 was paid in advance. The

$4,200 was debited to prepaid equipment rent when paid. At year-end, $3,150 of the prepaid rent had been used.

b. Cash for insurance in the amount of $6,500 was paid in advance. The $6,500 was debited to prepaid insurance when paid. At year-end, $1,300 of the prepaid insurance was still unused.

Required:

. Prepare the adjusting journal entries needed at December 31.

. What is the effect on the financial statements if these adjusting entries are not made?

. What is the balance in prepaid equipment rent and insurance expense at December 31?

Cornerstone Exercise