3.7

2. Fill in the blank:

a prepaid asset/ an expense/ an accrued expense

only the income statement/ one income and one balance sheet/ only the cash

understated/overstated

understated/overstated

understated/overstated

Deferred Expense Aajusting 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, $2,200 of the prepsid rent had expired. b. Cash for insurance in the amount of $7,300 was paid in advance. The $7,300 was debited to prepaid insurance when paid. At year end, $1,800 of the prepaid insurance was still unused c. Supplies at the beginning of the year showed a balance of $2,000. Best purchased supplies of $16,422 during the year. At the end of the year, a physical count of supplies showed $4,125 of supplies on hand. Required: 1. Prepare the adjusting journal entries needed at December 31. If an amount box does not require an entry, leave it biank. Dec. 31 Dec. 31 Dec, 31 2. What is the effect on the financial statements if these adjusting entries are not made? In all these cases, was originally created when cash was paid. The adjusting entries will affect account. If these entries were not made, expenses would be and assets would be In addition, net income will be 3. What is the balance in prepaid equipment rent, insurance expense, and supplies at December 31