A company has a fiscal year-end of December 31: (1) on October 1, $20,000 was paid for a one-year fire insurance policy; (2) on June 30 the company lent its chief financial officer $18,000; principal and interest at 8% are due in one year; and (3) equipment costing $68,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $13,600 per year.

If the adjusting entries were not recorded, would net income be higher or lower and by how much?