A company has a fiscal year-end of December 31:

(1) on October 1, $12,000 was paid for a one-year fire insurance policy;

(2) on June 30 the company loaned its chief financial officer $10,000; principal and interest at 6% on the note are due in one year; and

(3) equipment costing $60,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $12,000 per year.

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

Note: Decreases to account classifications should be entered as a negative.

Adjusting Entry Net Income

(1) higher/lower? how much?

(2) higher/lower? how much?

(3) higher/lower? how much?