Expense Adjustments Faraday Electronic Service repairs stereos and DVD players. During the year, Faraday engaged in the following activities a. On September 1, Faraday paid Wausau Insurance $7,680 for its liability insurance for the next 12 months. The full amount of the prepayment was debited to prepaid insurance. b. At December 31, Faraday estimates that $1,480 of utility costs are unrecorded and unpaid. c. Faraday rents its testing equipment from JVC. Equipment rent in the amount of $2,760 is unpaid and unrecorded at December 31. d. In late October, Faraday agreed to become the sponsor for the sports segment of the evening news program on a local television station. The station billed Faraday $5,400 for 3 months' sponsorship-November, December January-in advance. When these payments were made, Faraday debited prepaid advertising. At December 31, 2 months' advertising has been used and 1 month remains unused. Required: 1. Prepare adjusting entries at December 31 for these four activities. If an amount box does not require an entry, leave it blank. Dec. 31 Insurance Expense Prepaid Insurance Dec. 31 Utilities Expense LAN Utilities Payable Dec. 31 Bent Expense 1,70 2,760 Rent Paralle Dec. 31 Advertising Expense SAX Prepaid Advertising 2. Conceptual Connection: What would be the effect on expenses if the adjusting entries were not made? a. Expenses would be understated and assets would be overstated, net income and stockholders' equity would be overstated. b. Expenses would be understated and assets would be overstates, net income and stockholders' equity would be overstated. c. Expenses would be understated and assets would be overstated, net income and stockholders equity would be overstated. d. Expenses would be understated and assets would be overstated, net income and stockholders' equity would be overstated. Cumulative effect on expenses: Overstated x by: x