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 $7,320 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 $1,610 of utility costs are unrecorded and unpaid. c. Faraday rents its testing equipment from JVC. Equipment rent in the amount of $2,840 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, Tf station billed Faraday $5,100 for 3 month's sponsorship-November, December, and January-in advance. When these payments were mad Faraday debited prepaid advertising. At December 31, 2 months' advertising has been used and 1 month remains unused. 2. Conceptual Connection: What would be the effect on expenses if the adjusting entries were not made? a. b. c. d. Cumulative effect on expenses: by $ Expenses would be understated and assets would be understated, net income and stockholders' equity would be overstated. Expenses would be overstated and assets would be overstated, net income and stockholders' equity would be overstated. Expenses would be understated and assets would be overstated, net income and stockholders' equity would be overstated. Expenses would be overstated and assets would be understated, net income and stockholders' equity would be overstated. Expenses would be understated and liabilities would be understated, net income and stockholders' equity would be overstated. Expenses would be overstated and liabilities would be overstated, net income and stockholders' equity would be overstated. Expenses would be understated and liabilities would be overstated, net income and stockholders' equity would be overstated. Expenses would be overstated and llabilities would be understated, net income and stockholders' equity would be overstated