for Reynolds Computer Service for the current year: a. Computer equipment was purchased from IBM 3 years ago at a cost of $540,000. Annual depreciation is $127,600. b. A fire insurance policy for a 2-year period beginning on September 1 was purchased from Good Hands Insurance Company for $10,440 cash. The entire amount of the prepayment was debited to prepaid insurance. (Assume that the beginning balance of prepaid insurance was $0 and that there were no other debits or credits to that account during the year.) c. Reynolds has a contract to perform the payroll accounting for Dayton's Department Stores. On December 31,$6,190 of services have been performed under this contract but are unbilled. d. Reynolds rents 12 computer terminals for $60 per month per terminal from Extreme Terminals Inc. At December 31 , Reynolds owes Extreme Terminals for half a month's rent on each terminal. The amount owed is unrecorded. e. Perry's Tax Service prepays rent for time on Reynolds' computer. When payments are received from Perry's Tax Service, Reynolds credits unearned rent revenue. At December 31, Reynolds has earned $1,760 for computer time used by Perry's Tax Service during December. c. d. e. 2. Conceptual Connection: What would be the effect on the balance sheet and the income statement if the accountant failed to make the Income Statement a. Computer equipment purchased Expenses overstated b. Prepaid insurance c. Unearned service revenue d. Rent owed is unrecorded e. Unearned rent revenue \begin{tabular}{l|l} \hline a. Computer equipment purchased BalanceSheetb.Prepaidinsurance \\ c. Unearned service revenue Expenses understated Revenues overstated Revenues understated \\ d. Rent owed is unrecorded \\ e. Unearned rent revenue \end{tabular} \begin{tabular}{l|l|l} \multicolumn{2}{c|}{ Income Statement } \\ \hline a. Computer equipment purchased & Expenses overstated & Assets overstated \\ b. Prepaid insurance & Revenues overstated & \multicolumn{2}{l}{ Assets understated } \\ c. Unearned service revenue \\ d. Rent owed is unrecorded \\ e. Unearned rent revenue \end{tabular}