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Faraday Electronic Service repairs stereos and DVD players. During 2019, Faraday engaged in the following activities: a. On September 1, Faraday paid Wausau Insurance $5,760 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 $1,420 of utility costs are unrecorded and unpaid. C. Faraday rents its testing equipment from JVC. Equipment rent in the amount of $2,770 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 $6,300 for 3 months' sponsorship-November 2019, December 2019, and January 2020-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. Dec. 31 Insurance Expense Prepaid Insurance (Record use of prepaid insurance) Dec. 31 Utilities Expense Utilities Payable 0 0 (Record use of utilities) Dec. 31 Rent Expense Rent Payable (Record use of equipment) Dec. 31 Advertising Expense Prepaid Advertising (Record use of prepaid advertising) Feedback Check Work 1. Expenses are recorded as they are incurred, regardless of when cash is paid. Accrued expenses represent previously unrecorded expenses that have been incurred but not yet paid In cash. A deferred (prepaid) expense is an asset that arises from the payment of cash that has not yet been consumed by the end of the period. As the prepaid asset is used to generate revenue, it should be adjusted 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 liabilities would be understated, net income and stockholders' equity would be overstated. c. Expenses would be understated and liabilities would be understated, 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: Understated by s