For each of the following situations, indicate whether assets, liabilities, equity, revenues, and expenses are overstated (too high), understated (too low), or unaffected by the error in the December 31, 2014 financial statements. Briefly explain why the effects occur and state any assumptions that you make.

a. A retail store pays rent to the mall owners of $36,000 per year (payable monthly)

plus 2 percent of annual sales. The rent based on sales must be paid 90 days after the store’s year-end. Estimated sales for fiscal 2014 are $550,000. No adjusting entry was made at year-end.

b. On December 15, 2013 a sports fan purchased seasons tickets for her city’s baseball team’s games for $4,000 cash. The baseball season begins in April and the team recognizes its revenue when the games are played. During 2014 no adjusting entries were recorded.

c. On June 30, 2014 a two-year insurance policy was purchased for $12,000 cash. The bookkeeper debited prepaid insurance for $9,000 when the policy was purchased.

No adjusting entry was made at year-end.

d. An accounting firm provides service to a client over a six-month period beginning October 15, 2014. The client agreed to pay the $25,000 when the services had been fully provided in April 2015. No adjusting entry was made at year-end.

e. On December 31, 2014 bookkeeper incorrectly entered the entry for an accrued interest expense as $4,250 instead of $2,450.