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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 $4,860 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$1,520 of utility costs are unrecorded and unpaid.
c. Faraday rents its testing equipment from JVC. Equipment rent in the amount of $1,440 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$4,350 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.
Prepare adjusting entries at December 31 for these four activities.
What would be the effect on expenses if the adjusting entries were not made?