In making adjusting entries at the end of its accounting period, Chao Consulting failed to record $1,600 of insurance coverage that had expired. This $1,600 cost had been initially debited to the Prepaid Insurance account. The company also failed to record accrued salaries expense of $1,000. As a result of these two oversights, the financial statements for the reporting period will [choose one]
(1) Understate assets by $1,600;
(2) Understate expenses by $2,600;
(3) Understate net income by $1,000;
(4) Overstate liabilities by $1,000.