JDM Inc. made the following prepayments for expense items during 2011:
a. Prepaid building rent for one year on April 1 by paying $6,600. Prepaid rent was debited for the amount paid.
b. Prepaid twelve months’ insurance on October 1 by paying $4,200. Prepaid insurance was debited.
c. Purchased $5,250 of office supplies on October 15, debiting supplies for the full amount. Office supplies costing $1,085 remain unused at December 31, 2011.
d. Paid $600 for a 12-month service contract for repairs and maintenance on a computer. The contract begins November 1. The full amount of the payment was debited to prepaid repairs and maintenance.
1. Prepare journal entries to record the payment of cash for each transaction.
2. Prepare adjusting entries for the prepayments at December 31, 2011.
3. For all of the above items, assume that the accountant failed to make the adjusting entries. What would be the effect on net income?