The information necessary for preparing the December 31, 2024, year-end adjusting entries for Vito’s Pizza Parlor appears below.
a. On July 1, 2024, purchased $10,000 of IBM Corporation bonds at face value. The bonds pay interest twice a year on January 1 and July 1. The annual interest rate is 12%.
b. Vito’s depreciable equipment has a cost of $30,000, a five-year life, and no salvage value. The equipment was purchased in 2022. The straight-line depreciation method is used.
c. On November 1, 2024, the bar area was leased to Jack Donaldson for one year. Vito’s received $6,000 representing the first six months’ rent and credited deferred rent revenue at the time cash was received.
d. On April 1, 2024, the company paid $2,400 for a two-year fire insurance policy and debited prepaid insurance at the time of the payment.
e. On October 1, 2024, the company borrowed $20,000 from a local bank and signed a note. Principal and interest at 12% will be paid on September 30, 2025.
f. At year-end, there is a $1,800 debit balance in the supplies (asset) account. Only $700 of supplies remain on hand.

Required:
1. Prepare the necessary adjusting journal entries on December 31, 2024.
2. Determine the amount by which net income would be misstated if Vito’s failed to record these adjusting entries. (Ignore income tax expense.)