= initial Knowledge Check Question 14 Given the following information concerning a promissory note: Principal Term $1,200 45 Days $16.5 Interest Required: Determine the interest rate of the note. Note: To simplify the arithmetic in the problem, use 360 days for the number of days in a year. Interest Rate: 1% X 5 ? On August 1, Adams Company paid $6,000 for one year of advertising in advance. Adams debited Prepaid Advertising. The advertising expense will be used evenly throughout the year. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on: (a) Income statement accounts (overstated, understated, or no effect)? (b) Net Income (overstated, understated, or no effect)? (c) Balance sheet accounts (overstated, understated, or no effect