JDM, Inc., made the following prepayments for expense items during 2009:
a. Prepaid building rent for one year on April 1. JDM paid $6,300, debiting prepaid rent for the amount paid.
b. Prepaid six months’ insurance on October 1 by paying $870. Prepaid insurance was debited.
c. Purchased $3,750 of office supplies on October 15, debiting office supplies inventory for the full amount. Office supplies costing $385 remain unused at Dec. 31, 2009.
d. Paid $2,880 for a 12-month service contract for maintenance on a computer. The contract begins November 1. The full amount of the payment was debited to prepaid maintenance.
1. Prepare journal entries to record the payment of cash for each transaction.
2. Prepare adjusting entries for the prepayments at December 31, 2009.
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?