Shayla Green owns Creative Designs. The trial balance of the firm for January 31, 20X1, the first month of operations, is shown below. End-of-the-month adjustments must account for the following items:

Supplies were purchased on January 1, 20X1; inventory of supplies on January 31, 20X1, is $1,000.
The prepaid advertising contract was signed on January 1, 20X1, and covers a four-month period.
Rent of $1,500 expired during the month.
Depreciation is computed using the straight-line method. The equipment has an estimated useful life of 10 years with no salvage value.

Required:

Complete the worksheet for the month.
Prepare an income statement, statement of owner’s equity, and balance sheet. No additional investments were made by the owner during the month.
Journalize and post the adjusting entries.

Analyze

If the adjusting entries had not been made for the month, by what amount would net income be overstated or understated?