IDENTIFICATION AND ANALYSIS OF ADJUSTING ENTRIES Medina Motor Service is preparing adjusting entries for the year ended December 31, 2009. The following items describe Medina’s continuous transactions during 2009:

a. Medina’s salaried employees are paid on the last day of every month.

b. Medina’s hourly employees are paid every other Friday for the preceding two weeks’

work. The next payday falls on January 5, 2010.

c. In November 2009, Medina borrowed $600,000 from Bank One giving a 7.6 percent note payable with interest due in January 2010. The note was properly recorded.

d. Medina rents a portion of its parking lot to the neighboring business under a longterm lease agreement that requires payment of rent six months in advance on April 1 and October 1 of each year. The October 1, 2009, payment was made and recorded as prepaid rent.

e. Medina’s service department recognizes the entire revenue on every auto service job when the job is complete. At December 31, several service jobs are in process.

f. Medina recognizes depreciation on shop equipment annually at the end of each year.

g. Medina purchases all of its office supplies from Office Supplies Inc. All purchases are recorded in the office supplies inventory account. Supplies expense is calculated and recorded annually at the end of each year.

Required:

Indicate whether or not each item requires an adjusting entry at December 31, 2009. If an item requires an adjusting entry, indicate which accounts are increased by the adjustment and which are decreased.

Exercise