CONTINUOUS TRANSACTIONS AND ADJUSTMENTS. Medina Motors is preparing adjustments for the year ended December 31, 19x7. The following items describe Medina’s continuous transactions during 19x7:

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 2 weeks’

work. The next payday falls on January 5, 19x8.

c) In November 19x7, Medina borrowed $600,000 from Bank One, giving a 7.6% note payable with interest due in January 19x8. The note was properly recorded.

d) Medina rents its used-car sales lot under a long-term lease that requires payment of rent 6 months in advance on April 1 and October 1 of each year. The October 1, 19x7, 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 Max. 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 adjustment at December 31, 19x7. If an item requires an adjustment, indicate which accounts are increased by the adjustment and which are decreased.