Question 2 (29 marks) Medici Corporation ("Medici) is preparing a meeting with its banker to discuss the renewal of a long-term debt. The following trial balance was taken from the books of Medici Corporation on 31 December 2020. Credit Debit $ 12,000 40,000 7,000 $ 1,800 44,000 4,800 105,000 Account Cash Accounts Receivable Note Receivable Allowance for Doubtful Accounts Inventory Prepaid Insurance Equipment Accumulated Depreciation-Equipment Accounts Payable Dividends Payable Share Capital-Ordinary Retained Earnings Sales Revenue Cost of Goods Sold Salaries and Wages Expense Prepaid Rent Dividends Total 15,000 10,800 10,000 44,000 55,000 260,000 111,000 50,000 12,800 10,000 $396,600 $396,600 The trial balance above has not yet reflected below: 1. Insurance expired during the year, $2,000. 2. Estimated doubtful debts at the year-end, 11% of the accounts receivable (gross). No doubtful debt is expected regarding the note receivable. 3. Depreciation on equipment, 10% per year. Residual value is insignificant. Straight-line depreciation method is adopted. 4. Interest at 5% is receivable on the note for one full year. 5. Rent expense for the year. (Two-year rental was prepaid on 1 January 2020 for $12,800.) 6. Accrued salaries and wages at 31 December 2020 is $5,800. Required: (a) Prepare the necessary adjusting entries. (12 marks) (b) Compute Medici's income: (i) before recording the adjusting entries; and (ii) after recording the adjusting entries. Explain why Medici's banker would prefer to wait for Medici to complete its year-end adjustment process before making a decision on the loan renewal. (5 marks) (c) Prepare the necessary closing entries after adjustments. (12 marks) [Total for Question 2: 29 marks]