THE NATIONAL ECONOMICS UNIVERSITY

THE IHME PROGRAM- INTAKE 62

COURSE: ACCOUNTING PRINCIPLES

MID-TERM EXAMINATION 2
STUDENT NAME:…………………………………………………………….
ID:………………………………………………………………………………

Question 1: The December 31, 2015 balance sheet of Barone Company had Accounts Receivable
of $400,000 and a credit balance in Allowance for Doubtful Accounts of $32,000. During 2016,
the following transactions occurred: sales on account $1,500,000; sales returns and allowances,
$50,000; collections from customers, $1,250,000; accounts written off $36,000; previously written
off accounts of $6,000 were collected.
Instructions
(a) Journalize the 2016 transactions.
(b) If the company uses the percentage-of-sales basis to estimate bad debt expense and anticipates
3% of net sales to be uncollectible, what is the adjusting entry at December 31, 2016?
(c) If the company uses the percentage of receivables basis to estimate bad debt expense and
determines that uncollectible accounts are expected to be 8% of accounts receivable, what is
the adjusting entry at December 31, 2016?
(d) Which basis would produce a higher net income for 2016 and by how much?
Question 2: South Airlines purchased a 747 aircraft on January 1, 2015, at a cost of $35,000,000.
The estimated useful life of the aircraft is 20 years, with an estimated salvage value of $5,000,000.
On January 1, 2018 the airline revises the total estimated useful life to 15 years with a revised
salvage value of $3,500,000.
Instructions
(a) Compute the depreciation and book value at December 31, 2017 using the straight-line
method and the double-declining-balance method.
(b) Assuming the straight-line method is used, compute the depreciation expense for the year
ended December 31, 2018.

Question 3: Sonoma Company has the following selected accounts after posting adjusting
entries:
Accounts Payable $ 62,000
Notes Payable, 3-month 40,000
Accumulated Depreciation—Equipment 14,000
Notes Payable, 5-year, 6% 80,000
 Payroll Tax Expense 4,000
Interest Payable 3,000
Mortgage Payable 120,000
Sales Taxes Payable 38,000

Instructions
Prepare the current liability section of Sonoma Company's balance sheet, assuming $16,000 of the
mortgage is payable next year.

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