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ECON 220 – FINANCIAL ACCOUNTING DEPAUW UNIVERSITY ECONOMICS & MANAGEMENT DEPARTMENT Fall 2021 Assignment #4 This assignment has a maximum potential score of 100 points. The problems are equally weighted. Each student will deliver to me through the Moodle assignment portal a PDF formatted document containing the solutions for this assignment by 11:59 PM on November 9, 2021. The name of the file must be “first_name last_name ECON 220{Section} PS4.pdf”. For example, my file for section A would be Ralph Sanders ECON 220A PS4.pdf Any student who fails to deliver a properly named and formatted solutions document to me by 11:59 PM (Greencastle time) on November 9, 2021, will receive a grade of 0 (zero) for this assignment. This assignment requires verbal as well numerical responses. Just as your use of grammar, writing clarity, and clarity/neatness of presentation affect your performance in the real world, so too do they affect your performance in this class. Thus, you should strive to ensure that your responses and explanations are clearly and concisely written and neatly presented. To that end: Directions 1. Neatness and organization count. If I cannot understand/follow your answer, it is wrong, and you will receive a grade of 0 (zero) on that problem. 2. Your solution document must comply with the following requirements: a. Your name must appear on the first page. b. Your solution document must be typed. c. Your solutions must appear in the same order in which the questions and problems were presented to you. d. Your solution document must use exactly one of the Times New Roman, Calibri, or Arial fonts. e. When printed, your document must render at a type size of 10pt to 12pt, inclusive. f. Your entire solution document must be prepared in either portrait or landscape (not mixed) orientation. Failure to comply with any of the requirements a. through f will result in a grade of 0 (zero) on this assignment. 3. Should you elect to use Excel or Google Sheets to organize and present your work, it is your responsibility to learn how to coerce these applications to generate acceptable output. 4. You must show your work for problems and questions requiring calculations. Unsupported answers will receive a grade of 0 (zero) on the affected problem. 5. As discussed in class, a journal entry prepared in good form will include (a) a date or item descriptor, (2) the account names, (3) and equal dollar amount of debits and credits, and (4) an explanation for the entry. Any journal entry submitted that does not include all of these elements is incorrect and will receive no credit. 6. Remember the following from the course syllabus: “NOTE WELL: Submitting assignment solutions copied, paraphrased or otherwise “lifted” from another student’s work solutions manuals, test banks, etc. is plagiarism and academic dishonesty, and it will be dealt with in the most severe manner allowed by university policy. “ 7. By submitting your solutions to this assignment to me, you acknowledge that you have read and understand these directions. 1. During Year 1, Deltic Extraction Corp. purchased the three assets described as follows: In addition, Deltic owns the Deltic trademark, an inverted Greek delta (i.e., a del or nabla) inscribed inside a larger Greek Delta, for which it paid $575,000 more than 20 years ago. Deltic depreciates extractors using the DDB method, it amortizes intangibles using the straight-line method, and it computes Whatsit mine depletion on the basis of the number of Whatsits extracted. Required: A. Compute the depreciation schedule for the extractor. B. After 6 years, Deltic refurbishes the extractor at a cost of $2,250,000, thereby extending its useful life for 4 additional years. Assuming the extractor’s estimated residual value after refurbishing is $400,000, prepare the extractor’s depreciation schedule for the next 4 years. C. Deltic sold the Dyno Whatsit-extractor patent at the end of 5 years for $2,000,000. Compute the gain or loss on the sale of the patent to be included on the Year 5 income statement. D. Assuming Deltic extracted 24,000,000 Whatsits from the mine in Year 1, 36,000,000 Whatsits from the mine in Year 2, and 30,000,000 Whatsits from the mine in Year 3. a. How much depletion expense did it report each year? b. What is the mine’s net book value at the end of the third year? E. Assume your answer to D.b. is $75,000,000. The Elbonian government seized and nationalized the mine on January 1 of Year 4. The seizure was without compensation. Prepare in good form the journal entry/entries necessary to record the mine seizure. F. On March 15, Year 6, the Supreme Court of Columbiana, Deltic’s state of incorporation, ruled that Deltic’s trademark was in the “public domain,” and could be used by anyone or any company for any reason without compensation to Deltic. Prepare in good form the journal entries necessary to record the effects of the Court’s ruling. Elbonian Whatsit mine: Purchase price: 89,760,000$ Sales contracting fees 1,795,200$ Number of Whatsits available to be be extracted 528,000,000 Whatsit Turbo Extractor (used): Purchase price 3,500,000$ Sales tax 7.50% Transporation costs (FOB shipping point) 14,500$ Refurbishing costs required to prepare the equipment for use 725,000$ Estimated useful life 6 years Estimated residual value 525,000$ Patent on Dyno Whatsit -extractor: Deltic's patent development costs 1,280,500$ Expected usful life 20 years 2. Gold Stripe State Bank loaned $36,000 to Wabash Men’s Daycare for 18 months at an interest rate of 4.95% per year on July 1, Year 37. Wabash will pay the interest for year 37 on December 31, Year 37, and it will the pay interest for Year 38 and all principal at maturity. Required: A. Prepare Gold Stripe State Bank’s Journal entry to record the making of the loan, and the corresponding entry recorded by Wabash Men’s Daycare. B. Prepare Gold Stripe State Bank’s journal entry to record interest income for Year 1, and the Wabash Men’s Daycare’ corresponding entry to record interest expense. C. Prepare Gold Stripe State Bank’s journal entry to record its receipt of interest and principal upon the loan’s maturity, and the corresponding entries made by Wabash Men’s Daycare to record the principal and interest payment. 3. Van Winkle Shipping Corporation purchased 10 new Freightliner Tractor semi trucks on February 28 of the current year at a cost of $165,900 per truck. The trucks have estimated useful lives at the time of purchase of 10 years, and each truck has an estimated residual value of $37,750 The company reports on a calendar year basis. Required: A. Prepare a complete depreciation schedule, beginning with the current year, under each of the methods listed assuming that Van Winkle employs the half-year convention. 1) Straight-line 2) Double declining balance B. Assume Van Winkle sells 3 of the trucks at the end of the fourth year for $87,950 cash per truck. Prepare in good form the journal entry to record the sale under the alternative depreciation methods. 4. Foster Manufacturing, Inc., is the world’s largest toothpick manufacturer. Almost all of its sales are on credit. Foster has the following information regarding its accounts receivable at year-end, Year 107: Foster’s current balance in its Allowance for Doubtful Accounts is $1,473,504. Required: A. Prepare in good form the journal entry needed at December 31, Year 107, to adjust Foster’s accounts receivable to net realizable value. On December 31, Year 108, Foster charged off $2,347,222 of accounts receivable. On November 18, Year 108, Foster collected, $142,977 of previously charged-off accounts receivable. Number of days past due Balance Percent unlikely to be collected Current 134,410,250$ 0.065% 1-31 63,172,818 1.250% 31-61 29,691,224 2.850% 61-90 9,204,280 8.250% >90 2,899,348 35.500% B. Prepare in good form the journal entry required to record the Year 108 charge-offs. C. Prepare in good form the journal entry(ies) necessary to record the collection of the previously charged-off account. D. Assuming the balance in the Allowance for Doubtful Accounts was $3,500,000 after posting the journal entry prepared in A, what is the balance of the allowance for doubtful accounts after recording the entries in items B. and C? Foster Manufacturing has the following information regarding its accounts receivable at year-end, Year 108: E. Assuming the answer part D. is $3,600,000, prepare in good form the journal entry CRS must make at December 31, Year 108 to adjust its accounts receivable to net realizable value. Number of days past due Balance Percent unlikely to be collected Current 153,888,633$ 0.065% 1-31 72,327,658 1.250% 31-61 27,800,000 2.850% 61-90 8,709,740 8.250% >90 3,108,995 35.500%