Furniture and Fixtures When the company first started in 2018, it purchased furniture and fixtures for $650,000. At the time of purchase, it was estimated that the furniture and fixtures would have a useful life of 20 years but no residual value. The company uses the straight-line method for depreciation. Harry is known for making changes to the company's policy. Harry did not think that the existing furniture and fixtures were consistent with the company's brand and image. In 2021, Harry directed Meg to amend the useful life to 8 years using double-declining balance method. He also instructed Meg to revalue the furniture and fixtures to $200,000 in 2021. Prior to this, the furniture and fixtures were recorded at historical cost. No impairment was ever done even though there were signs of physical damage to the furniture and fixtures in recent year 2021. Investment At the end of fiscal year December 31, 2020, the company had excess cash. The board of directors decided that the company should hold the funds until the right business opportunity appeared rather than to pay off its loan given that the cost of borrowing was so low. The board of directors directed management to invest the excess funds in a diversified portfolio. The following table provides information about these investments: Equity Investment Tesla (trade) IBM Quantity Initial Cost per share Fair Value Dec 31, 2021 5,000 $300 $440 2,000 (Aug 2, 2021) $250 $156 (Mar 16, 2021) (available for sale) National Bank Bonds (hold or trade) $1,200,000 (purchased July 1, 2020) 4% 2% July 1, 2030 Face Value Coupon Rate Yield Maturity Date Interest Frequency Fair Value on Dec 31, 2020 105 Fair Value on Dec 31, 2021 104 Jan 1 and July 1 5 Page

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Transcribed Image Text:Furniture and Fixtures When the company first started in 2018, it purchased furniture and fixtures for $650,000. At the time of purchase, it was estimated that the furniture and fixtures would have a useful life of 20 years but no residual value. The company uses the straight-line method for depreciation. Harry is known for making changes to the company's policy. Harry did not think that the existing furniture and fixtures were consistent with the company's brand and image. In 2021, Harry directed Meg to amend the useful life to 8 years using double-declining balance method. He also instructed Meg to revalue the furniture and fixtures to $200,000 in 2021. Prior to this, the furniture and fixtures were recorded at historical cost. No impairment was ever done even though there were signs of physical damage to the furniture and fixtures in recent year 2021. Investment At the end of fiscal year December 31, 2020, the company had excess cash. The board of directors decided that the company should hold the funds until the right business opportunity appeared rather than to pay off its loan given that the cost of borrowing was so low. The board of directors directed management to invest the excess funds in a diversified portfolio. The following table provides information about these investments: Equity Investment Tesla (trade) IBM Quantity Initial Cost per share Fair Value Dec 31, 2021 5,000 $300 $440 2,000 (Aug 2, 2021) $250 $156 (Mar 16, 2021) (available for sale) National Bank Bonds (hold or trade) $1,200,000 (purchased July 1, 2020) 4% 2% July 1, 2030 Face Value Coupon Rate Yield Maturity Date Interest Frequency Fair Value on Dec 31, 2020 105 Fair Value on Dec 31, 2021 104 Jan 1 and July 1 5 Page

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