ABC Co. started its business raising $110,000 in cash; $60,000 from issuing equity and $50,000 from issuing 6% bonds at par. ABC used the whole amt of cash to buy a building, which it rents out for $10,000 per year. Given below is the operating balance sheet of ABC Co. for the first year of operations.
Assets
Cash - $0
Building - $110,000
TOTAL ASSETS - $110,000
Liab & Stockholders Equity
LT Debt - $50,000
Stockholders Equity - $60,000
TOTAL LIAB & EQT - $110,000
At the end of year 1 the building is valued at $150,000. Also the market value of bonds has fallen to $49,000. Assume the useful life of the building is 30 years, and its salvage value is $50,000 at the end of of that period. The rental income is recieved on the last day of the year. Interest on bonds is also paid on this day. Prepare the year end balance sheet and income statement of ABC Co. based on Fair Value. Compare the historical cost and fair values in these statements.