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 statment of ABC Co. based on Fair Value. Compare the historical cost and fair values in these statements.

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