Problem Six: Fair Value Accounting
ABC CoAt the End of Year 1, the Building Is Valued

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Problem Six: Fair Value Accounting 
ABC CoAt the End of Year 1, the Building Is Valued

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\begin{array}{c}\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad ext { Year1 } \\begin{array}{|l|r|r|}\hline& ext { Historical cost }& ext { Fair Value }\ \hline ext { Assets } & \\hline ext { Cash* } & \$ 7,000 & \$ 7,000\\hline ext { Building } & 108,000&150,000 \\hline & \$ 115,000&\$157,000 \\hline ext { Liabilities and Shareholder's equity } & \\hline ext { Long-term debt } & \$ 50,000 &\$49,000\\hline ext { Shareholders' equity } & 65,000 &108,000\\hline & \$ 115,000 &\$157,000\\hline & \\hline ext { Income Statement } & \\hline ext { Rental income } &\$ 10,000 & \$ 10,000 \\hline ext { Depreciation } &(2,000) \\hline ext { Interest expense } &(3,000) & (3,000) \\hline ext { Unrealized gain loss on condo } & & 40,000 \\hline ext { Unrealized gain loss on debt } &&1,000 \\hline ext { Income (loss) } & \$ 5,000&\$48,000 \\hline\end{array}\end{array}

\begin{array}{l}\begin{array} { l r } ext { *Rental income received } & \$ 10,000 \ ext { Interest paid on bonds } & 3,000 \ ext { Cash in hand } & \mathbf { 7 , 0 0 0 }\end{array}\\begin{aligned}\ ext { Depreciation on building } & = \frac { ext { Cost } - ext { salvage value } } { ext { Number of years } } \& = \frac { \$ 110,000 - 50000 } { 30 } \& = \$ 2,000\end{aligned}\end{array}

Notice that under fair value method, all assets and liabilities are considered at their market value. Fair value accounting does not consider any depreciation on fixed assets. It recognizes any unrealized gain or loss on assets or long-term debt on account of change in market value.

Problem Six: Fair Value Accounting
ABC Co At the End of Year 1, the Building Is Valued

Essay

Correct Answer:
Verified

Problem Six: Fair Value Accounting ABC Co At the End of Year 1, the Building Is Valued

Essay

Correct Answer:VerifiedShow Answer

Problem Six: Fair Value Accounting
ABC Co At the End of Year 1, the Building Is Valued

Correct Answer:
Verified