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What is the net income under historical-cost accounting

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Question - SAIF Company starts business in year 2019 raising $100 million in cash: $50 million from issuing equity and $50 million from issuing 5% bonds (at par). This company uses the $100 million raised to buy a commercial building on that day, which it rents out for $10 million per year. At the end of Year 2019, the company still owns the commercial building, which is valued at $125 million. Also, the market value of the bonds has fallen to $48.5 million. During Year 2020, the company earns rental income of $7 million due to COVID-19 virus, the commercial building is valued at $110 million at year-end, and the market value of the bonds has increased to $51.5 million.

Assume the useful life of the commercial building is 50 years and its salvage value is $75 million. Assume that rental income (interest on bonds) is received (paid) in cash on the last day of the year.

What is the net income under historical-cost accounting for year 2019 and 2020, respectively?

What is the net income under fair-value accounting for year 2019 and 2020, respectively?

Reference no: EM132984040

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