Question: If an asset (PP&E) worth 200 (on the books) is sold for 100, how does this affect the 3 financial statements?
Is my logic here correct:
-200 book value - 100 sale price = 100 loss
-I'm wondering if this loss considered cash or non-cash?
-
Income Statement:
a. 100 loss reduces pretax income by 100
b. Assuming 40% tax rate, then net income decreases by 60 -
Cash Flow Statement:
a. Net income reduces cash flow from operations by 60
b. But you need to add back 100 for the loss because it's non-cash, so cash flow from operations is up 40
c. Cash flow from investing activities is up 100 from the sale
d. Overall cash is up 140 -
Balance Sheet:
a. Cash is up 140
b. PP&E is down 200 (from the sale), so assets are down by 60
c. Net income is down 60, so the balance sheet is balanced
Thanks!
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