I recently purchased the Wall Street Prep interview guide and was hoping someone could explain this to me. The question is "How does selling a building impact the 3 financial statements?". Their answer is this:
"If I sell a building for $10 million that has a book value of $6 million on my balance sheet, I will recognize a $4 million gain on sale on the income statement which will – ignoring taxes for a moment – increase my net income by $4 million. On the cash flow statement, since the $4 million gain is non-cash, it will be subtracted out from net income in the cash from operations section. In the investing section, the full cash proceeds of $10 million are captured. On the balance sheet, the $6 million book value of the building is removed, while retained earnings increases by $4 million. The net credit of $10 million is offset by a $10 million debit to cash that came from the cash flow statement."
Can someone explain to me the cash flow statement of this answer? With their answer, I believe that CFO would be -$4 million and CFI would be $10 million, which would give a net change in cash of $6 million which doesn't make sense.
Thanks in advance!
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