Hi All, I was having a little bit of trouble with this accounting question. A plant is sold by Company A for 120M (originally 100M). Comp A receives 50% in cash and 50% of stock of Comp B (the purchaser) (30% ownership). How does it affect the three income statements. I was having the most trouble with the CF statement... I believe there is an adjustment to the tax on the gains from the sale. Thanks.
Trending Content - Investment Banking Forum
Career Resources
Cash increases 60MM from the sale. Assuming BV = 100MM, Your gain is 20MM. Gains are taxed at regular rates, so 20MM gain * .40 = 8MM additional tax cash outflow.
Overall, Op.CF dec. by 8 MM, investing CF increases by 60.
how does this work step by step? I'm still pretty confused. Thanks!
Total Proceeds- Cash (50%) - $60MM Equity (305) - $60MM
Total Cost of Building Sold- $100MM
Gain on Sale- $20MM
CFO impact- Gain on Sale - ($20MM) - you reconcile your operating activities for gains/losses as the cash impact is captured in CFI. I would assume the tax on the sale would already be captured in your net income as a current income tax expense.
CFI impact- Proceeds from Building Sale - $60MM
The 30% equity ownership of Company B does not appear on the CF statement because it is a non-cash transaction.
how does it flow through the balance sheet? Cash +52 PPE -100M
NI +12M
doesn't balance... where does the 30% interest go?
Who is getting asked this in an interview?
Quod soluta deleniti modi nobis et harum. Velit aliquam similique omnis vel nisi quia. Labore necessitatibus quidem fugit voluptas assumenda eum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...