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.
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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?
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