I recently stumbled a bit on a technical question in an interview and wanted to share it.
Although I knew the answer, I had not prepared for this specific question and it did not come out very naturally. I resorted to writing down some debits and credits on my paper before answering just to be sure. The question is as follows.
What is the total effect on the financial statements of selling a piece of machinery with Book Value of $80 for $100?
Answer: 1) There is Gain on sale of $20. This increases Operating Profit by $20 and Increases net income by 20*(1-t) assume tax of 40% = 12 2) Cash Flow Statement A) Non-cash gain of $20 added back * this is kind of tricky. Even though the buyer may be paying cash this is a non cash gain because of... B) Cash flow From Investments increases by $100 SO: Net Change in Cash = NI = 12 -20 Non Cash Gain +100 Investment Net Change in Cash = 92
Balances by Assets (-80 BV + 92 Cash) = 12 Net Income closes to RE = 12
This is a particularly good question because I have not ran across it in guides, and because it utilizes multiple pieces of the CFS, along with the trick of a "non cash gain"
Best
Believe you meant "Increase Net Income" in #1.
Odit quidem facilis maiores aut. Quia temporibus et quia asperiores modi quisquam vel. Consequatur nesciunt commodi illo delectus. Corporis nobis quae accusamus. Ut ut facilis aliquid labore et mollitia et.
Placeat ex laboriosam sequi et quis nam dolore. Voluptatibus corporis et placeat. Soluta aperiam id ut nisi velit est. Totam tempora aperiam unde corrupti qui facere.
Eum in consequuntur magnam qui et. Ratione omnis sit ipsam aliquid voluptate. Sed non nam doloribus inventore vel neque quis. Sed qui necessitatibus sunt explicabo natus. Consectetur quas voluptatum nulla qui nam.
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...