Is it acceptable to write down my thoughts as I go through an answer?
Ex: "Walk me through the 3 financial statements when a $100,000 factory breaks down in the 3rd year of its 10 year useful life and the $100,000 in HY bonds that underwrote the factory acquisition comes current?"
I was thinking of jotting down the change in net income, cash, PP&E, etc as I explain my answer to make sure I wasn't missing anything or forgetting any numbers.
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Make sure to ask the interviewer first. 99% of them will say it's fine.
DalaiLama or anyone else Can you explain the answer?
Thanks.
assuming straight-line depreciation, each year depreciation is 10k, so by third year, factory is worth 80k. You write down 80k on income statement, assuming 40% tax rate, net income is down 48k.
For the cash flow statement, net income is down 48k but you add back 80k since it is a non-cash expense, so cash is up 32k. But then, you have to pay back 100k in bonds, so cash is down 68k
Now the balance sheet: Assets: cash is down 68k, PPE is down 80k. Total assets are down 148k Liabilities: Down 100k b/c you paid off bonds SE: Down 68k because net income is down 68k, and that flows into retained earnings
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