Assume you sell a tangible asset for $100mm, and will receive $50mm in cash first, and the rest later. If
the asset had a book value of $50mm and a historical cost of $150mm, how will this transaction affect the
3 statements?
I understand when the paid is made at once, but how should I deal with this question?
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If it’s easier, start with the debits and credits. Dr. Cash 50 Dr. A/R 50 Dr. Accumulated dep. 100 Cr. PPE 150 Cr. Gain on sale 50
So on the income statement: Pre-tax gain of $50, tax of $10 (assuming 20% tax), and after-tax gain of $40. Cash flow statement: NI is up $40, but subtract the $50 gain, so CFO is down $10. CFI is up $50 from cash received for the asset. Balance Sheet: Cash is up $40, A/R is up $50, net PPE is down $50, so assets are up $40 overall. NI increases retained earning by $40, and the balance sheet balances.
+1
Once you receive the second payment: Dr. Cash 50 Cr. A/R 50 Income statement: Nothing Cash flow statement: $50 increase Balance sheet: Cahs is up $50 and A/R is down $50, not net affect on either side.
What about the change in account receivables on the cash flow statement?
Damn it, where the hell is theaccountingmajor?
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