A company owns a manufacturing plant, and decides to sell it. The company will record a gain on the sale. How will the B/S, I/S, and CFs be affected?
naturallight Wrote: ------------------------------------------------------- > A company owns a manufacturing plant, and decides > to sell it. The company will record a gain on the > sale. How will the B/S, I/S, and CFs be affected? is the manufaturing plant just a capital asset or does it represent a business division?
Just a capital asset.
If they sell the asset for more than its book value you will record a capital gain and this will translate to the I/S as revenue and eventually net income. The asset side of the B/S will decrease by the book value of the asset. BUT we’re not balanced yet… The CFs will increase by: Cash flow from investing will go up by the book value of the asset. Cash flow from operations will increase by the gain on the sale of the asset above book value less taxes. Voila, the asset side of the balance sheet goes down by book value, and cash up by book value and gain from sale above book value. Retained earnings goes up from sale of asset above book value and BOOM balanced balance sheet.
assume they get cash for it: B/S Assets+ Plant and property - Cash + (cash - property at book) SE + (=cash - property at book) I/S: Net Income + as an extra item listed gain on asset sale below operating income. CF: CF investing+ as sale of fixed asset Net Cash+
Super, thank you very much. Want another one? How would a change in depreciation expense flow through the financial statements?
oh man, I’ve seen that depreciation question so many times I’ve memorized it http://www.ibankingfaq.com/interviewing-technical-questions/if-a-company-incurs-10-pretax-of-depreciation-expense-how-does-that-affect-the-three-financial-statements/
haha… these questions are finance interview “favorites”