A company takes a $200 asset write-down. Walk through the three statements (25% tax rate).

Question

IBPrep · Accepted Answer

IS: the $200 non-cash impairment reduces EBT by $200; with a 25% tax shield, NI falls by $150.

CFS: start at NI -$150, add back the $200 write-down (non-cash). CFO and the net change in cash are both +$50.

BS: Cash +$50, the asset -$200, so Assets net -$150. Retained earnings -$150 (from NI). Balances.

Answer