Practice

Parent Co. already owns a 25% stake in Sub Co. (equity method). This year, Sub Co. earns $160 in Net Income and pays $60 in Dividends. Walk through the impact on Parent Co.'s three statements.

A company collects $300 upfront for services it hasn't delivered yet, increasing Deferred Revenue. Walk through the three statements at the moment of collection.

A company sells equipment listed at $150 on its balance sheet for $210 in cash. Walk through the three statements, assuming a 25% tax rate.

Parent Co. owns 70% of Sub Co. (consolidated) and this stays unchanged all year. Parent's standalone Net Income is $150 with $30 in Dividends; Sub Co.'s Net Income is $50 with $10 in Dividends. Walk through the year's impact on Parent's consolidated statements.

A company incurs $160 in operating expenses but doesn't pay cash yet, recorded as an increase in Accounts Payable. Walk through the three statements, assuming a 25% tax rate.

A company grants $200 in stock-based compensation to employees. Walk through the three statements, assuming a 25% tax rate and using the simplified treatment where SBC results in cash-tax savings (the more precise treatment would show the Deferred Tax Asset increasing instead of cash, since SBC usually isn't cash-tax deductible when granted).

A company holds $250 in Trading/FVPL Equity Securities and records an Unrealized Loss of $60 on them this year. Walk through the impact on all three statements, assuming a 25% tax rate.

An acquirer buys a target for $600M in cash. The target's Common Shareholders' Equity is $350M. The deal allocates $100M to identifiable intangible assets, with the rest going to goodwill. Walk through what happens to the acquirer's balance sheet.

A company buys $300K of equipment entirely with a new bank loan on January 1. Over the year, it pays 8% interest on the loan, repays 10% of the principal, and depreciates the equipment straight-line over 5 years. Assume a 25% tax rate. Walk through the year's impact on the income statement, cash flow statement, and balance sheet.

A company signs a 10-year finance lease with a Present Value of $180 (already calculated from the future lease payments) and pays $25 in cash rent per year. The discount rate is 5%. Ignoring taxes, walk through the first year's impact on the income statement, cash flow statement, and balance sheet.

A company collects $480 upfront for a 12-month service contract (Deferred Revenue). By year-end, it has delivered 3 months of the contract. Walk through the full year's combined impact on all three statements, assuming a 25% tax rate.

A company that follows U.S. GAAP signs a 5-year operating lease with a Present Value of $400 and pays $80 in cash rent per year. The discount rate is 6%. Walk through the first year's impact on all three statements (including the initial signing), assuming a 25% tax rate.

A company issues $250 of Debt on January 1 at 8% interest and repays 12% of the principal by year-end. Walk through the full year's impact on all three statements, assuming a 25% tax rate and ignoring what the debt proceeds were used for.

A company has 2,000K shares outstanding at $2.00 per share and Net Income of $500K (EPS of $0.25). It raises $300K of Debt at 5% interest and uses the full amount to repurchase shares at $2.00 each. Walk through the immediate impact of the buyback, then the impact after one year of interest expense, including the effect on EPS. Assume a 25% tax rate.

A company's Depreciation increases by $60. Walk through the three statements, assuming a 25% tax rate.

Your company acquires a target for $400, split 50/50 between new Debt and new Common Stock. The target has $240 in Assets, no Liabilities, and $240 in Common Shareholders' Equity. The purchase premium is split evenly between Goodwill and Other Intangible Assets. In Year 1, the acquired business contributes $150 in Revenue and $82 in OpEx, the Other Intangibles amortize over 5 years, and the new Debt carries a 6% interest rate. Walk through (1) the balance sheet immediately after the deal closes, and (2) the first year's impact on all three statements. Assume a 25% tax rate.

A company sells equipment listed at $180 on its balance sheet for $140 in cash. Walk through the three statements, assuming a 25% tax rate.

A company issues a $150 Face Value Convertible Bond with a Liability Component of $110 (so an Equity Component of $40), $5 in Issuance Fees (straight-line amortization over 5 years), and a 2% coupon rate. Walk through (1) the initial issuance and (2) Year 1's impact on all three statements, assuming a 25% tax rate.

A company writes down a factory by $120 due to storm damage. Walk through the three statements, assuming a 25% tax rate (write-downs are not cash-tax deductible).

Walk me through how a $10 increase in depreciation flows through all three financial statements, assuming a 30% tax rate.

A company issues a $300 Face Value bond with 4% cash interest and 6% PIK interest (ignore Issuance Fees). Walk through Year 1's impact on all three statements, assuming a 25% tax rate.

A company grants $60 of SBC that's not initially cash-tax deductible. By the time employees exercise their options, it's worth $180. Walk through the tax impact at grant and at exercise, assuming a 25% tax rate and U.S. GAAP treatment.

A company issues a $200 Face Value bond with $10 in Issuance Fees (straight-line amortization over 5 years) and a 6% coupon rate. It repays the entire principal early, at the end of Year 2. Walk through the Year 2 impact on all three statements, assuming a 25% tax rate.

A company prepays $120 in insurance for future coverage. Walk through the three statements at the moment of prepayment.

A company delivers $200 of services to a customer but doesn't collect cash yet, increasing Accounts Receivable by $200. Walk through the three statements, assuming a 25% tax rate.

A company buys $250 of inventory for cash, ahead of selling it. Walk through the three statements at the moment of purchase.