SunTrust Robinson Humphrey Interview Question: What is the effect of $10 of ... | Glassdoor

Interview Question

Investment Banking Analyst Interview(Student Candidate) Winston-Salem, NC

What is the effect of $10 of depreciation on the three

  accounting statements?

Interview Answer

1 Answer


Income Statement: Because depreciation is an expense, Operating income (EBIT) decreases by $10. Net income also declines by EBIT*(1-tax rate). Assuming a 35% tax rate, NI decreases by $6.50.

Balance Sheet: Cumulative depreciation increase $10, so PP&E (Plant Property and Equipment) decreases by $10). The reduction in net income also causes a Reduction in Retained Earnings by $6.50.

Cashflow Statement: Net income decreased by $6.50 and D&A increased $10, cashflow from operations increases by $3.50.

Babila Lima on Dec 10, 2014

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