medium · Investment Banking valuation-core

If TechServ Corp. records a $200 million increase in Accounts Receivable (AR), what is the impact on the three financial statements (assuming a 40% tax rate and the AR reflects a new credit sale)?

  1. Net Income +$200M; Cash +$200M received immediately; AR falls -$200M
  2. Net Income +$120M; Cash +$0; AR +$200M; RE +$120M; Taxes Payable +$80M
  3. Net Income +$120M; Cash +$120M is received in full; RE +$120M booked
  4. No impact whatsoever on the reported Income Statement or on the Balance Sheet totals

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