Reference no: EM132769075

Problem 1: Assume that during 2018, Ferrari closes a distribution facility due to increasing competition in China. At the time of the closure in 2018, Ferrari anticipates that the land and building, which are carried on the balance sheet for €100, will only be worth €70 and Ferrari owes €50 in severance to employees who have been laid off to be paid as follows: €30 in 2019 and €20 in 2020. In 2019, the land and building are sold for €70. What effect would this transaction have on pretax income, total assets and total liabilities during 2018, 2019 and 2020?

2018:
Pretax income: -€80
Total Asssets: -30
Total Liabilities: +50

2019:
Pretax Income: 0
Total Assets: -30
Total Liabilities: -30

2020:
Pretax Income: 0
Total Assets: -20
Total Liabilites: -20