Recently, banks have been writing down their assets and taking huge quarterly losses. Walk me through what happens on the 3 statements when there’s a writedown of $100.

First, on the Income Statement, the $100 write-down shows up in the Pre-Tax Income line. With a 40% tax rate, Net Income declines by $60.

On the Cash Flow Statement, Net Income is down by $60 but the write-down is a noncash expense, so we add it back – and therefore Cash Flow from Operations increases by $40.

Overall, the Net Change in Cash rises by $40.

On the Balance Sheet, Cash is now up by $40 and an asset is down by $100 (it’s not clear which asset since the question never stated the specific asset to write-down). Overall, the Assets side is down by $60.

On the other side, since Net Income was down by $60, Shareholders’ Equity is also down by $60 – and both sides balance.