If Apple sells the iPads for revenue of $20, with a cost of $10, what is the effect on the three statements?

• A. Income statement: Revenue +20, COGS +10; Net income up by 6; CFO from operations up by 16; Balance sheet: Cash up 16; Inventory down 10; Equity up 6.
• B. Income statement: Revenue +20, COGS +10; Net income up by 10; CFO up by 20; Balance sheet: Cash up 20; Inventory down 10; Equity up 10.
• C. Income statement: Revenue +20, COGS +10; Net income up by 4; CFO up by 12; Balance sheet: Cash up 12; Inventory down 10; Equity up 4.
• D. Income statement: Revenue +20, COGS +10; Net income unchanged; CFO unchanged; Balance sheet unchanged.

Answer: (A)

When a sale happens, revenue and the cost of goods sold hit the income statement, and the resulting profit flows into cash flow and equity through taxes and changes in working capital. Here, revenue is 20 and COGS is 10, so gross profit is 10. If we apply a 40% tax rate to pretax income of 10, the tax expense is 4 and net income is 6.

For cash flow from operations, you start with net income and adjust for working capital changes; there are no other non-cash charges given. Inventory falls by 10, which releases cash, adding 10 to CFO. So CFO from operations is 6 + 10 = 16.

On the balance sheet, cash increases by 16, inventory decreases by 10, and equity increases by the net income of 6. This keeps the balance sheet in balance: assets rise by 6 overall (cash +16, inventory −10), and liabilities plus equity rise by 6 (through higher equity). This set is internally consistent with the numbers provided.