Wall Street Prep The Premium Package
Review: Accounting & Financial Statement
Analysis Exam.
Score: 95%, 38 correct out of 40
Question 1
Assume US GAAP to answer this question.
In 2017, $2 million in wages were earned and no cash wages were paid. In 2018, $8
million in wages were earned and $7 million in cash wages were paid. Cash wages
were used to first pay wages earned in 2017 with the remainder used to pay wages
earned in 2018. Any earned but unpaid wages will be paid during the first quarter of<\/p>\n\n\n\n
A company issued its CEO 100,000 shares of restricted stock in the beginning of 2018
that are restricted for two years. The current share price is $10. Based on the
information provided, which of the following statements is true?
\uf0b7 An unearned compensation liability in the amount of $1 million is created at the
grant date
\uf0b7 An unearned compensation asset in the amount of $1 million is created at the
grant date
\uf0b7 Stockholders’ equity increases by $1 million at the grant date
\uf0b7 An unearned compensation contra equity account in the amount of $500,000 is
recognized at the grant date
Stockholders’ equity is unchanged at the grant date
\uf0fc Your answer is correct.
The entire value of restricted stock issued at grant date is recognized as an equity
account and is immediately offset by a contra equity account in the same amount so
there is no change to stockholders\u2019 equity at the grant date. This contra equity account
is reversed over the service period. In this case, a $1 million contra equity account is
created and reduced by $500,000 over the next two years, with an offsetting reduction
in retained earnings.
See Lesson: Stock Based Compensation Accounting: Journal Entries
Question 3
A company issued its CEO 100,000 stock options in the beginning of 2018 that will vest
equally over 2 years. Assume the following:
The share price at grant date is $10 per share
The option exercise price is $10 per share
The fair value of each option at grant date is $5 per share
No options are exercised until after year 2
Based only on the information provided, which of the following statements is true?
\uf0b7 Stockholders’ equity increases by $1,000,000 at the grant date
\uf0b7 Stockholders’ equity increases by $500,000 at the grant date
\uf0b7 Stockholders’ equity increases by $250,000 at the grant date<\/p>\n\n\n\n
\uf0b7 Stockholders’ equity decreases by $250,000 at the end of year 1
\uf0b7 Stockholders’ equity does not change at the end of year 1
\uf0fc Your answer is correct.
No journal entries occur at the grant date. Stock options are expensed as they vest with
a corresponding entry in “APIC \u2013 Stock options” account. Since both accounts are part
of stockholders\u2019 equity, there is no change to stockholders\u2019 equity. No asset or liabilities
are recognized on the grant date.
See Lesson: Stock Based Compensation Accounting: Journal Entries
Question 4
A company recorded the following activities in 2018:
$5 million in capital expenditures were made in 2018
$4 million in depreciation expense was recognized in 2018
$3 million in affiliate income recognized on the income statement from a 25%
investment in an affiliate
$1 million of insurance proceeds were received in cash due to hurricane damage on the
company\u2019s corporate headquarters
Based only on the information provided, calculate the impact of the activities described
above on the company\u2019s 2018 operating income and cash flows (ignore taxes).
\uf0b7 Operating income decreased by $1.0 million. Cash flows decreased by $4.0
million.
\uf0b7 Operating income decreased by $5.0 million. Cash flows increased by $6.0
million.
\uf0b7 Operating income decreased by $4.0 million. Cash flows decreased by $4.0
million.
\uf0b7 Operating income decreased by $6.0 million. Cash flows decreased by $1.0
million.
\uf0b7 Operating income decreased by $6.0 million. Cash flows decreased by $3.0
million.
\uf0fc Your answer is correct.
Only the $4.0 million in depreciation expense impacts operating income. Capital
expenditures are not recognized on the income statement. Affiliate income and<\/p>\n","protected":false},"excerpt":{"rendered":"
Wall Street Prep The Premium PackageReview: Accounting & Financial StatementAnalysis Exam.Score: 95%, 38 correct out of 40Question 1Assume US GAAP to answer this question.In 2017, $2 million in wages were earned and no cash wages were paid. In 2018, $8million in wages were earned and $7 million in cash wages were paid. Cash wageswere used […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-115089","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/115089","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=115089"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/115089\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=115089"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=115089"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=115089"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}