LBO MODELING EXAM FROM WALL STREET PREP
EXAM QUESTIONS WITH 100% CORRECT ANSWERS |
LATEST 2026/2027 UPDATE | GUARANTEED PASS.
"What is the impact of share issuance on EPS? - CORRECT ANSWER The major impact to
EPS is that the actual share count increases, thereby decreasing EPS. However, there is
sometimes an impact on net income. That's because assuming share issuances generate cash
for the company, there will be higher interest income, which increases net income and EPS
slightly. Because returns on excess cash for most companies are low, this impact is usually
very minor and doesn't offset the negative impact to EPS from a higher share count."
"What is the impact of share repurchases on EPS? - CORRECT ANSWER The major impact
to EPS is that the actual share count is reduced, thereby increasing EPS. However, there is
sometimes an impact on net income. That's because assuming share repurchases are funded
with the company's excess cash, any interest income that would have otherwise been
generated on that cash is no longer available, thereby reducing net income - and EPS - slightly.
Because returns on excess cash for most companies are low, this impact is usually very minor
and doesn't offset the positive impact to EPS from a lower share count."
"How do operating leases affect the three financial statements? - CORRECT ANSWER
Under US GAAP, companies can choose to account for leases as operating or capital leases.
Operating leases primarily only impact the income statement. When leases are accounted for
as operating leases, lease (rent) payments are treated as operating expenses like wages and
utilities: Regardless of whether you sign a 1-year lease or a 30-year lease, every time you pay
the rent, cash is credited and an operating expense is debited.
The only significant balance sheet impacts have to do with timing differences between
payments (prepaid and accrued rent) and the matching of rent payments to when the tenant
benefits from that rent (leading to balance sheet accruals for smoothing of rent escalations
and upfront rent incentives like a free month). Starting in 2019, operating leases will no
longer be allowed under US GAAP."
"How should increases in inventory get handled on the cash flow statement? - CORRECT
ANSWER Increases in inventory, as well as any other working capital assets, reflect a usage
,of cash and should thus be reflected as an outflow on the cash from operations section of the
cash flow statement. Conversely, increases in working capital liabilities represent a source of
cash and should be presented as an inflow in the section."
"How do you calculate earnings per share? - CORRECT ANSWER Earnings per share (EPS)
is calculated as net income divided by the company's weighted average shares outstanding
during the period.
There are two ways to measure EPS - Basic and Diluted. Basic
EPS is net income divided by the actual shares, while Diluted EPS is net income divided by
actual shares and shares from potentially dilutive securities such as options, restricted stock,
and convertible bonds or stock."
"Do inventories get captured on the income statement? - CORRECT ANSWER There is no
inventory line on the income statement, but it does get captured, if only partially, and
indirectly in cost of goods sold (and potentially other operating expenses).
For example, COGS is recognized on the income statement during a period, regardless of
whether the associated inventory was purchased during the same period. That means that a
portion of the COGS line on the income statement will likely reflect a portion of inventory
used up. That's why the other two financial statements are better for understanding what is
happening to inventory. Specifically, the cash flow statement shows the year-over-year
changes in inventory, while the absolute balance of beginning and end-of-period inventory
can be observed on the balance sheet."
, Thank you for Purchasing this exam
Study Guide. We provide high-
quality academic materials to help
students excel in exams. Our other
Services include but not limited to:
academic research, University &
College assignments writing, essay
writing, Online Classes, and research
projects. Our services are reliable,
affordable, and plagiarism-free. All
the Best in your Exam. For more
information; Contact us at:
or
0R
+254 741484450"How does selling a building impact the 3
statements? - CORRECT ANSWER If I sell a building for $10 million that has a book value
of $6 million on my balance sheet, I will recognize a $4 million gain on sale on the income
statement which will - ignoring taxes for a
moment - increase my net income by $4 million.
On the cash flow statement, since the $4 million gain is non-cash, it will be subtracted out
from net income in the cash from operations section. In the investing section, the full cash
EXAM QUESTIONS WITH 100% CORRECT ANSWERS |
LATEST 2026/2027 UPDATE | GUARANTEED PASS.
"What is the impact of share issuance on EPS? - CORRECT ANSWER The major impact to
EPS is that the actual share count increases, thereby decreasing EPS. However, there is
sometimes an impact on net income. That's because assuming share issuances generate cash
for the company, there will be higher interest income, which increases net income and EPS
slightly. Because returns on excess cash for most companies are low, this impact is usually
very minor and doesn't offset the negative impact to EPS from a higher share count."
"What is the impact of share repurchases on EPS? - CORRECT ANSWER The major impact
to EPS is that the actual share count is reduced, thereby increasing EPS. However, there is
sometimes an impact on net income. That's because assuming share repurchases are funded
with the company's excess cash, any interest income that would have otherwise been
generated on that cash is no longer available, thereby reducing net income - and EPS - slightly.
Because returns on excess cash for most companies are low, this impact is usually very minor
and doesn't offset the positive impact to EPS from a lower share count."
"How do operating leases affect the three financial statements? - CORRECT ANSWER
Under US GAAP, companies can choose to account for leases as operating or capital leases.
Operating leases primarily only impact the income statement. When leases are accounted for
as operating leases, lease (rent) payments are treated as operating expenses like wages and
utilities: Regardless of whether you sign a 1-year lease or a 30-year lease, every time you pay
the rent, cash is credited and an operating expense is debited.
The only significant balance sheet impacts have to do with timing differences between
payments (prepaid and accrued rent) and the matching of rent payments to when the tenant
benefits from that rent (leading to balance sheet accruals for smoothing of rent escalations
and upfront rent incentives like a free month). Starting in 2019, operating leases will no
longer be allowed under US GAAP."
"How should increases in inventory get handled on the cash flow statement? - CORRECT
ANSWER Increases in inventory, as well as any other working capital assets, reflect a usage
,of cash and should thus be reflected as an outflow on the cash from operations section of the
cash flow statement. Conversely, increases in working capital liabilities represent a source of
cash and should be presented as an inflow in the section."
"How do you calculate earnings per share? - CORRECT ANSWER Earnings per share (EPS)
is calculated as net income divided by the company's weighted average shares outstanding
during the period.
There are two ways to measure EPS - Basic and Diluted. Basic
EPS is net income divided by the actual shares, while Diluted EPS is net income divided by
actual shares and shares from potentially dilutive securities such as options, restricted stock,
and convertible bonds or stock."
"Do inventories get captured on the income statement? - CORRECT ANSWER There is no
inventory line on the income statement, but it does get captured, if only partially, and
indirectly in cost of goods sold (and potentially other operating expenses).
For example, COGS is recognized on the income statement during a period, regardless of
whether the associated inventory was purchased during the same period. That means that a
portion of the COGS line on the income statement will likely reflect a portion of inventory
used up. That's why the other two financial statements are better for understanding what is
happening to inventory. Specifically, the cash flow statement shows the year-over-year
changes in inventory, while the absolute balance of beginning and end-of-period inventory
can be observed on the balance sheet."
, Thank you for Purchasing this exam
Study Guide. We provide high-
quality academic materials to help
students excel in exams. Our other
Services include but not limited to:
academic research, University &
College assignments writing, essay
writing, Online Classes, and research
projects. Our services are reliable,
affordable, and plagiarism-free. All
the Best in your Exam. For more
information; Contact us at:
or
0R
+254 741484450"How does selling a building impact the 3
statements? - CORRECT ANSWER If I sell a building for $10 million that has a book value
of $6 million on my balance sheet, I will recognize a $4 million gain on sale on the income
statement which will - ignoring taxes for a
moment - increase my net income by $4 million.
On the cash flow statement, since the $4 million gain is non-cash, it will be subtracted out
from net income in the cash from operations section. In the investing section, the full cash
