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Advanced
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Accounting
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Exam Questions With Correct Answers
/ // // // //
How /
/would /
/raising /
/capital //through //share //issuances //affect //earnings //per //share //(EPS)? //- //verified //answer(s)-
✔✔The /
/impact /
/on /
/EPS /
/is //that //the //share //count //increases, //which //decreases //EPS. //But //there //can //be //an //impact //on
//net /
/income, /
/assuming /
/the /
/share /
/issuances /
/generate /
/cash /
/because /
/there /
/would /
/be /
/higher /
/interest /
/income, /
,/which //increases //net //income //and //EPS. //However, //most //companies' //returns //on //excess //cash
//are /
/low, /
/so /
/this /
/doesn't //offset //the //negative //dilutive //impact //on //EPS //from //the //increased //share //count. //
Alternatively, /
/share /
/issuances /
/might /
/affect /
/EPS /
/in /
/an /
/acquisition /
/where /
/stock /
/is /
/the /
/form /
/of /
/consideration. /
/The /
/amount //of //net //income //the //acquired //company //generates //will //be //added //to //the //acquirer's
//existing /
/net /
/income, /
/which //could //have //a //net //positive //(accretive) //or //negative //(dilutive) //impact //on //EPS.
How //would //a //share //repurchase //impact //earnings //per //share //(EPS)? //- //verified //answer(s)-
✔✔The /
/impact /
/on /
/EPS /
/following //
,a/
/share /
/repurchase /
/is //
a/
/reduced /
/share /
/count, /
/which /
/increases /
/EPS. /
/However, /
/there /
/would /
/be /
/an /
/impact /
/on /
/net /
/income, /
/assuming /
/the /
/share /
/repurchase /
/was /
/funded /
/using /
/excess /
/cash. /
/The /
/interest /
/income /
/that /
/would /
/have /
/otherwise /
/been /
, /generated /
/on //that //cash //is //no //longer //available, //causing //net //income //and //EPS //to //decrease. //
But /
/the /
/impact /
/would /
/be /
/minor /
/since //the //returns //on //excess //cash //are //low, //and //would //not //offset //the //positive //impact //the
//repurchase //had //on //EPS //from //the //reduced //share //count.
What /
/is //the //difference //between //the //effective //and //marginal //tax //rates? //- //verified //answer(s)-
✔✔Effective //tax //rate: //% //corporations //must //by //in //taxes //
Effective //tax //rate //= //Taxes //paid /// //earnings //before //tax
Marginal //tax //rate: //% //on //the //last //dollar //of //a //company's //taxable //income.
Why //is //the //effective //and //marginal //tax //rate //often //different? //- //verified //answer(s)-
✔✔Effective /
/and //marginal //tax //rates //differ //because //the //effective //tax //rate //calculation //uses //pre-
tax //income //from //the //accrual-
based /
/income /
/statement. /
/Since /
/there's //
a/
/difference /
/between /
/the /
/taxable /
/income /
Street
/ /
Prep
/ /
Advanced
/ /
Accounting
/ /
Exam Questions With Correct Answers
/ // // // //
How /
/would /
/raising /
/capital //through //share //issuances //affect //earnings //per //share //(EPS)? //- //verified //answer(s)-
✔✔The /
/impact /
/on /
/EPS /
/is //that //the //share //count //increases, //which //decreases //EPS. //But //there //can //be //an //impact //on
//net /
/income, /
/assuming /
/the /
/share /
/issuances /
/generate /
/cash /
/because /
/there /
/would /
/be /
/higher /
/interest /
/income, /
,/which //increases //net //income //and //EPS. //However, //most //companies' //returns //on //excess //cash
//are /
/low, /
/so /
/this /
/doesn't //offset //the //negative //dilutive //impact //on //EPS //from //the //increased //share //count. //
Alternatively, /
/share /
/issuances /
/might /
/affect /
/EPS /
/in /
/an /
/acquisition /
/where /
/stock /
/is /
/the /
/form /
/of /
/consideration. /
/The /
/amount //of //net //income //the //acquired //company //generates //will //be //added //to //the //acquirer's
//existing /
/net /
/income, /
/which //could //have //a //net //positive //(accretive) //or //negative //(dilutive) //impact //on //EPS.
How //would //a //share //repurchase //impact //earnings //per //share //(EPS)? //- //verified //answer(s)-
✔✔The /
/impact /
/on /
/EPS /
/following //
,a/
/share /
/repurchase /
/is //
a/
/reduced /
/share /
/count, /
/which /
/increases /
/EPS. /
/However, /
/there /
/would /
/be /
/an /
/impact /
/on /
/net /
/income, /
/assuming /
/the /
/share /
/repurchase /
/was /
/funded /
/using /
/excess /
/cash. /
/The /
/interest /
/income /
/that /
/would /
/have /
/otherwise /
/been /
, /generated /
/on //that //cash //is //no //longer //available, //causing //net //income //and //EPS //to //decrease. //
But /
/the /
/impact /
/would /
/be /
/minor /
/since //the //returns //on //excess //cash //are //low, //and //would //not //offset //the //positive //impact //the
//repurchase //had //on //EPS //from //the //reduced //share //count.
What /
/is //the //difference //between //the //effective //and //marginal //tax //rates? //- //verified //answer(s)-
✔✔Effective //tax //rate: //% //corporations //must //by //in //taxes //
Effective //tax //rate //= //Taxes //paid /// //earnings //before //tax
Marginal //tax //rate: //% //on //the //last //dollar //of //a //company's //taxable //income.
Why //is //the //effective //and //marginal //tax //rate //often //different? //- //verified //answer(s)-
✔✔Effective /
/and //marginal //tax //rates //differ //because //the //effective //tax //rate //calculation //uses //pre-
tax //income //from //the //accrual-
based /
/income /
/statement. /
/Since /
/there's //
a/
/difference /
/between /
/the /
/taxable /
/income /
