Wall Street Prep Advanced
Accounting 2026 Exam
Questions and Answers |
Already Graded A+
How would raising capital through share issuances affect earnings per
share (EPS)? - ANSWER ✔✔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)? -
ANSWER ✔✔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? -
ANSWER ✔✔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? - ANSWER
✔✔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 on the
income statement and taxable income shown on the tax filing, the tax
rates will nearly always be different. Thus, the "Tax Provision" line item
on the income statement rarely matches the actual cash taxes paid to
the IRS.
Could you give specific examples of why the effective and marginal tax
rates might differ? - ANSWER ✔✔Under GAAP, many companies
follow different accounting standards and rules for tax and financial
reporting.
i. Most companies use straight-line depreciation (i.e., equal allocation of
the expenditure over the useful life) for reporting purposes, but the IRS
3
COPYRIGHT©JOSHCLAY 2025/2026. YEAR PUBLISHED 2026. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE. PRIVACY
STATEMENT. ALL RIGHTS RESERVED
Accounting 2026 Exam
Questions and Answers |
Already Graded A+
How would raising capital through share issuances affect earnings per
share (EPS)? - ANSWER ✔✔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)? -
ANSWER ✔✔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? -
ANSWER ✔✔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? - ANSWER
✔✔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 on the
income statement and taxable income shown on the tax filing, the tax
rates will nearly always be different. Thus, the "Tax Provision" line item
on the income statement rarely matches the actual cash taxes paid to
the IRS.
Could you give specific examples of why the effective and marginal tax
rates might differ? - ANSWER ✔✔Under GAAP, many companies
follow different accounting standards and rules for tax and financial
reporting.
i. Most companies use straight-line depreciation (i.e., equal allocation of
the expenditure over the useful life) for reporting purposes, but the IRS
3
COPYRIGHT©JOSHCLAY 2025/2026. YEAR PUBLISHED 2026. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE. PRIVACY
STATEMENT. ALL RIGHTS RESERVED
