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Review:Accounting & Financial Statement
Analysis Exam.|Already graded A+
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Review:Accounting&FinancialStatementAnal
ysis Exam.
Score:95%,38correctoutof40
Question1
AssumeUSGAAPtoanswerthisquesti
on.
In2017,$2millioninwageswereearnedandnocashwageswerepaid. In2018,$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 2019.
Usingonlythe informationprovided, which of thefollowingstatements ismost
accurate?
Liabilitiesincreasedby$1.0millionin2018
Liabilitiesincreasedby$3.0millionin2018
Assetsdecreasedby$5.0millionin2018
Retainedearningsdecreasedby$10.0millionin2018
Retainedearningsdecreasedby$7.0millionin2018
Youransweriscorrect.
Since wages were earned in 2017 but not yet paid, the opening balance sheet
in 2018 would have an accrued wages liability of $2.0. These were paid in
2018, reversing the liability.However,sincethereisonly$5.0millionincash
($7.0lessthe$2.0millionused to pay 2017 wages) available to pay wages
earned in 2018, that leaves $3.0 million in earned wages unpaid, raising the
accrued wages liabilityto $3.0 million. The net impact to the liabilityis $1.0
million (-$2.0 + $3 million). The onlyasset impacted is cash, which decreases
by $7.0 million, while retained earnings decreases by $8.0 million, since
wages are expensed when they are earned, not when they are paid.
SeeLesson:Payable,AccruedExpenses,DeferredRevenue&Debt
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Review:Accounting & Financial Statement
Analysis Exam.|Already graded A+
Question2
,WallStreet Prep The Premium Package
Review:Accounting & Financial Statement
Analysis Exam.|Already graded A+
AcompanyissueditsCEO100,000sharesofrestrictedstockinthebeginningof201
8 that are restricted for two years. The current share price is $10. Based on
the information provided, which of the following statements is true?
Anunearnedcompensationliabilityintheamountof$1millioniscreated
atthe grant date
Anunearnedcompensationassetintheamountof$1millioniscreateda
tthe grant date
Stockholders'equityincreasesby$1millionatthegrant date
Anunearnedcompensationcontraequityaccountintheamountof$5
00,000is recognized at the grant date
Stockholders'equityisunchangedatthegrantdate
Youransweriscorrect.
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
thereisnochangetostockholders’equityatthegrantdate.Thiscontraequityacco
unt is reversed over the service period. In this case, a $1 million contra
equity account is createdand reduced by$500,000over the next two years,
with anoffsettingreduction in retained earnings.
SeeLesson:StockBasedCompensationAccounting:JournalEntries
Question3
AcompanyissueditsCEO100,000stockoptionsinthebeginningof2018that
willvest equally over 2 years. Assume the following:
Thesharepriceatgrantdateis$10pershar
e The option exercise price is $10 per
share
Thefairvalueofeachoptionatgrantdateis$5persh
are No options are exercised until after year 2
Basedonlyontheinformationprovided,whichofthefollowingstatementsistrue?
Stockholders'equityincreasesby$1,000,000atthegrantdate
Stockholders'equityincreasesby$500,000atthegrantdate
, WallStreet Prep The Premium Package
Review:Accounting & Financial Statement
Analysis Exam.|Already graded A+
Stockholders'equityincreasesby$250,000atthegrantdate
Review:Accounting & Financial Statement
Analysis Exam.|Already graded A+
WallStreetPrepThePremiumPackage
Review:Accounting&FinancialStatementAnal
ysis Exam.
Score:95%,38correctoutof40
Question1
AssumeUSGAAPtoanswerthisquesti
on.
In2017,$2millioninwageswereearnedandnocashwageswerepaid. In2018,$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 2019.
Usingonlythe informationprovided, which of thefollowingstatements ismost
accurate?
Liabilitiesincreasedby$1.0millionin2018
Liabilitiesincreasedby$3.0millionin2018
Assetsdecreasedby$5.0millionin2018
Retainedearningsdecreasedby$10.0millionin2018
Retainedearningsdecreasedby$7.0millionin2018
Youransweriscorrect.
Since wages were earned in 2017 but not yet paid, the opening balance sheet
in 2018 would have an accrued wages liability of $2.0. These were paid in
2018, reversing the liability.However,sincethereisonly$5.0millionincash
($7.0lessthe$2.0millionused to pay 2017 wages) available to pay wages
earned in 2018, that leaves $3.0 million in earned wages unpaid, raising the
accrued wages liabilityto $3.0 million. The net impact to the liabilityis $1.0
million (-$2.0 + $3 million). The onlyasset impacted is cash, which decreases
by $7.0 million, while retained earnings decreases by $8.0 million, since
wages are expensed when they are earned, not when they are paid.
SeeLesson:Payable,AccruedExpenses,DeferredRevenue&Debt
,WallStreet Prep The Premium Package
Review:Accounting & Financial Statement
Analysis Exam.|Already graded A+
Question2
,WallStreet Prep The Premium Package
Review:Accounting & Financial Statement
Analysis Exam.|Already graded A+
AcompanyissueditsCEO100,000sharesofrestrictedstockinthebeginningof201
8 that are restricted for two years. The current share price is $10. Based on
the information provided, which of the following statements is true?
Anunearnedcompensationliabilityintheamountof$1millioniscreated
atthe grant date
Anunearnedcompensationassetintheamountof$1millioniscreateda
tthe grant date
Stockholders'equityincreasesby$1millionatthegrant date
Anunearnedcompensationcontraequityaccountintheamountof$5
00,000is recognized at the grant date
Stockholders'equityisunchangedatthegrantdate
Youransweriscorrect.
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
thereisnochangetostockholders’equityatthegrantdate.Thiscontraequityacco
unt is reversed over the service period. In this case, a $1 million contra
equity account is createdand reduced by$500,000over the next two years,
with anoffsettingreduction in retained earnings.
SeeLesson:StockBasedCompensationAccounting:JournalEntries
Question3
AcompanyissueditsCEO100,000stockoptionsinthebeginningof2018that
willvest equally over 2 years. Assume the following:
Thesharepriceatgrantdateis$10pershar
e The option exercise price is $10 per
share
Thefairvalueofeachoptionatgrantdateis$5persh
are No options are exercised until after year 2
Basedonlyontheinformationprovided,whichofthefollowingstatementsistrue?
Stockholders'equityincreasesby$1,000,000atthegrantdate
Stockholders'equityincreasesby$500,000atthegrantdate
, WallStreet Prep The Premium Package
Review:Accounting & Financial Statement
Analysis Exam.|Already graded A+
Stockholders'equityincreasesby$250,000atthegrantdate
