ACG 3173 -Exam 4 Test Questions And
All Correct Answers 2025-2026
Updated.
Your company has the following information:
Earnings before Taxes (from the financial statements: $1,000,000
Tax Liability (from the tax return): $80,000
Increase in deferred tax liabilities for the year: $25,000
Statutory tax rate (not the effective rate): 21%
Which is the correct tax expense on the financial statements? - Answer 80,000 + 25,000=
105,000
Your company has the following information:
"adjusted" taxable income: $5,000,000
Interest expense: 1,950,000
Business interest income: 100,000
1. If your company's gross income averages $15 million per year, calculate the amount of
interest your company will be allowed to deduct on its tax return?
2. If your company's gross income averages $35 million per year, calculate the amount of
interest your company will be allowed to deduct on its tax return? - Answer 1. 15,000,000 -
1,950,000= 13,050,000
2. 5,000,000
x 30 %
1,500,000 + 100,000= 1,600,000
1,950,000 - 1,600,000= 350,000
Identify which of the following would most likely lead to a deferred tax asset and which would
most likely lead to a deferred tax liability.
1. Bad debt expense
2. NOL
3. Depreciation - Answer 1. Bad Debt Exp: has a deduction in the future that lowers tax
liability (deferred tax asset)
2. NOL: loss this year, reduces RE on the tax return they get a tax benefit in the future so it
lowers tax liability (deferred tax asset)
, 3. Depreciation: always accelerated for tax purposes vs. financial statements, so in the future
they wont have a depreciation deduction leading to a higher taxable income and liability in the
future (deferred tax liability)
trend analysis involves - Answer tracking a performance metric (such as a ratio) over time
industry analysis means - Answer youre comparing 2 or more businesses at the same point
in time
p/e ratio - Answer Market Price per Share / EPS
Lower PE means - Answer the company is undervalued
Higher PE means - Answer the company is overvalued meaning you paid more for the share
than it can deliver in EPS
Divident Yield Ratio - Answer dividends per share/market price per share
dividend payout ratio - Answer annual dividend per share / earnings per share
BV per share of common stock - Answer common stock equity/ # of common stock shares
outstanding
liquidity compares - Answer companys ability to pay its short term debt as it becomes due
measuring liquidity generally begins with - Answer working capital
current ratio - Answer current assets /current liabilities
if current assets are ________ then current liabilities, the current ratio will be _________ than 1
- Answer greater, greater
companys that use FIFO will have a _______ current ratio and companys that use LIFO will have
a _________ current ratio - Answer higher, lower
cash ratio formula - Answer (cash + cash equivalents) / total current liabilities
All Correct Answers 2025-2026
Updated.
Your company has the following information:
Earnings before Taxes (from the financial statements: $1,000,000
Tax Liability (from the tax return): $80,000
Increase in deferred tax liabilities for the year: $25,000
Statutory tax rate (not the effective rate): 21%
Which is the correct tax expense on the financial statements? - Answer 80,000 + 25,000=
105,000
Your company has the following information:
"adjusted" taxable income: $5,000,000
Interest expense: 1,950,000
Business interest income: 100,000
1. If your company's gross income averages $15 million per year, calculate the amount of
interest your company will be allowed to deduct on its tax return?
2. If your company's gross income averages $35 million per year, calculate the amount of
interest your company will be allowed to deduct on its tax return? - Answer 1. 15,000,000 -
1,950,000= 13,050,000
2. 5,000,000
x 30 %
1,500,000 + 100,000= 1,600,000
1,950,000 - 1,600,000= 350,000
Identify which of the following would most likely lead to a deferred tax asset and which would
most likely lead to a deferred tax liability.
1. Bad debt expense
2. NOL
3. Depreciation - Answer 1. Bad Debt Exp: has a deduction in the future that lowers tax
liability (deferred tax asset)
2. NOL: loss this year, reduces RE on the tax return they get a tax benefit in the future so it
lowers tax liability (deferred tax asset)
, 3. Depreciation: always accelerated for tax purposes vs. financial statements, so in the future
they wont have a depreciation deduction leading to a higher taxable income and liability in the
future (deferred tax liability)
trend analysis involves - Answer tracking a performance metric (such as a ratio) over time
industry analysis means - Answer youre comparing 2 or more businesses at the same point
in time
p/e ratio - Answer Market Price per Share / EPS
Lower PE means - Answer the company is undervalued
Higher PE means - Answer the company is overvalued meaning you paid more for the share
than it can deliver in EPS
Divident Yield Ratio - Answer dividends per share/market price per share
dividend payout ratio - Answer annual dividend per share / earnings per share
BV per share of common stock - Answer common stock equity/ # of common stock shares
outstanding
liquidity compares - Answer companys ability to pay its short term debt as it becomes due
measuring liquidity generally begins with - Answer working capital
current ratio - Answer current assets /current liabilities
if current assets are ________ then current liabilities, the current ratio will be _________ than 1
- Answer greater, greater
companys that use FIFO will have a _______ current ratio and companys that use LIFO will have
a _________ current ratio - Answer higher, lower
cash ratio formula - Answer (cash + cash equivalents) / total current liabilities
