Class 4 - QUIZ 2 - Debriefing Notes.pdf

Class 4 - QUIZ 2 - Debriefing Notes.pdf - RSM212 ACCOUNTING...

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RSM212: A CCOUNTING FOR F INANCE P ROFESSIONALS © 2018 QUIZ 2 (C LASS 4) P AGE 1 OF 3 CLASS 4: QUIZ 2 (CIRCLE THE BEST RESPONSE) A DEBRIEFING NOTES 1. Assume that a company wrote-down an assets that will be sold as part of a restructuring program. Under US GAAP, this would normally be classified as a. a loss from discontinued operations. b. an extraordinary item. c. an unusual or infrequent item. Answer: C Explanation: Restructuring is a typical part of the business, even if it is not core or recurring all the time. To qualify for discontinued operations, the asset needs to be a component of business that meets the requirements to classify as held for sale (see pp. 162-168). 2. Sam Inc. reported net income of $4 million for the year ended December 31, 2017. At the beginning of the year, the company had 500,000 common shares and issued 20,000 warrants with an exercise price of $60 on July 1, 2017 . The average market price of the company's common stock during the year was $80 per share . Assuming there were no other potentially dilutive securities, the company's diluted earnings per share (EPS) using the treasury stock method is closest to: a. $8.00. b. $7.96. c. $7.92. Answer: B Explanation: (see pp. 174-177) Using the treasury stock method, we consider first if the warrants would be exercised. Therefore, we look at the relationship between the exercise price and average market price. In this case, average market price is greater than the exercise price for the warrants (i.e. $80 > $60). Therefore, we do take the potential dilution into consideration.
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