IA3 Final
CAPITAL STRUCTURE
A company's capital structure indicates its sources of funds from debt and equity issuances used to finance overall operations and capital expenditures
COMPONENT
A component is an activity that transfers a good or service to the lessee
DILUTED EPS
A computation that incorporates the effects of potentially dilutive securities
VALUATION ALLOWANCE
A contra asset to the deferred tax asset account on the balance sheet
LEASE
A contract that gives the lessee the right to use the asset, legally owned by the lessor, for a specified period of time in return for periodic payments or rentals made by the lessee
Residual Value Guarantee
A guarantee or assurance made to the lessor that it will receive a fixed dollar amount for the leased asset at the end of the lease
RIGHT-OF-USE ASSET
A leased asset that the lessee has the right to control
FREE CASH FLOW
A measure of cash flows that adjusts for a company's capital expenditures
BASIC EARNINGS PER SHARE
A measure of the earnings per share available to common shareholders that does not consider the potentially dilutive effects of convertible securities and employee options
BALANCE SHEET APPROACH
A method to compute deferred tax based on the differences between book carrying values and tax bases of a firm's assets and liabilities. Also referred to as the asset and liability method. See also balance sheet
CORRIDOR
A method used in accounting for defined-benefits pensions plans to determine when to report actuarial gains (losses) in net income. A corridor is defined as 10% of the larger of the beginning balance of the projected benefit obligation or the beginning balance of the plan assets
NET OPERATING LOSS
A net loss for tax purposes that occurs when tax-deductible expenses exceed taxable revenues
LEASE PAYMENT
A payment that can include six elements: fixed payments, variable payments that depend on a rate or index, exercise price of an option, penalty payments for termination, and a residual value guarantee for the lessee only
Vested Benefit Pension Obligation
A pension obligation that bases the defined-benefit obligation on the vested benefits that accrue to current employees
PROJECTED BENEFIT OBLIGATION
A pension obligation that considers all employees, both vested and non-vested, using estimated future salary levels
DEFINED-CONTRIBUTION PLAN
A pension plan in which the employer contributes a fixed amount each period based on a formula that is typically a percentage of the employee's salary
DEFINED-BENEFIT PLAN
A pension plan that specifies a predetermined amount of benefits that the employee will receive at the time of retirement
CONSERVATISM RATIO
A ratio of a company's aggressiveness in financial reporting compared to tax reporting
INCOME TAX BENEFIT
A reduction of income tax expense and thus increases income
INSTALLMENT SALE
A sale that is recognized as revenue only when cash is received for tax reporting but is recognized as revenue before cash is received for financial reporting
Employee Stock Purchase Plan
A stock-based compensation plan that offers employees the opportunity to purchase the company's shares, usually at a discount and without incurring transactions costs (i.e., brokerage fees)
TAX CONTINGENCY
A tax-related liability on the balance sheet
PRESENT VALUE OF THE DEFINED-BENEFIT OBLIGATION (PVDBO)
A term used under IFRS to describe the net liability under a defined-benefit pension plan. The same as the pension benefit obligation under U.S. GAAP
CASH-SETTLED STOCK APPRECIATION RIGHTS
A type of stock-based compensation with the employee receiving cash for the amount of the increase in a company's share price over a fixed period of time
On January 1, Year 1, Fields Corporation granted 400,000 stock options to certain executives. The options are exercisable no sooner than December 31, Year 3 and expire on January 1, Year 7. The vesting period is 3 years. Each option can be exercised to acquire one share of $10 par common stock for $15. An appropriate option−pricing model estimates the fair value of each option to be $9 on the date of grant. What amount should Fields recognize as compensation expense for Year 1? A. $1,200,000 B. $0 C. $600,000 D. $3,600,000
A. $1,200,000
Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 90,000 options were granted for 90,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $3 based upon an option pricing model. What is the fair value of the award? A. $270,000 B. $540,000 C. $180,000 D. $90,000
A. $270,000
TNT Corporation's income tax payable is $190,000 and its tax rate is 25%. Assuming no book−tax differences, what is TNT's income before taxes? (Round your answer to the nearest whole dollar.) A. $760,000 B. $253,333 C. $190,000 D. $47,500
A. $760,000
On March 1 of the current year, Stafford Corporation leased equipment under a six−year noncancellable lease. The estimated economic of the equipment is nine years. The fair value of the equipment is $860,000. The lease does not contain a bargain purchase option or a transfer of title. Stafford must classify this lease as a capital lease if the present value of the minimum lease payments is at least ________. A. $774,000 B. $645,000 C. $860,000 D. $430,000
A. $774,000
On January 1, Year 1, Axis Corporation granted employees 71,000 stock options for 71,000 shares of $1 par value common stock. The exercise price on the date of issue was equal to the market price of $25. There is a two year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. The fair value of the options has been estimated to be $37 per option and the company does not expect any forfeitures of the options. What is the journal entry for compensation expense for Year 1? A. Compensation Expense 1,313,500 Liability for Stock−based Compensation 1,313,500 B. Compensation Expense 1,775,000 Liability for Stock−based Compensation 1,775,000 C. Compensation Expense 1,313,500 Deferred Compensation 1,313,500 D. Compensation Expense 1,775,000 Deferred Compensation 1,775,000
A. Compensation Expense 1,313,500 Liability for Stock−based Compensation 1,313,500
On January 1, 2019, Precision Pumps leases nonspecialized pumping equipment to Mega Construction. The equipment is delivered on January 1. The lease term is 4 years with no renewal or purchase options, and title to the leased asset is retained by the lessor at the end of the lease term. The lease requires annual fixed rental payments of $7,000 per year beginning on January 1, 2019, and then December 31 of each year starting on December 31, 2019. The fair value of the equipment is $37,592 and has a carrying amount on Precision's books of $22,000. The equipment has a remaining life of 8 years. The estimated residual value of the equipment is $15,000. The lessee does not guarantee the residual value, but Precision secured an unrelated third party to guarantee $15,000; collection of this guaranteed residual value and lease payments are reasonably certain. The rate implicit in the lease is 6%. There are no prepaid rentals, and neither party to the agreement pays initial direct costs. What is the proper classification of this lease for Precision Pumps? A. Direct financing lease B. Finance lease C. Operating lease D. Sales−type lease
A. Direct financing lease
Accounting changes detract from which one of the following enhancing qualitative characteristics of accounting information? A. comparability B. relevance C. materiality D. representational faithfulness
A. comparability
For an operating lease, the lessee will record a ______ and an associated lease liability on the balance sheet. A. right−of−use asset B. intangible asset C. contra−liability account D. capital adjustment
A. right−of−use asset
When a lessor records a sales−type lease, the transaction is similar to ________. A. selling merchandise on account B. selling a fixed asset C. purchasing merchandise on account D. exchanging assets
A. selling merchandise on account
On the books of a lessor, a lease may be classified as either ________. A. operating, direct−finance, or sales type B. operating, sales type or indirect−finance C. operating, capital, or direct−finance D. direct−finance or sales type
A. operating, direct−finance, or sales type
CARRYBACK
Allows a company to offset the current tax loss against prior years' taxable income and claim a refund for taxes previously paid on the amount offset
UNGUARANTEED RESIDUAL ASSET
An amount the lessor expects to derive from the leased asset at the end of the lease term
SPECIALIZED NATURE
An asset that has to alternative use to the lessor at the end of the lease term
ACTUARY
An individual skilled in mathematics, statistics, and finance who analyzes the financial consequences of risk based on probability assessments
BARGAIN PURCHASE OPTION
An option allowing the lessee to acquire the property at a price specified at the inception of the lease that is substantially below the expected fair market value of the property at the date the option can be exercised
ERROR
An unintentional mistakes often due to an incorrect application of an accounting policy or incorrect mathematical computation
Nace Manufacturing Company leased a piece of nonspecialized equipment for use in its operations from Righteous Leasing on January 1, 2019. The 10 year lease requires lease payments of $4,000, beginning on January 1, 2019, and at each December 31 thereafter through 2027. The equipment is estimated to have a 10 year life, is depreciated on the straight−line basis and will have no residual value at the end of the lease term. Nace's incremental borrowing rate is 11%. Initial direct costs of $1,000 are incurred by the lessee on January 1, 2019. Righteous Leasing acquired the asset just prior to the lease term at a cost of $27,000. Collection of all lease payments is reasonably assured. What is the proper classification of the lease to Nace? A. Sales−type lease B. Finance lease C. Operating lease D. Either A or B
B. Finance lease
Greene Co. has book income of $445,000, and a tax rate of 20%. Assuming there are no book−tax differences, what will the journal entry be to record the income tax expense? A. Income Tax Payable 178,000 Income Tax Expense 178,000 B. Income Tax Expense 89,000 Income Tax Payable 89,000 C. Income Tax Payable 89,000 Income Tax Expense 89,000 D. Income Tax Expense 178,000 Income Tax Payable 178,000
B. Income Tax Expense 89,000 Income Tax Payable 89,000
Caesar Corporation reports municipal interest income on their financial statements. What (if any) book-tax difference will result? A. Temporary difference; taxable income greater than book income. B. Permanent difference; book income greater than taxable income. C. Temporary difference; book income greater than taxable income. D. No difference; municipal interest is taxable income.
B. Permanent difference; book income greater than taxable income.
Which one of the following changes is not an accounting change? A. estimate B. error C. entity D. principle
B. error
A lessee normally computes the liability on a lease as the ________. A. fair market value of the leased asset B. present value of minimum lease payments C. sum of the cash payments over the term of the lease D. future value of the minimum lease payments
B. present value of minimum lease payments
The net investment in the lease for a sales−type lease reflects the assets related to the lease transaction and is comprised of the following: ________. A. the lease receivable and the future value of any guaranteed residual asset B. the lease receivable and the present value of any unguaranteed residual asset C. the lease receivable and the future value of any unguaranteed residual asset D. the lease receivable and the present value of any guaranteed residual asset
B. the lease receivable and the present value of any unguaranteed residual asset
ASSET/LIABILITY (BALANCE SHEET) APPROACH
Basing the decision to record a transaction on whether an economic resource is received and it meets the definition of an asset, such as accounts receivable
If an unexpected forfeiture of options occurs under a stock option plan, the change in compensation is treated as ________. A. an adjustment to additional paid in capital B. an adjustment to deferred compensation C. a change in estimate D. a change in other comprehensive income
C. a change in estimate
Harvey Inc. reported net earnings of $500,000 for the year. Harvey has 200,000 shares of common stock outstanding all year. Two years ago the company granted 20,000 stock options that allow employees to purchase 20,000 shares for $15 each. The company stock has averaged $20 in the market during the year. Compute the basic and diluted EPS. A. basic EPS $2.50; diluted EPS $1.67 B. basic EPS $2.44; diluted EPS $2.44 C. basic EPS $2.50; diluted EPS $2.44 D. basic EPS $2.50; diluted EPS $2.50
C. basic EPS $2.50; diluted EPS $2.44
Which one of the following would not be affected by a change in revenue recognition requiring a retrospective change? A. deferred taxes B. unearned revenue C. cash D. revenue
C. cash
CHANGES IN ACCOUNTING PRINCIPLE
Changes from one generally accepted accounting method to another generally accepted accounting method
DIRECT EFFECTS
Changes necessary to implement the change in accounting principle
INDIRECT EFFECTS
Changes to current or future cash flows that result from the change in accounting principle
CHANGES IN ACCOUNTING ESTIMATE
Changes which involve revisions of estimates used in accounting
CHANGES IN THE REPORTING ENTITY
Changes which occur when a company reports financial statements that are, in effect, financial statements for a different reporting entity
RETROSPECTIVE METHOD
Companies reporting an accounting change with the retrospective method restate all prior-year financial statements presented in the annual report as if the newly adopted principle had always been used
PROSPECTIVE METHOD
Companies using the prospective method to report an accounting change make the change in the current year (that is, the year of the change) and all future years
STOCK APPRECIATION RIGHTS
Compensation in the form of stock appreciation rights (SARs) where the employee receives cash for the amount of the increase in share value over a pre-established price over a fixed period of time
EXECUTORY COSTS
Costs incurred by a lessee related to ownership of a leased asset such as sales and property taxes, insurance, and maintenance
PRIOR SERVICE COSTS
Costs that represent service benefits provided to current employees on the initial adoption or amendment of an existing defined-benefit pension plan
Lyon Group's income before taxes is $430,000 and its tax rate is 20%. Lyon included $40,000 in fines and penalties in the $430,000. There are no other book−tax differences. What is income tax payable for Lyon Group? A. $86,000 B. $8,000 C. $78,000 D. $94,000
D. $94,000
On March 1 of the current year, Hill Corporation leased sound equipment from McEntire Company. The equipment has a life of 20 years. There is no bargain purchase option or passage of title. For the lease to be considered a capital lease, it must have a term of at least ________. A. 20 years B. 12 years C. 14 years D. 15 years
D. 15 years
Which of the following statements regarding stock options is true? A. Companies expense stock−based compensation at the fair value of the stock on the expected date of exercise. B. Unexercised options may be sold or transferred in the open market. C. An employee will exercise a stock option only when the current market price of the stock is less than the option price. D. Employee stock options are a restricted form of a call option.
D. Employee stock options are a restricted form of a call option.
Which one of the following might be affected by a change in revenue recognition requiring a prospective change? A. retained earnings B. deferred taxes C. unearned revenue D. management compensation
D. management compensation
The compensation associated with equity classified awards of stock options is ________. A. recorded as compensation expense when the options are granted B. allocated to compensation expense until the options expire C. the estimated book value of the options D. the estimated fair value of the options
D. the estimated fair value of the options
On the balance sheet, the lease liability is measured as ______. A. the present value of the lease payments plus the future value of the guaranteed residual value (if any) B. the present value of the lease payments less the present value of the guaranteed residual value (if any) C. the future value of the lease payments plus the future value of the guaranteed residual value (if any) D. the present value of the lease payments plus the present value of the guaranteed residual value if the lessee guarantees it(if any)
D. the present value of the lease payments plus the present value of the guaranteed residual value if the lessee guarantees it(if any)
Charlotte Engineering reported net income of $400,000 for the year. It declared $30,000 in preferred dividends on December 23. It began the year with 100,000 common shares outstanding. On July 1, Charlotte declared a 5% common stock dividend. Compute the basic EPS for the year. (Round your answer to the nearest cent.) A. $3.89 B. $3.61 C. $3.70 D. $3.52
D. $3.52
Swanson Corporation is leasing a machine from Gray, Inc. Swanson's incremental borrowing rate is 13%. The prime rate of interest is currently 7%. Gray's implicit rate in the lease is 9%; Swanson does not know this rate. At what interest rate should the minimum lease payments be computed? A. 11% B. 9% C. 7% D. 13%
D. 13%
TEMPORARY DIFFERENCES
Differences in the book treatment and tax treatment for a given transaction that are different in a given year, but will be the same over the life of the firm
PERMANENT DIFFERENCES
Differences in the book treatment and the treatment for a given transaction that are different over the life of the firm
BALANCE SHEET ERRORS
Errors which only affect asset, liability, and equity accounts, are typically the result of a misclassification of accounts in the recording of a transaction, . See also balance sheet
INCOME STATEMENT ERRORS
Errors which only affect revenue, gain, expense, and loss accounts, are also commonly caused by misclassification mistakes
T/F - A complex capital would include only convertible debt and convertible preferred stock.
False
T/F - A guaranteed residual value reduces the amount of minimum lease payments.
False
T/F - Book income refers to the amount of income reported on a company's tax return.
False
T/F - Changes in reporting entities are accounted for prospectively.
False
T/F - One disadvantage of leasing an asset is that the lessee bears the risk of obsolescence.
False
T/F - Prior years' financial statements are restated for changes in material accounting estimates.
False
T/F - The fair value of stock options on the date of grant is usually readily determinable.
False
T/F - The lessee depreciates leasehold improvements over the life of the improvements or the life of the lease, whichever is longer.
False
EMPLOYEE STOCK OPTIONS
Financial instruments that give an employee the right to purchase shares of the company's stock directly from the company at a fixed price over a specified period of time
OPERATING LEASE
For a lessee, a lease that does not meet any one of the five Group I criteria is classified as an operating lease. For a lessor, a lease that does not meet any one of the five Group I criteria or the Group II criteria is classified as an operating lease
FINANCE LEASE
For a lessee, a lease that meets any one of the five Group I criteria, the lessee classifies the lease as a finance lease
SALES-TYPE LEASE
For a lessor, a lease that meets any one of the five Group I criteria is classified as a sales-type lease
DIRECT FINANCING LEASE
For a lessor, a lease that meets both of the Group II criteria but none of the Group I criterion is classified as a direct financing lease
Liability-Classified Award
For a liability-classified award, an employee receives cash or some other company resource based on the value of the shares in the stock-based compensation
RETROACTIVE ASSUMPTION
For share issuances that occur before the split or dividend, the retroactive assumption assumes that the split or dividend occurred at the time of the issuance
CALL OPTION
Gives an investor the right (but not the obligation) to purchase a security at a fixed price over a specified period of time
LEASEHOLD IMPROVEMENTS
Improvements made to leased property that are not movable and revert to the lessor when the lease expires
RESIDUAL METHOD
In a lease contract, residual method subtracts the other standalone prices from the total contract consideration and assigns the remaining amount as the estimated standalone price of the remaining component
STANDALONE PRICE
In a lease contract, the standalone price of each component is the price at which the lessee would purchase the component of a contract separately
INITIAL DIRECT COSTS
Incremental costs that the lessee would not have incurred if it had not obtained the lease, such as commissions, legal fees resulting from the execution of the lease, costs to prepare documents after the execution of the lease, and payments to existing tenants to move out of a facility
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
Net income less preferred dividend requirements
BANK OVERDRAFT
Occurs when the balance in a bank account falls below zero
NONCONTRIBUTORY PLANS
Pension plans in which the employer is responsible for funding the total cost of the plan
CONTRIBUTORY PLANS
Pension plans that require employees to fund some or all pension benefit costs and allow employees to make additional contributions to voluntarily increase their retirement benefits
CARRYFORWARD
Permits a company to offset the current tax loss against future taxable income, thereby reducing future taxable income and lowering the amount of tax due in the year of the offset
NET INVESTMENT IN THE LEASE FOR A SALES-TYPE LEASE
Reflects the assets related to the lease transaction and is composed of the lease receivable and the present value of ant unguaranteed residual asset
DEFERRED TAX ASSET
Represents a future reduction in income taxes payable
DEFERRED TAX LIABILITY
Represents additional income taxes payable that will be due in future years
POTENTIALLY DILUTIVE SECURITIES
Securities that are not currently common shares, but could become common stock through conversion or exercise
Pension Trust
Separate legal entity called to which a company (referred to as the sponsor company) sets aside funds for future pension benefits. The trust accumulates the pension fund assets and makes payments to retirees
TREASURY STOCK METHOD
Specifies the assumption that firms use the proceeds from the hypothetical exercise of in-the-money options or warrants to purchase treasury stock at the average market price of the common stock for the period
COMPENSATION ARRANGEMENT
Specifies the number of options granted, the exercise price, the vesting period, and the expiration date
RESTATED FINANCIAL STATEMENTS
Statements which adjust opening balance sheet accounts for the cumulative effect of applying the new principle in all prior years and present all subsequent financial statements as if the policy had always been used. Specifically, companies adjust: 1. Assets and liabilities as of the beginning of the first period presented to reflect the cumulative effect of the change on periods prior to those presented. 2. Retained earnings (or other appropriate components of equity) for the beginning of the first period presented to reflect the cumulative effect of the change on reported income for periods prior to those presented. 3. Financial statements for each period presented to reflect the effects of the change
LEASE TERM
Term beginning at the lease commencement date and includes the noncancellable period for which a lessee has the right to use the leased asset
INTRAPERIOD TAX ALLOCATION
The allocation of income tax expense to different sections of the comprehensive income statement
BOOK INCOME
The amount of income that a company reports in its financial statements. See also book and tax reporting, differences between
TAXABLE INCOME
The amount of income that a company reports on its tax return
BASIS
The carrying values of assets and liabilities, either for book or tax reporting
LEASE COMMENCEMENT
The date on which the lessee is allowed to begin using the leased asset
LEASE INCEPTION
The date the lease agreement is signed
UNEXPECTED RETURN
The difference between the actual and expected return
EXERCISE PRICE
The fixed amount paid to acquire a share of stock based on the terms of the option plan. Also referred to as strike price
EFFECTIVE TAX RATE (ETR)
The income tax expense divided by book income before taxes
SERVICE COST
The increase in the projected benefit obligation resulting from one additional year of service from employees
STATUTORY TAX RATE
The legally imposed rate in a given taxing jurisdiction
LESSOR
The owner of the asset
LESSEE
The party acquiring the use of the asset in a lease
Expiration Date
The point at which the employee can no longer exercise the options
LEASE RECEIVABLE
The present value of the payments the lessor will receive plus the present value of any residual value guarantees when the guarantee can be provided by either the lessee or a third party
INCREMENTAL BORROWING RATE
The rate of interest that a lessee would have to pay to borrow an equal amount on a collateralized basis over a similar term to the lease payments in a similar economic environment
IMPLICIT RATE
The rate of interest that sets the present value of the lease payments plus the present value of the amount that a lessor expects to obtain from the leased asset at the end of the lease term equal to the sum of the fair value of the leased asset and any deferred initial direct costs incurred by the lessor
EXPECTED RETURN ON PLAN ASSETS
The return based on expectations for interest, dividends, and fluctuations in the market value of the fund assets
VESTING PERIOD
The time the employee must remain with the company before exercising the options. Also referred to as service period
T/F - A lease is classified as a capital lease if the lease term is at least 75% of the estimated life for the property.
True
T/F - A stock option plan is generally revalued whenever there is a change in the estimated percentage of options that will be forfeited.
True
T/F - Accounting estimate changes are handled prospectively.
True
T/F - Accounting principle changes are generally handled retrospectively.
True
T/F - Antidilutive securities are excluded from the diluted EPS equation.
True
T/F - Basic EPS must be computed before diluted earnings per share can be properly computed.
True
T/F - For a dealer or manufacturer lessor, the use of a nonoperating lease is preferred because it recognizes financing income and also accelerates revenue recognition in the form of the gross profit on the sale in the year of commencement. Under an operating lease treatment, the lessor only records rental income each year, spreading the revenue flow over the lease term.
True
T/F - For a lessor to classify a lease as a capital lease, collectability of the required minimum lease payments must be reasonably assured.
True
T/F - For an operating lease, the lessee is only required to report rent expense on its income statement.
True
T/F - For share issuances that occur before a stock split or dividend, the retroactive assumption assumes that the split or dividend occurred at the time of the issuance.
True
T/F - Georgio, Inc. decided to move its business from its current location to another larger plant. Management should examine the salvage value of the building in the future and the change in the useful life to see if a change in the depreciation of the current building is warranted.
True
T/F - If a lease transaction is in essence a purchase of an asset with the issuance of debt, then the lessee records both the asset and the liability on the balance sheet.
True
T/F - Retroactive application of stock splits and stock dividends to the weighted−average number of common shares makes EPS comparable for prior and current periods of one entity.
True
T/F - Retrospective changes require restatement of all periods reported in the annual report as if it had been used in those prior years.
True
T/F - Stock options and stock warrants affect only the denominator of the diluted EPS calculation.
True
T/F - Taxable income refers to the amount of income reported on a company's tax return.
True
T/F - The first step in measuring compensation expense from granting employee stock options is to determine the fair value on the date of grant.
True
T/F - The statutory tax rate is the legally imposed rate in a given taxing jurisdiction.
True
T/F - The value of stock options expected to be forfeited reduce compensation expense.
True
T/F - Typically, the lessee will pay for executory costs, expensing them as incurred.
True
T/F - U.S. GAAP requires companies to reconcile the federal statutory income tax rate to the effective tax rate.
True
T/F - Under U.S. GAAP, companies generally use a balance sheet approach to account for temporary differences between book and tax treatment of transactions.
True
T/F - Under U.S. GAAP, when a firm determines that all or a portion of a deferred tax asset is not realizable, they will use a valuation allowance to reduce the balance.
True
T/F - When applying the if−converted assumption, the company assumes conversion at the beginning of the year for a convertible bond or convertible preferred stock outstanding at the beginning of the year.
True
RESTRICTED STOCK PLAN
Under a restricted stock plan, a company awards actual shares in the name of a specific employee, resulting in an allocation of restricted shares to the designated employee
IF-CONVERTED ASSUMPTION
Under the if-converted assumption, a company assumes that both hypothetical and actual conversions of potentially dilutive securities occur: 1. At the beginning of the year, if the potentially dilutive security is outstanding as of the beginning of the year. 2. At the issue date of the dilutive security, if the potentially dilutive security is issued during the year
REVERSES
When a deferred tax asset or liability is reduced, either when a company: 1. Has to pay the taxes it previously recorded as a deferred tax liability, or 2. Receives the benefits of reduced taxes originally reported as a deferred tax asset
Equity-Classified Award
With equity-classified awards, employees have the right to receive shares
SETTLEMENT RATE
the interest rate used to compute the interest on the PBO
