Share-based comp

31. Why do owners/investors like share-based compensation plans?

1. Paying employees with shares doesnt use cash. Sometimes it is even a source of cash.
2. Employees will take too much risk as they begin to think like owners.
3. Owners want to give employees a bigger voice in the board room.

32. What would understate earnings for a company that uses stock options to compensate employees?

1. Over-estimate the volatility of the underlying (company) stock.
2. Under-estimate the life of stock options.
3. Under-estimate the volatility of the underlying (company) stock.

33. Synco Technologies is not publicly traded and has only one owner, the founder. Regardless, Synco is a major player in the internet of things industry. What could Synco add to their employment compensation package that would allow employees to participate in the upside of this exciting growth story?

1. Stock-based compensation.
2. Phantom stock
3. SARs

34. What form of share-based compensation produces cash for the company?

1. SARs
2. Phantom Stock
3. Stock options
4. Stock grants

35. If a company consistently buys back shares to offset option creep, what type of adjustment to the statement of cashflows might an analyst make?

1. remove buyback from CFF and include in CFO
2. remove buyback from CFF and include in CFI
3. remove buyback from CFO and include in CFO

Earnings quality and integration

36. Freestone is a highly leverage airline company. What leasing arrangements might they enter into to manage leverage ratios?

1. Operating leases
2. Financing leases
3. Lease-back arrangements with customers.

37. Freestone has a colorful and attractive website to market their airplane tickets. They will even help customers book hotel rooms and rent cars. They offers multiple 3^rd-party payment options and accept bitcoin. They also sell tickets to locations that they dont service - by arrangement with partner airlines. What issues might an analyst be concerned with when analyzing their revenue recognition policies?

1. Reporting gross revenue when they should report net revenue
2. Receiving payment from customers prior to providing service.
3. Provisions for doubtful accounts, bartering services and uncollectable accounts receivable.

38. Contoured-earnings that are sculpted to meet investor expectations are most likely driven by the:

a. Accruals element of earnings

b. Cash flow element of earnings.

c. Conservative revenue recognition practices of the company.

39. Which quantitative tool to predict earnings manipulation is based on regression and historical data?

1. Altmans Z-Score
2. Beneish M-Score
3. Accruals ratio (balance sheet approach)
4. Accruals ratio (cashflow statement approach).

40. What is an indicator of a possible change in revenue recognition policies?

1. Accounts receivable relationship with revenue changes.
2. An increase in deferred tax liabilities due to amortization.
3. A decrease in depreciation expense.