Preparing for the midterm

Week 4
 GENERAL INSTRUCTIONS
This is an open-notes exam. You are allowed to consult the course material (i.e., the material uploaded to Canvas and
the textbook) before answering the questions. You are not allowed to use any other material (e.g., internet searches).
You are not allowed to discuss or share the exam with anyone (including students who have already taken the exam
and people who are not even enrolled in the class) until after Thursday October 28, 2021.

You have 3 hours to complete this exam (from download to upload on Canvas). The Canvas timer will start once you
click ‘Click Here to Access Midterm’ on the Canvas page for week 5. There are 5 problems, many of which have
multiple parts. Be sure you have all 16 pages of the exam, including this cover page.

In order to ensure equity, no questions will be answered during the exam. If you believe a question is unclear, state
whatever assumptions you feel you need to make. However, the assumptions you make must be reasonable and
consistent with the facts of the problem. Apply US GAAP unless specifically asked to do otherwise.

After completing the exam, upload this document as a PDF file (if you select to use the excel template, please refer to
the instructions in the excel file). If you have problems uploading the completed exam, email the file to me:
hans.christensen@chicagobooth.edu.

REQUIRED WORK AND EXPLANATION

To receive partial credit you must show your work in sufficient detail so that I can follow your thought process. If
your final answer is correct, you will receive all points regardless of how much work you show.
Week 5: From Sunday October 24 to Wednesday October 27
What will be on the midterm?
§ Accounting for income taxes (weeks 2 & 3)
§ Two questions
§ Stock-based compensation (weeks 3 & 4)
§ Two questions
§ Convertible debt (week 4)
§ One question
§ Earnings per share (Week 4)
§ One question

§ Similar to practice exams on Canvas (but not identical)

§ Limited multiple choice because that is too easy with the book
Accounting for income taxes
§ Understand disclosures
§ Permanent versus temporary difference
§ What creates DTAs/DTLs
§ How to calculate effect tax rates (ETRs)
§ What affects the ETRs
§ Effect of tax rate changes
§ Net operating losses and valuation allowances
§ Pro forma adjustments
Stock-based compensation
§ ESOs & RSU
§ What happens over vesting period and at exercise
§ What matters for fair value estimates at a high level
§ Tax accounting
§ ISO vs. NSO
§ What creates DTA and how much
§ Tax consequence at exercise
Convertible debt & EPS
§ Accounting treatment for convertible debt
§ Difference between settlement in cash vs. in stock
§ Relative to “straight” debt

§ EPS
§ Calculate basic EPS and diluted EPS
§ When do we make adjustments and when do we not make
adjustments
How to prepare for the midterm
§ Don’t forget to do problems
§ There are no substitutes for solving problems in accounting
§ Don’t just look over the solutions
§ Review session Saturday at 1pm on Zoom
§ Midterm from Fall 2020
§ Recorded

§ You are also welcome to email me questions or set up a time

to meet with me
§ But read and do some recommended problems before you set up a
meeting
Rule number 1
§ Do not panic no matter what goes wrong
§ There is nothing we cannot fix afterwards

§ My email: hans.Christensen@chicagobooth.edu
§ During regular class hours, I will be in front of the computer