Question 1

TechSolutions Inc. reports Net Income of $500,000. The following items are included in the calculation of Net Income:
- Depreciation Expense: $120,000
- Amortization of Intangibles: $50,000
- Interest Expense: $80,000
- Income Tax Expense: $150,000
- Stock-Based Compensation Expense: $60,000
- Restructuring Costs: $40,000
- Unrealized Gain on Trading Securities: $10,000

Calculate the company's Adjusted EBITDA, assuming management defines it as EBITDA adjusted for stock-based compensation, restructuring costs, and unrealized gains/losses.

Accepted Answer

Step 1: Calculate EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization. Step 2: Apply specific adjustments (Add back expenses, subtract gains).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Adding the gain instead of subtracting it; forgetting to add back taxes or interest.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 2

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