Question 1

TechStart Inc. reports Net Income of $500,000. The income statement includes:
- Depreciation & Amortization: $120,000
- Interest Expense: $80,000
- Income Tax Expense: $150,000
- Stock-based Compensation: $50,000
- Gain on Sale of Equipment: $20,000
- Unrealized Loss on Available-for-Sale Securities (OCI): $10,000

Calculate the Adjusted EBITDA, assuming management defines it as EBITDA adjusted for non-cash stock compensation and non-recurring gains/losses.

Accepted Answer

Start with Net Income. Calculate EBITDA (add back Interest, Taxes, Depreciation, Amortization). Then apply specific adjustments: add back non-cash expenses (Stock Comp), subtract non-recurring gains (Gain on Sale). Ignore OCI items as they are not in Net Income.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Adjusting for OCI items; adding gains instead of subtracting; forgetting to add back taxes or interest.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 3

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