Practice Test Geeks(CEP) Certified Equity Professional Practice Test
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Financial Analysis & Reporting Flashcards

7 cards from real CEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. Under ASC 718, which method is required for estimating the fair value of employee stock options granted by public companies?

    Answer: Option-pricing model such as Black-Scholes or lattice model

    ASC 718 requires public companies to use an option-pricing model (e.g., Black-Scholes or a lattice/binomial model) to estimate fair value of stock options.

  2. A company grants RSUs with a cliff vesting schedule. How is the stock-based compensation expense recognized over the vesting period?

    Answer: Ratably (straight-line) over the requisite service period

    For awards with cliff vesting, straight-line recognition over the requisite service period is the default method under ASC 718.

  3. Which input to the Black-Scholes model reflects the market's expectation of future stock price volatility?

    Answer: Expected volatility

    Expected volatility captures how much the stock price is expected to fluctuate and is a key input to option fair value under Black-Scholes.

  4. When an employee forfeits unvested stock options before the vesting date, what is the accounting treatment?

    Answer: Previously recognized expense is reversed; cumulative expense reflects only vested awards

    Forfeitures result in reversal of previously recognized expense so that cumulative compensation cost equals the fair value of awards that actually vest.

  5. What effect does an increase in expected stock option term have on the Black-Scholes option value?

    Answer: Increases value because there is more time for the stock to appreciate

    A longer expected term gives the option more time for the underlying stock to move favorably, increasing its fair value.

  6. For ESPP offerings with a look-back provision, what is the maximum discount under Section 423 that companies can offer without triggering tax at grant?

    Answer: 15%

    Section 423 qualified ESPPs may offer up to a 15% discount from the lower of the stock price at the beginning or end of the offering period.

  7. When stock-based compensation is included in a company's income statement, which line item is typically NOT affected?

    Answer: Interest expense

    Stock-based compensation is an operating expense allocated across functional categories (COGS, R&D, SG&A) but does not affect interest expense, which is a financing cost.