1.Roberto Perez, CFA is the Chief Financial Officer for Home Stores, Inc., a large home improvement retailer with stores located across the U.S. Home Stores is preparing for a secondary stock offering to secure the necessary capital to pursue an aggressive expansion campaign. Perez has received a directive from his boss to make every legitimate effort to present Home Stores’ upcoming financial statements in the best possible light. Perez determines that certain assumptions in the pension plan can be changed to fulfill this request. Which of the following pension plan assumptions can be changed by a firm to manipulate its reported results?

2.Peak Productions is a publicly traded company that manufactures consumer electronics products in the U.S. The company has been in operation nearly fifty years, and has a considerable pension plan liability on its financial statements. Peak has a well-deserved reputation among analysts of utilizing aggressive accounting practices with regards to its pension plan. Which of the treatments of the following actuarial assumptions is the best example of aggressive accounting for a pension plan?

A)   A high compensation growth rate.

B)   A low expected rate of return.

C)   A high discount rate.

D)   A high calculated projected benefit obligation (PBO).

3.Wes Livingston is the founder and CEO of Bigwell Corporation, an oil and gas concern in the U.S. Livingston is interested in Bigwell being acquired by a larger competitor, and wants to have his company’s financial statements appear as attractive as possible to a potential suitor. In order to decrease the accumulated benefit obligation (ABO) of the company’s pension plan, which of the following changes in actuarial assumptions could be made?

A)   Decrease the rate of compensation increase.

B)   Increase the expected rate of return.

C)   Decrease the discount rate.

D)   Increase the discount rate.

4．Wonderful Manufacturing has implemented a change in its pension plan, effective January 1, 2007. The change will increase the future benefits for all of its current employees. Which of the following is the most likely effect on the company’s financial statements of this change in promised benefits under U.S. GAAP standards?

A)   The net pension liability will increase immediately by the projected increase in pension benefits due to employees.

B)   The pension expense for the next reporting period will increase by the projected increase in pension benefits due to employees.

C)   An unrecognized prior service cost does not appear immediately in the financial statements but is amortized over the expected remaining service life of the affected employees.

D)   There will be no impact on the company’s financial statements until the first eligible employee actually retires and begins receiving the increased benefits.

5．In order to decrease the projected benefit obligation (PBO) of a pension plan, which of the following changes in actuarial assumptions can be made to yield the desired result?

A)   Increase the expected rate of return.

B)   Decrease the rate of compensation increase.

C)   Decrease the discount rate.

D)   Decrease the expected rate of return.

6．The Board of Directors of Prime Bank has asked management to make changes in the accounting of its pension plan obligations in order to decrease the reported service cost. Management determines that there are two changes in actuarial assumptions that will result in a lower service cost. Which of the following pairs of changes in actuarial assumptions will management most likely propose? Prime Bank can either:

A)   decrease the rate of compensation increase or increase the expected rate of return.

B)   increase the discount rate or decrease the rate of compensation increase.

C)   decrease the discount rate or increase the expected rate of return.

D)   increase the rate of compensation or increase the discount rate.

[此贴子已经被作者于2008-4-18 19:17:42编辑过]

1.Roberto Perez, CFA is the Chief Financial Officer for Home Stores, Inc., a large home improvement retailer with stores located across the U.S. Home Stores is preparing for a secondary stock offering to secure the necessary capital to pursue an aggressive expansion campaign. Perez has received a directive from his boss to make every legitimate effort to present Home Stores’ upcoming financial statements in the best possible light. Perez determines that certain assumptions in the pension plan can be changed to fulfill this request. Which of the following pension plan assumptions can be changed by a firm to manipulate its reported results?

A) decreased discount rate             no effect on expected return

B) increased expected rate of return      decreased service cost

C)decreased rate of compensation increase      decreased service cost

D) increased rate of compensation increase      increased expected return

The correct answer was C)

The rate of compensation increase is the expected average annual increase in employee compensation. If the rate of increase is lowered, reported results will be improved due to a decreased service cost and a decreased interest cost. Both will contribute to an overall lower pension expense.

2.Peak Productions is a publicly traded company that manufactures consumer electronics products in the U.S. The company has been in operation nearly fifty years, and has a considerable pension plan liability on its financial statements. Peak has a well-deserved reputation among analysts of utilizing aggressive accounting practices with regards to its pension plan. Which of the treatments of the following actuarial assumptions is the best example of aggressive accounting for a pension plan?

A)   A high compensation growth rate.

B)   A low expected rate of return.

C)   A high discount rate.

D)   A high calculated projected benefit obligation (PBO).

The correct answer was C)

The assumption of a high discount rate will result in a lower pension liability and almost always a lower pension expense. The more aggressive the actuarial assumptions for a pension plan are, the lower the quality of earnings for the firm.

3.Wes Livingston is the founder and CEO of Bigwell Corporation, an oil and gas concern in the U.S. Livingston is interested in Bigwell being acquired by a larger competitor, and wants to have his company’s financial statements appear as attractive as possible to a potential suitor. In order to decrease the accumulated benefit obligation (ABO) of the company’s pension plan, which of the following changes in actuarial assumptions could be made?

A)   Decrease the rate of compensation increase.

B)   Increase the expected rate of return.

C)   Decrease the discount rate.

D)   Increase the discount rate.

The correct answer was D)

Increasing the assumed discount rate of a pension plan will result in lower pension liabilities, thus decreasing both the ABO and the projected benefit obligation (PBO).

4．Wonderful Manufacturing has implemented a change in its pension plan, effective January 1, 2007. The change will increase the future benefits for all of its current employees. Which of the following is the most likely effect on the company’s financial statements of this change in promised benefits under U.S. GAAP standards?

A)   The net pension liability will increase immediately by the projected increase in pension benefits due to employees.

B)   The pension expense for the next reporting period will increase by the projected increase in pension benefits due to employees.

C)   An unrecognized prior service cost does not appear immediately in the financial statements but is amortized over the expected remaining service life of the affected employees.

D)   There will be no impact on the company’s financial statements until the first eligible employee actually retires and begins receiving the increased benefits.

The correct answer was C)

In accordance with U.S. GAAP standards, a plan amendment that results in an increase in the projected benefit obligation (PBO) creates an unrecognized service cost that is amortized over time as an increase in pension expense.

5．In order to decrease the projected benefit obligation (PBO) of a pension plan, which of the following changes in actuarial assumptions can be made to yield the desired result?

A)   Increase the expected rate of return.

B)   Decrease the rate of compensation increase.

C)   Decrease the discount rate.

D)   Decrease the expected rate of return.

The correct answer was B)

A decrease in the rate of compensation increase will lower future pension payments and in turn, lower the PBO.

6．The Board of Directors of Prime Bank has asked management to make changes in the accounting of its pension plan obligations in order to decrease the reported service cost. Management determines that there are two changes in actuarial assumptions that will result in a lower service cost. Which of the following pairs of changes in actuarial assumptions will management most likely propose? Prime Bank can either:

A)   decrease the rate of compensation increase or increase the expected rate of return.

B)   increase the discount rate or decrease the rate of compensation increase.

C)   decrease the discount rate or increase the expected rate of return.

D)   increase the rate of compensation or increase the discount rate.

The correct answer was B)

An increase in the discount rate will result in the present value of the benefits during that year decreasing, resulting in a lower service cost. Using a lower rate of compensation increase will yield lower future pension benefits owed, and thus a lower service cost.