A Company Can Change to a New Method of Accounting

question 146

Multiple Choice

A company can change to a new method of accounting if management can justify that the new method results in

• A)more meaningful financial information.
• B)a higher net income.
• C)a lower net income for tax purposes.
• D)less likelihood of clerical errors.

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Definitions:

Defined Benefit Liability

The present value of the future retirement benefits that an employer has committed to pay to employees, as defined by their pension plan terms.

Projected Benefit Obligation

An estimate of the total amount of benefits, both vested and non-vested, that a company expects to provide to employees in pension plans.

Prior Service Cost

The cost of additional benefits granted to employees in a pension plan amendment, attributed to employee service in prior periods.

Actuarially Determined

Usually pertaining to pension schemes, insurance, or finance, calculated based on actuarial methods and assumptions about future events.