State and Local Governments

question 19

Multiple Choice

State and local governments

• A)accurately account for their pension liabilities.
• B)understate the present value of their pension liabilities by using a discount rate that is too high.
• C)understand the present value of their pension liabilities by using a discount rate that is too low.
• D)overstate the present value of their pension liabilities by using a discount rate that is too low.

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Definitions:

Fair Value Method

An accounting approach that assesses and assigns a price to a company's assets and liabilities based on current market value.

Effective Interest Method

A method of calculating the amortized cost of a bond or loan on the basis on an effective interest rate rather than the nominal rate.

Cash Interest

Interest payments made in cash to creditors or bondholders during a specific period.

Trading Securities

Shares or bonds that a company holds with the intention of selling them within a short period for a profit.