QUESTION: 1765

The contents of the section of the annual report entitled "Management's Discussion and Analysis" (MD&A) are

mandated by regulations of the SEC.
mandated by pronouncements of the Financial Accounting Standards Board (FASB).
reviewed by independent auditors.
mandated by regulations of the Internal Revenue Service.
none of these answers.

Answer(s): A

Explanation:

The contents of the MD&A section are mandated by the SEC and not FASB.

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QUESTION: 1766

An employee's pension payments are based on his salary and length of service. He does not bear the risk of the pension size being affected by market performance. He is enrolled in the:

defined benefits plan.
defined contribution plan.
defined pension plan.
employee pension benefits plan.

Answer(s): A

Explanation:

In a defined benefit pension plan, the retirement benefits are "predefined." The employer commits to providing the benefits regardless of the performance of the pension plan. Thus, in this plan, the risk of pension plan performance is borne by the employer and not the employee.

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QUESTION: 1767

In computing EPS, the equivalent number of shares of convertible preferred stock is added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is preferred as to dividends, which amount should then be added as an adjustment to the numerator (earnings available to common shareholders)?

Annual preferred dividend.
Annual preferred dividend times (100% minus the income tax rate).
Annual preferred dividend divided by the income tax rate.
No adjustment should be made.
Annual preferred dividend times the income tax rate.

Answer(s): A

Explanation:

If a capital structure has convertible preferred stock with a dilutive effect on EPS, the "if-converted" method is used. This method assumes the conversion of the preferred stock occurred at the beginning of the accounting period or at issuance, if later. The annual preferred dividend is added back to earnings available to common shareholders.

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QUESTION: 1768

If a company estimates that its expected return on pension plan assets will increase to 9.5% from 9.0% this would be considered ________.

an extraordinary gain
a change in accounting estimate
a prior period adjustment
a change in accounting principle

Answer(s): B

Explanation:

Such a change is a change in accounting estimate and disclosure is required of the effect on both net income and income before extraordinary items for the current period.

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QUESTION: 1765

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QUESTION: 1766

Explanation:

QUESTION: 1767

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QUESTION: 1768

Explanation: