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FisherSU

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Electric General Corp. has reported remarkably consistent earnings over the past 30 years. Despite many business units that are quite sensitive to the general economy, earnings seem to grow at 12% to 15% every year. Assuming that the general economy has been strong fot the past four years, which BS account is most likely higher than normal?

A. Deferred pension cost
B. Deferred taxes
C. Accrued liabilities
D. Accounts receivable


C'mon you soon-to-be IBs and buy-side magicians, this one shoudn't be 2 hard ;>
 
Deferred Taxes due to the increased investment in capital expenditures resulting in growing mismatches between the financial statement depreciation schedules and income tax reporting.

Accounts receivables would also likely grow with the company as sales increase.. and if the economy is good, the company will likely extend more client favorable trade credit policies.
 
pensions, no hit on IS, dirrect adjustment to equity
 
yeah DTL would go up, and Receivables, I'd say.
 
Why would your deferred pension grow as the firm grows / economy grows.

The drivers of the pension are completely different.... did they take on a massive number of new workers... change their policies in favor of workers giving more benefits...

.. not following the pension thinking at all...
 
too hard to say with the limited info in question, i will say B, dont like this question.

how evidence to we have to say that GE is pumping up recievables to meet the number?
 
A large company would need to make large investments to generate serious earnings growth.

I guess their pension would grow, but I would expect it to be "normal".

Go with deferred taxes
 
mcf Wrote:
-------------------------------------------------------
> Why would your deferred pension grow as the firm
> grows / economy grows.
>
> The drivers of the pension are completely
> different.... did they take on a massive number of
> new workers... change their policies in favor of
> workers giving more benefits...
>
> .. not following the pension thinking at all...



Agreed here, thinking pension is growing in line with staff and would therefore be "normal"
 
Hank0414x Wrote:
-------------------------------------------------------
> hey pepp, how many readings to go?

15 more to go. pretty messed here :(
 
LOL, this is gettin just better and better.

My answer was D, since the company would probably lower credit granting criteria during strong economy, since majority of customers are supposedly doing better as well, and book a bit more sales on credit, increasing A/R

but the sad truth my friends is that we would all be lousy CFOs.
 
If you don't pay your pensions liabilities, you have higher earnings, and yes, you admit you have those liabilities to your shareholders by adjusting the comprehensive income. That's what I think.
 
map, leave pension liability adjustments for Level II, u gonna love that stuff.

The answer is - C!

The most common income-smoothing method is to accrue liabilities during good times and reverse the accrual during bad times.
"Be sure to understand the financial statement effects of any type of income manipulation" - Schweser

what about that for an answer?
 
pepp Wrote:
-------------------------------------------------------
> Hank0414x Wrote:
> --------------------------------------------------
> -----
> > hey pepp, how many readings to go?
>
> 15 more to go. pretty messed here :(



Keep on going, if you find yourself running out of time, make sure you atleast look at the summaries at the end of the chapter. Goodluck!
 
But of course:) deferred pensions would not appear on the BS:))
 
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