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Tim Gresham, CFO of Alpha Logistics is concerned about changes in the business environment which could lead to Alpha violating some of the covenants of their outstanding debentures. Specifically Gresham is concerned about leverage and profitability ratios. Gresham reviews Alpha’s most recent financial statements and decides that changing the assumptions for the company’s defined benefit pension plan may provide some relief in the short-run. Alpha reports under U.S. GAAP.
Which of the following changes in the pension plan’s assumptions would most likely lead to lower reported leverage and higher reported profitability? A. Increasing the discount rate. B. Increasing expected return on plan assets. C. Increasing the growth rate in compensation expense. |