Question

2.6. Which of the following statements is false? A Prior service cost is amortized over the average remaining service life of the employees By Net gains/losses from a defined benefit pension plan have to be amortized over the average remaining service life of the employees. C) The amortization of prior service cost increases pension expense. D) The amortization of prior service cost decreases net income. 2.7. On October 1, the board of directors declares a cash dividend to be paid October 30. The date of record is October 15. Which of the following investors is NOT entitled to receive the declared dividend? A) Anna who sells shares on October 16. By Barry who purchases shares on October 13. C) Chris who purchases shares on October 15. D) Doug who sells shares on October 15. 2.8. Which of the following is not a potential component of pension expense? Al expected return on plan assets. B) amortization of prior service cost. $) amortization of gains and losses from a defined benefit pension plan. D) Retiree benefits paid. 2.9. The balance of the plan assets can change due to A) periodic service cost, accrued interest, revised estimates, plan amendments, and the payment of benefits. B) periodic service cost, accrued interest, revised estimates, employer contributions, and the payment of benefits. C) periodic service cost, employer contributions, and the payment of benefits. Dinvestment returns, employer contributions, and the payment of benefits.

Can someone check if these are correct? And if not, which is the right choice and why?

Answer 1

Question number 2.6, 2.8 & 2.9 are correct, but Question 2.7 is incorrect due to the following reason:-

In case of Dividend payment, the record date for dividend is considered to identify the shareholders who will received the dividends. As per normal norms in any country, the shareholders who are holding the shares as on Ex-dividend Date, will be entitled to receive the dividend. Ex-Dividend date is generally one-two days prior to Record Date due to T+1/T+2 system of Settlement.

So, in the above question the Ex-Dividend date will be either 13th October (T+2) or 14th October (T+1), hence any shareholder holding the share on 13th October will be entitled to receive the dividend.

Hence the correct answer would be as follows:-

(C) Chris, who purchases shares on October 15th

Because in all other 3 cases, the shareholders will be holding shares as on 13th/14th October.

Hope this clarifies !!