am i stupid, or is the second question asking us what would be the best way for them to cheat?
CFAI is teaching us how to best handle the UAW.
New questions both off schweser 10 minutes ago… shocker - the site’s actually working! For the first - I was also surprised that the answer wasn’t D. It made me waste time thinking about the definition of ‘law’! For the 2nd: A Florinpop- I though about mgmt short-termism and their pay packets… so got it wrong too. Kendall is negotiating a labor contract, seeking regulatory relief, and renegotiating credit terms. All actions are made easier if earnings are low. Executives are compensated with stock options, suggesting some pressure to boost earnings. But with three ongoing activities benefiting from lower earnings, it would seem that Kendall executives would be best served by understating earnings. With that in mind, treating all leases as operating leases will lower perceived leverage. Early revenue recognition and the lengthening of equipment lives will boost earnings. Growth projections will have no effect on earnings in the short run, though aggressive projections could provide an incentive for management to overstate earnings in the future.
I agree with the answer, although in their explanation, I don’t understand why you would want earnings low to renegoiate credit… lower earnings would decrease all of your coverage ratios…