GAAP requires that all declared policyholder dividends be accrued at the balance sheet date, using actual amount to be paid.

Question

Options

• ATrue
• BFalse

• A
  17% (5)
• B
  83% (25)

Explanation

Option B (False) is correct because GAAP does not require that declared policyholder dividends be accrued using the actual amount to be paid - instead, they are accrued based on the estimated or declared amounts as of the balance sheet date, reflecting the matching principle rather than certainty of the final cash outflow. The distinction matters because the "actual" amount may not be determinable until after the balance sheet date, particularly for participating policies where dividends depend on experience.

Option A is wrong on two counts: first, it mischaracterizes the measurement basis (actual vs. estimated/declared), and second, the broader claim conflates accrual timing with precision of measurement - GAAP requires accrual of the obligation, not a wait for the exact figure.

Memory tip: Think of it as "accrue the commitment, not the check" - GAAP locks in the liability when it's declared/estimated, not when the final dollar amount is confirmed. If you see "actual amount" paired with GAAP accrual requirements, that's a red flag - GAAP works on estimates and best available information, not post-hoc actuals.

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