Why are overstated reserves sometimes referred to as "cookie jar" reserves?
a. Companies involved in mergers or acquisitions overstate their liabilities by creating cookie jar reserves.
b. The reserve is commonly created during bad times or when routine senior management changes occur.
c. Some companies may require customers to make deposits for future
goods or services that can be intentionally recorded as revenue, which is like money stored in a cookie jar.
d. Like money stored in a cookie jar, overstated revenues represent a stash of accounting earnings that can be used to bolster the perceived performance of the company in the future.
d
FEEDBACK: a. Incorrect.
b. Incorrect.
c. Incorrect.
d. Correct.
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