Question

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. he 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.

Answer 1

Answer:

The correct answer is letter "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.

Explanation:

The secret reserve is a portion of the assets of a company that the organization overstated or understated. This is usually done when a company wants to make believe its competitors their financial statements are better than what they are. Though, those hidden assets can help a company to improve from an adverse situation if given at a certain period. That is the reason why secret reserves are compared to "cookie jars" where the money is saved as a precaution to face hardship.