The "Cookie Jar Reserves" Earnings Management Technique Involves ________

question 58

Multiple Choice

The "cookie jar reserves" earnings management technique involves ________.

• A)increasing earnings in the current period in anticipation of significant future decreases
• B)decreasing losses in the current period to allow the firm to show increased net income in the future
• C)increasing earnings so as to increase managers' compensation
• D)increasing losses in the current period to allow the firm to show increased net income in the future

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Definitions:

Insurance

A financial product sold by insurance companies to safeguard against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the consumption of the asset's value over time.

Direct Materials Variances

The difference between the actual cost of direct materials used in production and the expected (standard) cost of those materials.

Fixed Overhead

Regular, unchanging costs incurred by a business, regardless of its level of production or sales, such as rent or salaries.