Which of the following may indicate a company is setting up a cookie jar reserve this year?

Question

Quizplus · Accepted Answer

Option A indicates that the company is setting up a cookie jar reserve. A larger estimated warranty liability than in prior years could indicate that the company is setting aside more money to fund warranties in the future, even though it may not be necessary. This practice can help the company boost future earnings when it releases money from the reserve. Option B indicates that the company is using less money to fund warranties, which would not be consistent with setting up a cookie jar reserve. Option C relates to cash flow, which does not necessarily indicate a cookie jar reserve. Option D may be an indication of a cookie jar reserve, but its absence does not rule out the possibility that a company is setting up a reserve.

Which of the Following May Indicate a Company Is Setting