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Basic Question 5 of 7
When a company sells a product with a warranty, it must recognize the estimated expense of honoring that warranty at the same time that it books the revenue. A company might conclude that it incurs warranty costs of $10,000 for every $1 million in sales. If it's having a particularly profitable year, it might decide to recognize a $30,000 warranty expense per $1 million in sales, just to be safe. This practice is commonly referred to as ______.
B. cookie jar reserve accounting
C. big-bath accounting
A. conservative accounting
B. cookie jar reserve accounting
C. big-bath accounting
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Learning Outcome Statements
describe a spectrum for assessing financial reporting quality
explain the difference between conservative and aggressive accounting
CFA® 2025 Level I Curriculum, Volume 3, Module 10.