An Investment of $6000 at the Start of the Year

question 98

Multiple Choice

An investment of $6000 at the start of the year will pay $1000 at the end of the year for a set number of years.What is the minimum number of years these payments must be made for if the investment is to be worthwhile,given that the interest rate is 6%?

• A)6 years
• B)7 years
• C)8 years
• D)9 years
• E)10 years

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Definitions:

Allowance for Doubtful Accounts

A reserve for accounts receivable that may not be collectible and is considered a contra asset on the balance sheet.

Bad Debt Expense

Represents the cost associated with accounts receivable that a company deems uncollectible, affecting the net income on its income statement.

Aging of Accounts Receivable

A process of categorizing accounts receivable based on how long they have been outstanding to estimate potential uncollectible amounts.

Allowance for Doubtful Accounts

An accounting provision made by companies to account for anticipated losses due to customers' failure to pay owed amounts.