Which of the Following Is Used as the Equation's Denominator

question 61

Multiple Choice

Which of the following is used as the equation's denominator when computing the accounting rate of return for a capital asset?

• A)Initial investment amount
• B)Average annual operating income from the asset
• C)Total amount invested in the asset
• D)Average net cash flows from the asset

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Definitions:

Bad Debt Expense

The expense recognized when receivables are no longer collectible, reflecting estimated losses from extending credit.

Percentage Rate

A proportion, often expressed as a percent, used to determine the interest to be charged or paid on a financial instrument or the growth rate of an investment.

Reported Earnings

The income stated in a company's financial statements, reflecting the company's performance over a specified period, typically a fiscal quarter or year.

Contra-Asset Account

A contra-asset account is an account used in a company's balance sheet to offset the balance of an associated asset account, reducing the net amount of both accounts.