A Company Wishes to Make Annual Contributions into a Fund

question 65

Multiple Choice

A company wishes to make annual contributions into a fund intended to retire $700,000 in debt five years from now.The amount to contribute each year equals $700,000

• A)divided by the appropriate future value of an ordinary annuity factor.
• B)times the appropriate present value of an ordinary annuity factor.
• C)times the appropriate future value of an ordinary annuity factor.
• D)divided by the appropriate present value of an ordinary annuity factor.

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Definitions:

Allowance Method

An accounting technique that estimates and anticipates uncollectible accounts receivable and bad debts by establishing an allowance for doubtful accounts.

Bad Debts Expense

An expense recognized on a company’s income statement, representing the amount of accounts receivable that is not expected to be collected due to customers' inability to fulfill financial obligations.

Uncollectibles

Accounts receivable that a company has determined are unlikely to be collected and writes off as a bad debt expense.

Allowance Method

An accounting technique that anticipates and adjusts for potential future bad debts or credit losses.