E9-23 Computing Deposit Required and Accounting for a Single-Sum Savings Account
ID: 2424656 • Letter: E
Question
E9-23 Computing Deposit Required and Accounting for a Single-Sum Savings Account (Supplement C)
On January 1, 2014, Alan King decided to deposit $85,800 in a savings account that will provide funds 4 years later to send his son to college. The savings account will earn 8 percent, which will be added to the fund each year-end. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Here are links to the tables for FV, PV, FVA & PVA:
FV http://lectures.mhhe.com/connect/0077516958/fv.jpg
PV http://lectures.mhhe.com/connect/0077516958/pv.jpg
FVA http://lectures.mhhe.com/connect/0077516958/fva.jpg
PVA http://lectures.mhhe.com/connect/0077516958/pva.jpg
How much will be available in 4 years?
Prepare the journal entry that Alan should make on January 1, 2014. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
What is the interest for the 4 years?
Prepare the journal entry that Alan should make on December 31, 2014 and December 31, 2015. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
On January 1, 2014, Alan King decided to deposit $85,800 in a savings account that will provide funds 4 years later to send his son to college. The savings account will earn 8 percent, which will be added to the fund each year-end. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Here are links to the tables for FV, PV, FVA & PVA:
FV http://lectures.mhhe.com/connect/0077516958/fv.jpg
PV http://lectures.mhhe.com/connect/0077516958/pv.jpg
FVA http://lectures.mhhe.com/connect/0077516958/fva.jpg
PVA http://lectures.mhhe.com/connect/0077516958/pva.jpg
Explanation / Answer
1) Since the deposit is in savings account 85800 after 4 years at 8 % therefore we have to find the future value interest factor for 4 years 8% willl be = 1.3605 therefore the amount after 4 years would be = 85800* 1.3605 = $116730 will be available after 4 years.
2) there would only be a cash out entry ie cash deposit entry as
Deposit A/c 85800
To Cash A/c 85800
Being cash deposited on 1st january 2014
3) The interest amount in 1 year ie 31st december 2014 would be = 85800* 8% = 6864
therefore the entry would be
interest accrued A/c 6864
To interest income 6864
Interest amount after 2 years ie 31st december 2015 would be 85800*8% = 6864
for 2nd year interest calculation would be compounded therefore interest would be on 85800+6864
therefore it would be = 7413 therefore the total interest after 2 years would be 6864+7413 =14277
Entry would be
Interest accrued 7413
To interest income 7413
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