Computing Future Values: Deposit Required and Accounting for a Single-Sum Saving
ID: 2569552 • Letter: C
Question
Computing Future Values: Deposit Required and Accounting for a Single-Sum Savings Account LO 9-7
On January 1, Alan King decided to deposit $58,800 in a savings account that will provide funds four years later to send his son to college. The savings account will earn 8% annually. Any interest earned will be added to the fund at year-end (rather than withdrawn). (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)
Required:
1. How much will be available in four years? (Round your answer to nearest whole dollar.)
2. Prepare the journal entry that Alan should make on January 1. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
-Record the deposit to the savings account on January 1.
3. What is the total interest for the four years? (Round your answer to nearest whole dollar.)
4. Prepare the journal entry that Alan should make on December 31 of the first year and December 31 of the second year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest whole dollar.)
-Record the appropriate entry on December 31, Year 1.
-Record the appropriate entry on December 31 Year 2.
Explanation / Answer
1.
The amount 'a' available after 'n' years of a sum 'p' saved now at a rate of interest 'r' is
a= p(1+r)^n
For our case a = 58,800 (1+0.08)^4 = 58,800 x 1.36 = 79,997.
2.
The journal entry ot be made on January 1 is
3. Total interest for four years = Amount available after four years - Initial deposit = $79,997 - $58,800 = $21,297
4.
Amount credited after one year = 58,800 x 1.08 = 63,504 , Interest for the first year = 63,504 - 58,800 = $4,704.
Amount credited after two years = 63,504 x 1.08 = 68,584. Interest for the second year = 68,584 - 63,504 = $5,084
Journal entries for the above interest receipts is
Date Account Debit Credit Jan.1 Desposit account 58,800 Cash 58,800 (To record deposit made insavings account)Related Questions
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