On January 1, 2014, Alan King decided to deposit $82,800 in a savings account th

Question

On January 1, 2014, Alan King decided to deposit $82,800 in a savings account that will provide funds 5 years later to send his son to college. The savings account will earn 7 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.)

1.

How much will be available in 5 years?

Prepare the journal entry that Alan should make on January 1, 2014. (record the deposit to savings account january 1, 2014)

What is the interest for the 5 years

Prepare the journal entry that Alan should make on December 31, 2014

and December 31, 2015

Required:

Explanation / Answer

Solution :

1) The amount available in 5 years i.e FV = $82,800 ( 1+0.07) 5

FV of the amount = $ 116,131.28

2)

3) The interest for 5 years = $ 116,131.28 - $ 82,800

The interest for 5 years = $ 33,331.28

4)

Date Details Debit Credit January 1 2014 Deposit to savings account $82,000 January 1 2014 Savings deposit $82,000

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