On January 1, 2010, Alan King decided to transfer an amount from his checking ac

Question

On January 1, 2010, Alan King decided to transfer an amount from his checking account into a savings account that later will provide $80,000 to send his son to college (four years from now). The savings account will earn 8 percent, which will be added to the fund each year-end. Requirement 1: How much must Alan deposit on January 1, 2010? Alan must deposit $ Requirement 2: Give the journal entry that Alan should make on January 1, 2010, to record the transfer. Date General Journal Debit Credit Jan. 1 2010 Requirement 3: What is the interest for the four years? Interest $ Requirement 4: Give the journal entry that Alan should make on (a) December 31, 2010, and (b) December 31, 2011. Date General Journal Debit Credit Dec. 31 2010 Dec. 31 2011

Explanation / Answer

1) PV = 80,000 / 1.08^4 = 58802.38 2) journal entry, debit from cheking. credit to sales. 3 Interest is 80,000 - 58,802.38 = 21,197.62 4) journal entries are Interest Credited. for dec31 2010 its 4704.19 for dec31 2011 its 5080.53

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