On January 1, 2014, John Colon decided to deposit $78,300 in a savings account t

Question

On January 1, 2014, John Colon decided to deposit $78,300 in a savings account that will provide funds 7 years later to send his son to college. The savings account will earn 13 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 7 years? 2)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.) 3)What is the interest for the 7 years? 4)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.) For Number 4 question the ACCOUNT OPTIONS interest expense, interest payable, interest revenue, account payable, cash

Explanation / Answer

1) Amount = $78,300 * FVIA @ 13% for 7 years = $78,300 * 2.3526 = $184,209 2) Jan 1, 2014 Bank a/c ……………………..Dr         78,300                       To Cash a/c #      78,300 (Being deposited in savings bank a/c) 3) Interest for 7 years = $184,209 - $78,300 = $105,909 4) Dec 31, 2014 Interest accrued a/c ……………Dr         10,179                    To Interest revenue a/c      10,179 (Being interest accrued for the year $78,300*1.13(FVIF,13%,1year)-$78,300 Dec 31, 2015 Interest accrued a/c ……………Dr         11,502                    To Interest revenue a/c      11,502 (Being interest accrued for the year $78,300*1.2769(FVIF,13%,1year)-$78,300-$10,179

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