On January 1, 2014, Alan King decided to deposit $58,800 in a savings account th

Question

On January 1, 2014, 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 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.) Required: 1. How much will be available in four 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.) What is the interest for the four years? Prepare the journal entry that Alan should make on December 31, 2014 and December 31, 2015.

Explanation / Answer

Answer a. Year Beginning Balance Interest @ 8% Ending Balance A B = A X 8% C = A + B 2014    58,800.00           4,704.00    63,504.00 2015    63,504.00           5,080.32    68,584.32 2016    68,584.32           5,486.75    74,071.07 2017    74,071.07           5,925.69    79,996.75 Total         21,196.75 Answer b. Journal Entry Date Particulars Dr. Amt. Cr. Amt Jan-01 Investment                                           Dr.    58,800.00 2014    To Cash    58,800.00 Answer d Journal Entry Date Particulars Dr. Amt. Cr. Amt Dec-31 Accrued Int. - Investment               Dr.      4,704.00 2014    To Interest - Revenue      4,704.00 Dec-31 Accrued Int. - Investment               Dr.      5,080.32 2015    To Interest - Revenue      5,080.32

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