Question

On January 1, Alan King decided to deposit $58,900 in a savings account that will provide funds four years later to send his son to college. The savings account will earn 7% 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 Any interest earned will be added to the fund at year-end (rather than withdrawn).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.)

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 answer to nearest whole dollar.)

Answer 1

1)	Amount$
Present Value of Deposits	58,900
Number of Years	4
Interest Rate Compounded annually	7%
Future Value : 58,900*(1+0.07)^4	77,206

2) Joural Entry at Jan 1
Particulars	Debit$	Credit$
Saving Bank Account/ Investment -FD	58,900
Cash		59,000
( Being amount deposited in saving bank/Investment account)

Total Interest for the 4 years = 77,206 - 58,900 = 18,306

4) Journal entry at end of Year 1 and Year 2
Particulars	Debit$	Credit$
December 31 first year
Saving Bank Account ( 58,900 * 7%)	4,123
Interest Income		4,123
( Being interest accrued at end of year 1)
December 31 Second year
Saving Bank Account ( 58,900+4123 * 7%)	4,412
Interest Income		4,412
( Being interest accrued at end of year 2)