Financial Accounting, 8th Edition
Financial Accounting, 8th Edition
8th Edition
ISBN: 9780078025556
Author: Robert Libby, Patricia Libby, Daniel Short
Publisher: McGraw-Hill Education
Question
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Chapter 9, Problem 23E

1.

To determine

Identify the amount that will be available in the four years.

1.

Expert Solution
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Explanation of Solution

Future value:

The future value is value of present amount compounded at an interest rate until a particular future date.

Identify the amount that will be available in the four years:

Futurevalue} = Invested (present)value × (Future value factorof $1 at interest rate for time periods)=$58,800×1.36049=$79,997

Therefore, the amount that will be available in the four years is $79,997.

2.

To determine

Prepare journal entry that Mr. A should make on January 1, 2014.

2.

Expert Solution
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Explanation of Solution

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

Savings Account58,800
Cash58,800
(To record the cash deposited by Mr. A in savings account)

(Table 1)

  • Savings account is an asset and there is an increase in the value of an asset. Hence, debit the savings account by $58,800.
  • Cash is an asset and there is a decrease in the value of an asset. Hence, credit the asset by $58,800.

3.

To determine

Compute the total interest for four years.

3.

Expert Solution
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Explanation of Solution

Total interest for four years }(Amount available in four years)  (Amount deposited in savings account)=$79,997$58,800=$21,197

Therefore, the total interest for four years is $21,197.

4.

To determine

Provide the journal entry that Mr. A should make on (a) December 31, 2014 (b) December 31, 2015.

4.

Expert Solution
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Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Accounting rules for journal entries:

To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.

  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Prepare journal entry to record that Mr. A should make on December 31, 2014:

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

Savings Account4,704
Interest revenue (1)4,704
(To record the interest revenue earned during December 31 in first year for deposit made)

(Table 2)

  • Savings account is an asset and there is an increase in the value of an asset. Hence, debit the savings account by $4,704.
  • Interest revenue is a component of stockholder’s equity and there is an increase in the value of revenue and equity. Hence, credit the interest revenue by $4,704.

Working Note:

Interest revenue= (Amount deposited in savings account) ×Interest rate=$58,800×8100=$4,704 (1)

Prepare journal entry to record that Mr. A should make on December 31, 2015:

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

Savings Account5,080
Interest revenue (2)5,080
(To record the interest revenue earned during December 31in second year for deposit made)

(Table 3)

  • Savings account is an asset and there is an increase in the value of an asset. Hence, debit the savings account by $5,080.
  • Interest revenue is a component of stockholder’s equity and there is an increase in the value of revenue and equity. Hence, credit the interest revenue by $5,080.

Working Note:

Interest revenue in second year}(Amount deposited in savings account+Interest earned during first year) ×Interest rate=($58,800+$4,704)×8100=$63,504×8100=$5,080 (2)

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Chapter 9 Solutions

Financial Accounting, 8th Edition

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