Chapter 9, Problem 24E

1.

To determine

Provide journal entry for the deposit in savings account at the end of Year 1.

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 for the deposit in savings account at the end of Year 1:

Date	Account Titles and Explanation	Debit (Amount in $)	Credit (Amount in $)
	Savings Account	2,000
	Cash		2,000
	(To record the cash deposited made in savings account at the end of Year1)

(Table 1)

• Savings account is an asset and there is an increase in the value of an asset. Hence, debit the savings account by $2,000.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the asset by $2,000.

2.

To determine

Identify the balance in the savings account at the end of 10^th year.

Explanation of Solution

Future value:

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

 Annuity:

 An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.

Determine the balance in the savings account at the end of 10^th year:

$\begin{array}{c}\text{Balance amount = Amount deposited }\times \left(\begin{array}{l}\text{Future value of annuity for}\\ \text{ 10 th year at 9\% interest}\end{array}\right)\\ =\$2,000\times 15.19293\\ =\$30,386\end{array}$

Therefore, the balance in the savings account at the end of 10^th year is $30,386.

3.

To determine

Identify the interest earned on the 10 deposits.

Explanation of Solution

Identify the interest earned on the 10 deposits:

$\begin{array}{c}\begin{array}{l}\text{Total Interest earned on the}\\ \text{ 10 deposits }\end{array}\}\text{=}\left(\begin{array}{l}\text{Balance amount in saving }\\ \text{account at the end of 10th year}\end{array}\right)-\left(\begin{array}{l}\text{Amount deposited }\times \\ \text{Total interest period}\end{array}\right)\\ =\$30,386-\left(\$2,000\times 10\text{years}\right)\\ =\$30,386-\$20,000\\ =\$10,386\end{array}$

Therefore, the total interest earned on the 10 deposits is $10,386.

4.

To determine

Calculate the amount of interest revenue the fund earned in second year and in third year.

Explanation of Solution

Calculate the amount of interest revenue the fund earned in second year:

$\begin{array}{c}\text{Interest revenue for second year= }\left(\begin{array}{l}\text{Amount deposited in }\\ \text{savings account}\end{array}\right)\times \text{Interest rate}\\ \text{=\$2,000}\times \frac{9}{100}\\ =\$180\end{array}$

 Calculate the amount of interest revenue the fund earned in third year:

$\begin{array}{c}\text{Interest revenue for third year= }\left(\begin{array}{l}\text{Amount deposited in savings account}\\ \text{ in second year+ third year+interest}\\ \text{ revenue earned during second year}\end{array}\right)\times \text{Interest rate}\\ \text{=}\left(\text{\$2,000+\$2,000+\$180}\right)\times \frac{9}{100}\\ =\$4,180\times 0.09\\ =376\end{array}$

Therefore, the amount of interest revenue earned during the second year is $180 and third year is $376.

5.

To determine

Prepare journal entries at the end of second and third year for the deposit made in savings account.

Explanation of Solution

Prepare journal entry to record entries at the end of the second year:

Date	Account Titles and Explanation	Debit (Amount in $)	Credit (Amount in $)
	Savings Account	2,180
	Cash		2,000
	Interest revenue		180
	(To record the interest revenue earned end of second year)

(Table 2)

• Savings account is an asset and there is an increase in the value of an asset. Hence, debit the savings account by $2,180.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $2,000.
• 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 $180.

Prepare journal entry to record the entries at the end of the third year:

Date	Account Titles and Explanation	Debit (Amount in $)	Credit (Amount in $)
	Savings Account	2,376
	Cash		2,000
	Interest revenue		376
	(To record the interest revenue earned at the end of third year)

 (Table 3)

• Savings account is an asset and there is an increase in the value of an asset. Hence, debit the savings account by $2,376.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $2,000.
• 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 $376.