Tornado Manufacturing Inc. builds cleaning equipment. On January 1, 2011, manage
ID: 2435039 • Letter: T
Question
Tornado Manufacturing Inc. builds cleaning equipment. On January 1, 2011, management at Tornado determines that it will need to replace some machinery four years from now [on December 31, 2014], and which it estimates will cost $160,000 on that date. Management decides to have $160,000 available on December 31, 2014 by making 4 equal annual deposits into a fund at its bank each December 31. It is estimated that the interest rate the deposits will earn is 7% compounded annually.Assume that each annual deposit to be made is $35,000 [if you want to calculate it for practice, please do so; the correct amount is $36,037]. Which one of the following would be included in the JE needed to record the first deposit made on December 31, 2011?
A. dr. Equipment Fund $35,000
B. cr. Equipment Liability $35,000
C. dr. Equipment $35,000
D. cr. Interest Income $2,450
Explanation / Answer
A. dr. Equipment Fund $35,000 On the date of deposit - a equipment fund (Investment) is debited.