Answer:
Amount available when ready to buy the equipment = $22,020.
Explanation:
Year 1:
Opening balance = nil
Deposit = 4,300 (A)
Interest on deposit received = $4,300×6% = $258 (B)
Closing balance at the end of year 1 (A+B) = Cash deposit + interest
Closing balance at the end of year 1 (A+B) = $4,300 + $258
Closing balance at the end of year 1 (A+B) = $4,558
*This closing balance of $4,558 will appear as opening balance at the start of year 2
Year 2:
Opening balance = $4,558
Deposit in year 2 = $6,100
Total amount = Opening balance + deposit in year 2
Total amount = $4,558 + $6,100
Total amount = $10,658
Interest on total amount= $10,658 ×6%
Interest on total amount = $640
Total closing balance = Amount + interest
Total closing balance = $10,658 + $640
Total closing balance = $11,298
*This closing balance of $11,298 will appear as opening balance at the start of year 3:
Year 3:
Opening balance = $11,298
Final deposit = $8,300
Total amount = $11,298 + $8,300
Total amount = $19,598 (A)
Interest at 6% = $19,598 × 6%
Interest at 6% = 1,176 (B)
Closing balance (A+B) = $19,598 + $1,176
Closing balance (A+B) = $20,774
*This closing balance of $20,774 will appear as opening balance at the start of year 4:
Year 4:
In year 4, there is no more deposit made, therefore, only the interest will be earned on the closing balance of the account.
Opening balance (A) = $20,774
Interest (6%) = $20,774 × 6%
Interest (6%) = $1,246 (B)
Total amount (A+B) = $20,774 + $1,246
Total amount (A+B) = $22,020
The amount of $22,020 will be available, when they will be ready to buy the new equipment at the end of four years.
