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Iota Ltd issues loan notes of £75,000 on 1 January 2058. Redemption is to take place...

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Accounting

Iota Ltd issues loan notes of £75,000 on 1 January 2058. Redemption is to take place on equal terms, six years later. The company decides to put aside an equal amount to be invested at 5% which will provide £75,000 on maturity. Tables show that £0.161082 invested annually will produce £1 in six years’ time.

Required:

  1. Calculate the annual sinking fund investment.
  2. Record the journal entries for the investment each year.
  3. Prepare the loan-notes ledger account.
  4. Show the effect on the equity section of the balance sheet.

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