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Phi Enterprises issues loan notes of £125,000 on 1 January 2069. Redemption is to take place...

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Accounting

Phi Enterprises issues loan notes of £125,000 on 1 January 2069. Redemption is to take place on equal terms, four years later. The company decides to put aside an equal amount to be invested at 4.5% which will provide £125,000 on maturity. Tables show that £0.191735 invested annually will produce £1 in four 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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