Reference no: EM132968968
Question -
Q1. The transactions given below relate to a sinking fund for retirement of long term bonds of Red Company.
1. In accordance with the terms of bond indenture, cash in the amount of P2,000,000 is transferred at the end of the first year, from the regular cash account to the sinking fund. The entity administer the fund.
2. The sinking fund cash is used to acquired AB Company 12% bonds of P500,000 face value, maturing in five years, for P450,000.
3. The sinking fund cash is used to acquired 10% P100 par value CD 5,000 preference share, at P80 per share.
4. Annual interest is received on the AB bonds. The discount on the bonds is amortized accordingly using straight line method.
Required - Prepare journal entries to record transaction.
Q2. Following are selected transaction in chronological order of ABC Company and its trustee in connection with a sinking fund.
1. Cash contribution to the sinking fund, P1,000,000.
2. Acquisition of securities at par by trustee, P700,000.
3. The trustee receives interest on the securities, P60,000.
4. The trustee pays expenses of P30,000.
5. The trustee sells the securities for P800,000 plus accrued interest, P10,000.
6. The trustee renders a report to the entity.
7. The trustee pays bonds payable of P1,000,000 and interest of P100,000
8. The trustee remits the remaining cash to ABC Company.
Required - Prepare journal entries on the books of ABC Company to record the transactions.
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