HW on Sinking Fund - HOMEWORK ON SINKING FUND Problem 1...

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HOMEWORK ON SINKING FUND Problem 1 Buffay Co. records sinking fund transactions currently and maintains a balance in the retained earnings appropriated for sinking fund account equal to the sinking fund. There is no trustee. The following transactions relate to the company’s sinking fund set up for the retirement of its long -term bonds payable. 1. In accordance with the terms of the bond indenture, cash in the amount of P20,000,000 is transferred at the end of the first year, from the regular cash account to the sinking fund. 2. The sinking fund cash is used to acquire Aniston Corp.’s 10%, five -year bonds of 10,000,000 at face value. 3. The sinking fund cash is used to acquire 8% P20 par value Le Blanc Inc. 100,000 preference shares at P50 per share. 4. Semiannual interest is received on the Aniston bonds. 5. Sinking fund expenses of P120,000 are paid from the fund. 6. The sinking fund cash is used to acquire Kudrow Co. 12% bonds of P2,000,000, maturing in 4 years at face value plus six months accrued interest.
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