Accounting for Sinking Fund (NOT ADMINISTERED BY A TRUSTEE)

Capable Company provided the following transactions related to a sinking fund for retirement of bonds payable:

a. In accordance with the terms of the 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 administers the fund.

b. The sinking fund cash is used to acquire AB Company 12% bonds of P500,000 face value, maturing in five years, for P450,000.

c. The sinking fund cash is used to acquire 10% P100 par value CD 5,000 preference shares, at P80 per share.

d. Annual interest is received on the AB bonds. The discount on the bonds is amortized accordingly using straight line method.

e. Sinking fund expenses of P20,000 are paid from the sinking fund cash.

f. The sinking fund cash is used to acquire EF Company 10% bonds of P400,000 face value, maturing in four years for P400,000 plus accrued interest of P10,000.

g. Annual dividends are received on the CD preference share.

h. Interest is received on the EF bonds, P20,000, including the accrued interest at the time of purchase.

i. All EF bonds are sold for P450,000. No interest is accrued at the time of sale.

j. Retained earnings are appropriated in an amount equal to the sinking fund balance.

Prepare journal entries to record the transactions.