Beta Ltd issues loan notes of $40,000 on 1 January 2006. Redemption is to take place on equal terms, four years later. The company decides to put aside an equal amount to be invested at 3% which will provide $40,000 on maturity. Tables show that $0.265329 invested annually will produce $1 in four years’ time.

Required:

• Journal entries for the annual sinking fund investment
• T-accounts for loan-notes
• Income statement impact for each year