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Mu Corporation issues loan notes of 110,000 on 1 January 2038. Redemption is to take place on equal terms, four years later. The company decides

Mu Corporation issues loan notes of €110,000 on 1 January 2038. Redemption is to take place on equal terms, four years later. The company decides to put aside an equal amount to be invested at 5% which will provide €110,000 on maturity. Tables show that €0.232012 invested annually will produce €1 in four years’ time.

Required: (a) Set up the loan-note redemption reserve account. (b) Calculate the annual investment for the sinking fund. (c) Maintain the loan-notes payable account. (d) Draft a memo to the board explaining the impact on retained earnings.

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