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Mu Ltd issues loan notes of 120,000 on 1 January 2084. Redemption is to take place on equal terms, four years later. The company decides

Mu Ltd issues loan notes of £120,000 on 1 January 2084. Redemption is to take place on equal terms, four years later. The company decides to put aside an equal amount to be invested at 4.5% which will provide £120,000 on maturity. Tables show that £0.191735 invested annually will produce £1 in four years’ time.

Required: (a) Record the necessary journal entries. (b) Prepare the ledger accounts for loan-notes, redemption reserve, and sinking fund investment. (c) Calculate the annual sinking fund deposit. (d) Show the impact on the company’s income statement and balance sheet.

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