Phi Enterprises issues loan notes of £125,000 on 1 January 2069. 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 £125,000 on maturity. Tables show that £0.191735 invested annually will produce £1 in four years’ time.

Required:

1. Calculate the annual sinking fund investment.
2. Record the journal entries for the investment each year.
3. Prepare the loan-notes ledger account.
4. Show the effect on the equity section of the balance sheet.