PROBLEM

On January 1, 2020, MERALCO Inc. has issued an existing bonds payable of P1,000,000 which will mature on January 1, 2023. In order for MERALCO to have sufficient fund to extinguish this bond, the company plans to establish a sinking fund in BDO Inc.

Required: Determine the contribution to the fund assuming the interest rate on BDO is 10%:

I. Under One-time contribution

II. Installment contribution every December 31

III. Advance installment contribution every January 1