Answered: Required: 1. Prepare the entry for the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

On January 1, 2020, Clarettes Inc. established a sinking fund of P2,000,000 under a trustee BDO Bank for payment of Bonds Payable which will mature on January 1, 2022. On December 31, 2020, the periodic trustee report shows that P1,000,000 was invested in securities and P500,000 in money market placement. On December 31, 2021, the periodic report from the trustee shows that the securities were sold for P1,300,000 and interest received on money market placement was P50,000. The trustee’s fees and administrative expenses during the year are P50,000 and P20,000 respectively. On January 1, 2022, Clarettes received a periodic report from the trustee that bonds payable of P2,000,000 and interest of P200,000 were paid.

Required:

1. Prepare the entry for the preceding transaction

2. Based on the result of your audit, determine the following:

A. Book value of bond sinking fund on December 31, 2020

B. Book value of bond sinking fund on December 31, 2021

C. Cash remitted to Clarettes from Trustee on January 1, 2022

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