# Question

Tilman Company is required by a bond indenture to make equal annual payments to a bond sinking fund at the end of each of the next 20 years. The sinking fund will earn 8 percent interest and must accumulate to a total of $500,000 at the end of the 20-year period.

Instructions

a. Calculate the amount of the annual payments.

b. Calculate the total amount of interest that will be earned by the fund over the 20-year period.

c. Make the general journal entry to record redemption of the bond issue at the end of the 20-year period, assuming that the sinking fund is recorded on Tilman’s accounting records at $500,000 and bonds payable are recorded at the same amount.

d. What would be the effect of an increase in the rate of return on the required annual payment? Explain.

Instructions

a. Calculate the amount of the annual payments.

b. Calculate the total amount of interest that will be earned by the fund over the 20-year period.

c. Make the general journal entry to record redemption of the bond issue at the end of the 20-year period, assuming that the sinking fund is recorded on Tilman’s accounting records at $500,000 and bonds payable are recorded at the same amount.

d. What would be the effect of an increase in the rate of return on the required annual payment? Explain.

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