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  • Amortization of Sinking Fund

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    Rechelle Dalusung
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    The document compares two cases of accumulating a $5 million sinking fund balance over 5 years with annual deposits and a 5% interest rate. Case 1 makes annual contributions on January 1st each year, while Case 2 makes them on December 31st each year. It shows the annual contributions, interest income, and carrying amount of the fund for each case at the end of each year.

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    The document compares two cases of accumulating a $5 million sinking fund balance over 5 years with annual deposits and a 5% interest rate. Case 1 makes annual contributions on January 1st each year, while Case 2 makes them on December 31st each year. It shows the annual contributions, interest income, and carrying amount of the fund for each case at the end of each year.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    7 views4 pages

    Amortization of Sinking Fund

    Uploaded by

    Rechelle Dalusung
    The document compares two cases of accumulating a $5 million sinking fund balance over 5 years with annual deposits and a 5% interest rate. Case 1 makes annual contributions on January 1st each year, while Case 2 makes them on December 31st each year. It shows the annual contributions, interest income, and carrying amount of the fund for each case at the end of each year.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 4

    Accumulated future value of fund 12/31/Y5 5,000,000.

    00
    Interest rate 5%
    No. of annual deposit 5
    FV of ordinary annuity 5.5256312500
    FV of annuity due 5.8019128125

    Case 1: Annual contribution made every January 1, beginning 1/1/Y1


    Annual contribution = 5,000,000.00
    5.8019128125
    Annual contribution = 861,784.75

    Period Deposit
    1/1/Y1 861,784.75
    1/1/Y2 861,784.75
    1/1/Y3 861,784.75
    1/1/Y4 861,784.75
    1/1/Y5 861,784.75

    Interest Income
    Y1 43,089.24
    Y2 88,332.94
    Y3 135,838.82
    Y4 185,720.00
    Y5 238,095.24

    Carrying Amount of Fund


    12/31/Y1 904,873.99
    12/31/Y2 1,854,991.68
    12/31/Y3 2,852,615.26
    12/31/Y4 3,900,120.01
    12/31/Y5 5,000,000.00
    *Use fund balance after interest

    Case 2: Annual contribution made every Decemeber 31, beginning 12/31/Y1


    Annual contribution = 5,000,000.00
    5.5256312500
    Annual contribution = 904,873.99

    Period Deposit
    12/31/Y1 904,873.99
    12/31/Y2 904,873.99
    12/31/Y3 904,873.99
    12/31/Y4 904,873.99
    12/31/Y5 904,873.99

    Interest Income
    Y1 -
    Y2 45,243.70
    Y3 92,749.58
    Y4 142,630.76
    Y5 195,006.00

    Carrying Amount of Fund


    12/31/Y1 904,873.99
    12/31/Y2 1,854,991.68
    12/31/Y3 2,852,615.26
    12/31/Y4 3,900,120.01
    12/31/Y5 5,000,000.00
    Fund balance before Interest Interest Fund Balance After interest
    861,784.75 43,089.24 904,873.99
    1,766,658.74 88,332.94 1,854,991.68
    2,716,776.43 135,838.82 2,852,615.26
    3,714,400.01 185,720.00 3,900,120.01
    4,761,904.76 238,095.24 5,000,000.00

    Proforma Journal entries:


    A. Annual contribution
    DR: Sinking fund
    CR: Cash

    B. Interest earned
    DR: Sinking fund
    mount of Fund CR: Interest income

    balance after interest

    ginning 12/31/Y1

    Interest Fund Balance


    - 904,873.99
    45,243.70 1,854,991.68
    92,749.58 2,852,615.26
    142,630.76 3,900,120.01
    195,006.00 5,000,000.00

    Proforma Journal entries:


    A. Annual contribution
    DR: Sinking fund
    CR: Cash

    B. Interest earned
    DR: Sinking fund
    CR: Interest income
    mount of Fund

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