Assignment – Fund and Other Investments

1 to 7 are based on the following

On January 1, 2018, ABC Corporation’s board of directors passed a resolution authorizing the
construction of a factory building. Construction will start on January 1, 2021 and the estimated construction
cost is P5,000,000. To set up a plant expansion fund, a contract was entered into with a local bank offering
12% interest compounded annually, whereby ABC shall make contributions to a fund on January 1, 2018, 2019
and 2020 which will total P5,000,000 on January 1, 2021. The building was completed on March 31, 2021 at a
total cost of P5,500,000.
Note: use the whole PV factor and round-off all computations to the nearest peso.

Required: Give the journal entry to record:

1. January 1, 2018 1st annual contribution to the fund.
2. December 31, 2018 interest earned on fund.
3. January 1, 2019 2nd annual contribution to the fund.
4. December 31, 2019 interest earned on the fund.
5. January 1, 2020 3rd annual contribution to the fund.
6. December 31, 2020 interest earned on the fund.
7. March 31, 2021 payment of cost of building.

Chart of Accounts
A. Cash C. Plant Equipment Fund
B. Building D. Interest Income

8 to 19 are based on the following

ABC Co. had the life of its president insured for P1,200,000. ABC Co. is the beneficiary. The annual
premium is P150,000 payable every August 1 of each year. The policy was dated August 1, 2015 and carried
the following:

August 1, 2018 August 1, 2019 August 1, 2020 August 1, 2021

Cash Surrender Value P100,000 P160,000 P250,000 P370,000

ABC Co. follows the calendar year. The president dies on March 21, 2021 and the face of the policy is
collected on May 1, 2021.

Required: Give the journal entry to record. (Round-off computations to the nearest peso).
8. January 1, 2018 reversing entry
9. August 1, 2018 payment of life insurance premium
10. August 1, 2018 recognition of cash surrender value
11. December 31, 2018 adjusting entry to take up unexpired life insurance.
12. December 31, 2018 adjusting entry to update cash surrender value.
13. January 1, 2019 reversing entry
14. August 1, 2019 payment of life insurance premium
15. December 31, 2019 adjusting entry to take up unexpired life insurance.
16. December 31, 2019 adjusting entry to update cash surrender value.
17. December 31, 2020 adjusting entry to update cash surrender value.
18. May 31, 2021 to update cash surrender value
19. May 1, 2021 collection of P1,200,000.

Chart of Accounts
A. Cash D. Life Insurance Expense
B. Prepaid Life Insurance E. Gain on Life Insurance
C. Cash Surrender Value
20 to 42 are based on the following
On September 1, 2018, ABC Co. issued P3,000,000 face value, 2-year, 9% bonds at 103,. Interest is
payable every September 1. Transactions are as follows:
2018
Sept.
30 Transferred P500,000 to a sinking fund which will be managed by ABC Co.
Oct. 1 Purchased 3,000, 12%, P100 par, SMC preference shares for P350,000 including 1
year dividends. On September 20,2018, SMC declared dividends to be paid on
October 31, 2018 to shareholders of record on October 20, 2018.
Nov. 1 Purchased P100,000 face value, 15%, 3-year, PLDT bonds for P97,000 including
accrued interest. The bonds are dated July 1, 2016 and pay interest every July 1 and
December 31.
2019
July 1 Received principal plus interest on PLDT bonds.
Oct. 31 Received annual preference dividends on SMC preference shares.
Nov. 2 Sold the SMC preference shares for P330,000.
Dec. Transferred P1,000,000 to the sinking fund.
31
2020 Invested all available cash in the sinking fund in 14% money market instruments that
Jan. 1 will mature on August 31, 2020.
Aug. Received principal plus interest on money market instruments.
31
Sept. 1 Paid the bonds payable plus interest.

20. September 1, 2018 Issuance of bonds.

21. September 1, 2018 transfer of P500,000 to the sinking fund.
22. October 1, 2018 purchase of SMC preference shares.
23. October 31, 2018 receipt of SMC preference dividends.
24. November 1, 2018 purchase of PLDT bonds.
25. December 31, 2018 receipt of interest on PLDT bonds.
26. December 31, 2018 amortization of PLDT bond discount. (Use straight-line method)
27. December 31, 2018 accrual of interest on bonds issued.
28. December 31, 2018 amortization of premium on bonds payable. (Use straight-line method)
29. January 1, 2019 reversal of adjusting entry on accrued interest.
30. July 1, 2019 amortization of PLDT bond discount.
31. July 1, 2019 receipt of principal plus interest on PLDT bonds.
32. September 1, 2019 payment of interest on bonds issued.
33. October 31, 2019 receipt of SMC preference dividends.
34. November 2, 2019 sale of SMC preference shares.
35. December 31, 2019 transfer of P1,000,000 to the sinking fund.
36. December 31, 2019 accrual of interest on bonds issued.
37. December 31, 2019 amortization of premium on bonds payable.
38. January 1, 2020 reversal of adjusting entry on accrued interest.
39. January 1, 2020 investment in money market instruments.
40. August 31, 2020 Receipt of principal plus interest on money market instruments. (Round-off interest to
nearest peso)
41. September 1, 2020 amortization of premium on bonds payable.
42. September 1, 2020 payment of principal plus interest on bonds issued.

Chart of Accounts
A. Cash
B. Sinking fund cash
C. Sinking fund securities
D. Bonds Payable
E. Premium on Bonds Payable
F. Accrued Interest Payable
G. Interest Expense
H. Sinking fund income
I. Gain on sale of sinking fund securities