(a) On 1 July 2022, Lawrence Ltd enters into an arrangement with a US bank-Peter Bank-to...

   

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(a) On 1 July 2022, Lawrence Ltd enters into an arrangement with a US bank-Peter Bank-to borrow US$3,000,000. The term of the loan is 5 years with interest payable annually in arrears on 30 June at the rate of 10 per cent. The exchange rate information is: 1 July 2022 30 June 2023 A$1 = US$0.62 A$1 = US$0.48 Required: What journal entries are required in Lawrence Ltd's books for 1 July 2022 and 30 June 2023 in accordance with AASB 121 'The Effects of Changes in Foreign Exchange Rates'? Round to the nearest dollar. (Narrations are not required). (b) Ozzie Hat Ltd manufactures farm-style hats in Australia. It has a subsidiary in the United States (US). The US subsidiary purchases hats from its parent entity, Ozzie Hat. The sole activity of the US subsidiary is to distribute the hats manufactured by Ozzie Hat Ltd, on behalf of Ozzie Hat. The contracts for the purchase of hats by the US subsidiary is denominated in AUD, while the selling price of the hats sold by the US subsidiary is denominated in USD. In addition, the retail operations of the US subsidiary, incur various operating costs in USD, including salaries, rent, insurance, etc. Required: Determine and explain the choice of functional currency for the US subsidiary in accordance with AASB 121 'The Effects of Changes in Foreign Exchange Rates'. Answer here: Part (a) Date Account Debit ($) Credit ($) Part (b) (a) On 1 July 2022, Lawrence Ltd enters into an arrangement with a US bank-Peter Bank-to borrow US$3,000,000. The term of the loan is 5 years with interest payable annually in arrears on 30 June at the rate of 10 per cent. The exchange rate information is: 1 July 2022 30 June 2023 A$1 = US$0.62 A$1 = US$0.48 Required: What journal entries are required in Lawrence Ltd's books for 1 July 2022 and 30 June 2023 in accordance with AASB 121 'The Effects of Changes in Foreign Exchange Rates'? Round to the nearest dollar. (Narrations are not required). (b) Ozzie Hat Ltd manufactures farm-style hats in Australia. It has a subsidiary in the United States (US). The US subsidiary purchases hats from its parent entity, Ozzie Hat. The sole activity of the US subsidiary is to distribute the hats manufactured by Ozzie Hat Ltd, on behalf of Ozzie Hat. The contracts for the purchase of hats by the US subsidiary is denominated in AUD, while the selling price of the hats sold by the US subsidiary is denominated in USD. In addition, the retail operations of the US subsidiary, incur various operating costs in USD, including salaries, rent, insurance, etc. Required: Determine and explain the choice of functional currency for the US subsidiary in accordance with AASB 121 'The Effects of Changes in Foreign Exchange Rates'. Answer here: Part (a) Date Account Debit ($) Credit ($) Part (b)

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Part a Journal entries for Lawrence Ltd in accordance with AASB 121 1 July 2022 Dr Loan payable USD 3000000 Cr Cash AUD 1860000 Cr Foreign exchange gain 1140000 30 June 2023 Dr Interest expense AUD 60... View the full answer