Pear Limited is a Canadian company that recently completed two large transactions with companies based in France:

1. On July 1, 2004, Pear acquired equipment at a cost of €250,000 from Pomme Ltd. Pear received reasonable terms regarding this purchase acquisition.

The €250,000 was in the form of a notes payable to be paid on June 30, 2007, at an interest rate of 8% per year, the interest to be paid semiannually on December 31 and June 30.

2. On October 1, 2004, Pear also sold inventory that cost C$50,000 to another French company, Fromage Ltd., for €87,500. Payment is due from Fromage on March 1, 2005. Pear uses a perpetual inventory system. The spot rates for the euro were as follows:

Required:

a. Prepare all journal entries regarding Pear’s notes payable and interest-related transactions on July 1, 2004, and December 31, 2004.

b. Prepare all journal entries regarding Pear’s sales, cost of sales, and accounts receivable transactions on October 1, 2004, December 31, 2004, and March 1, 2005.

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July 1, 2004 October 1, 2004 December 31, 2004 Average rate July 1-December 31, 2004 Average rate 2004 March 1, 2005 C$1.00 = 1.250 C$1.00 1.125 C$1.001.000 C$1.00 = 1.075 C$1.00 = 1.200 C$1.00 = 0.875