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On September 30, 2020, Peace Frog International (PFI) (a U.S.-based

On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a twoyear, 1,000,000 Chinese yuan

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On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a twoyear, 1,000,000 Chinese yuan loan from a Chinese bank at an interest rate of 2 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PFI prepares U.S. dollar financial statements and has a December 31 year-end.

Relevant exchange rates are as follows:

U.S. Dollar per Chinese Yuan (CNY) Date September 30, 2020 December 31, 2020 $0.100 0.105 September 30, 2021 December 31, 2021 September 30, 2022 0.120 0.125 0.150

a. Prepare all journal entries related to this foreign currency borrowing.

b. Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022

Transcribed Image Text:

U.S. Dollar per Chinese Yuan (CNY) Date September 30, 2020 December 31, 2020 $0.100 0.105 September 30, 2021 December 31, 2021 September 30, 2022 0.120 0.125 0.150

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a 93020 Cash 100000 Note Payable CNY 1000000 x 010 100000 To record the note and conversion of CNY 1 million into US at the spot rate 123120 Interest Expense 525 Interest Payable CNY 525 1000000 x 2 x ...View the full answer

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Question Posted: Jul 23, 2020 08:45 AM

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On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a twoyear, 1,000,000 Chinese yuan

Question:

U.S. Dollar per Chinese Yuan (CNY) Date September 30, 2020 December 31, 2020 $0.100 0.105 September 30, 2021 December 31, 2021 September 30, 2022 0.120 0.125 0.150

Step by Step Answer:

a 93020 Cash 100000 Note Payable CNY 1000000 x 010 100000 To record the note and conversion of CNY 1 million into US at the spot rate 123120 Interest Expense 525 Interest Payable CNY 525 1000000 x 2 x ...View the full answer

Advanced Accounting

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