On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 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: DateU.S. Dollar per Chinese Yuan (CNY)September 30, 2020$0.100 December 31, 2020 0.105 September 30, 2021 0.120 December 31, 2021 0.125 September 30, 2022 0.150 Prepare all journal entries related to this foreign currency borrowing.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.

The main functions of accounting are to keep an accurate record of financial transactions, to create…

Answered: On September 30, 2020, Peace Frog…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 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:

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

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

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