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 September 30, 2020 December 31, 2020 September 30, 2021 December 31, 2021 September 30, 2022 U.S. Dollar per Chinese Yuan (CNY) $0.100 0.105 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.
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 September 30, 2020 December 31, 2020 September 30, 2021 December 31, 2021 September 30, 2022 U.S. Dollar per Chinese Yuan (CNY) $0.100 0.105 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:No
1
2
3
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5
7
8
Date
09/30/2020
12/31/2020
12/31/2020
09/30/2021
12/31/2021
12/31/2021
09/30/2022
09/30/2022
Cash
Note payable (CNY)
Interest expense
Interest payable (CNY)
Foreign exchange gain or loss
Note payable (CNY)
General Journal
Interest expense
Foreign exchange gain or loss
Interest payable (CNY)
Cash
Interest expense
Interest payable (CNY)
Foreign exchange gain or loss
Note payable (CNY)
Interest expense
Foreign exchange gain or loss
Interest payable (CNY)
Cash
Note payable (CNY)
Foreign exchange gain or loss
Cash
Debit
100,000
525
5,000
625
20,000
2,250
125
625
125,000
25,000
Credit
100,000
525
5,000
625
20,000
3,000
150,000
Transcribed Image Text: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
September 30, 2020
December 31, 2020
September 30, 2021
December 31, 2021
September 30, 2022
U.S. Dollar
per Chinese
Yuan (CNY)
$0.100
0.105
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.
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