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On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 1,700,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 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) $0.170 0.175 0.190 0.195 0.220 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, 1,700,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 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) $0.170 0.175 0.190 0.195 0.220 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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 1,700,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 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) $0.170 0.175 0.190 0.195 0.220 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:On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 1,700,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 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) $0.170 0.175 0.190 0.195 0.220 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.
1 / ' i . 1 NO 1 2 3 2020 2021 2022 4 5 6 7 8 Late 09/30/2020 12/31/2020 12/31/2020 09/30/2021 12/31/2021 12/31/2021 09/30/2022 09/30/2022 Required A Required B Cash Note payable (CNY) Interest expense Interest payable (CNY) Effective Cost of Borrowing Foreign exchange loss Note payable (CNY) Interest expense Interest payable (CNY) Foreign exchange loss Cash Interest expense Interest payable (CNY) Foreign exchange loss Note payable (CNY) Interest expense Interest payable (CNY) Foreign exchange loss Cash Note payable (CNY) Foreign exchange loss Cash Complete this question by entering your answers in the tabs below. General Journal Show Transcribed Text Debit 289,000 credit 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. (Do not round intermediate calculations.) 289,000
Transcribed Image Text:1 / ' i . 1 NO 1 2 3 2020 2021 2022 4 5 6 7 8 Late 09/30/2020 12/31/2020 12/31/2020 09/30/2021 12/31/2021 12/31/2021 09/30/2022 09/30/2022 Required A Required B Cash Note payable (CNY) Interest expense Interest payable (CNY) Effective Cost of Borrowing Foreign exchange loss Note payable (CNY) Interest expense Interest payable (CNY) Foreign exchange loss Cash Interest expense Interest payable (CNY) Foreign exchange loss Note payable (CNY) Interest expense Interest payable (CNY) Foreign exchange loss Cash Note payable (CNY) Foreign exchange loss Cash Complete this question by entering your answers in the tabs below. General Journal Show Transcribed Text Debit 289,000 credit 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. (Do not round intermediate calculations.) 289,000
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