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On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 3,200,000 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) $ 0.210 0.215 0.230 0.235 0.260 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, 3,200,000 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) $ 0.210 0.215 0.230 0.235 0.260 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, 3,200,000 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) $ 0.210 0.215 0.230 0.235 0.260 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, 3,200,000 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) $ 0.210 0.215 0.230 0.235 0.260 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.
5 6 7 8 12/31/2021 12/31/2021 2020 2021 2022 09/30/2022 09/30/2022 Required A Required B Interest payable (CNY) Foreign exchange loss Cash Interest expense Interest payable (CNY) Foreign exchange loss Note payable (CNY) Interest expense Interest payable (CNY) Note payable (CNY) Effective Cost of Borrowing Foreign exchange loss J 900 00 < Required A ✔ Required B > ♥ 0000 6,880 480✔ 7,520 Show Transcribed Text 33 64,000 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.) 3,200 X ♥ 25,000 > ✓ 29,440 7,520 64,000✔ 3,200 x 25,000 X
Transcribed Image Text:5 6 7 8 12/31/2021 12/31/2021 2020 2021 2022 09/30/2022 09/30/2022 Required A Required B Interest payable (CNY) Foreign exchange loss Cash Interest expense Interest payable (CNY) Foreign exchange loss Note payable (CNY) Interest expense Interest payable (CNY) Note payable (CNY) Effective Cost of Borrowing Foreign exchange loss J 900 00 < Required A ✔ Required B > ♥ 0000 6,880 480✔ 7,520 Show Transcribed Text 33 64,000 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.) 3,200 X ♥ 25,000 > ✓ 29,440 7,520 64,000✔ 3,200 x 25,000 X
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