On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 3,400,000 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 U.S. Dollar per Chinese Yuan (CNY) September 30, 2020 $ 0.230 December 31, 2020 0.235 September 30, 2021 0.250 December 31, 2021 0.255 September 30, 2022 0.280 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.
On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 3,400,000 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 U.S. Dollar per Chinese Yuan (CNY) September 30, 2020 $ 0.230 December 31, 2020 0.235 September 30, 2021 0.250 December 31, 2021 0.255 September 30, 2022 0.280 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 3,400,000 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 | U.S. Dollar per Chinese Yuan (CNY) | ||
| September 30, 2020 | $ | 0.230 | |
| December 31, 2020 | 0.235 | ||
| September 30, 2021 | 0.250 | ||
| December 31, 2021 | 0.255 | ||
| September 30, 2022 | 0.280 | ||
- 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.
Transcribed Image Text:No
Date
General Journal
Debit
Credit
1
09/30/2020
Cash
782,000
Note payable (CNY)
782,000
2
12/31/2020
Interest expense
7,990
Interest payable (CNY)
7,990
12/31/2020
Foreign exchange loss
17,000
Note payable (CNY)
17,000
4
09/30/2021
Interest expense
23,970
Interest payable (CNY)
Foreign exchange loss
7,990
2,040
Cash
34,000
5
12/31/2021
Interest expense
8,670
Interest payable (CNY)
8,670
6.
12/31/2021
Foreign exchange loss
68,000
Note payable (CNY)
68,000
Interest expense
Interest payable (CNY)
Foreign exchange loss
7
09/30/2022
26,010
8,670
3,400
Cash
38,080
Note payable (CNY)
Foreign exchange loss
09/30/2022
867,000
85,000
Cash
952,000
Co
Transcribed Image Text:Effective
Cost of
Borrowing
2020
2021
2022
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education