Question
Moose Utilities Ltd. (MUL) borrowed $40,000,000 in U.S. funds on January 1, Year 1, at an annual interest rate of 12%. The loan is due
Moose Utilities Ltd. (MUL) borrowed $40,000,000 in U.S. funds on January 1, Year 1, at an annual interest rate of 12%. The loan is due on December 31, Year 4, and interest is paid annually on December 31. The Canadian exchange rates for U.S. dollars over the life of the loan were as follows:
January 1, Year 1 | C$1.159 |
December 31, Year 1 | C$1.168 |
December 31, Year 2 | C$1.160 |
December 31, Year 3 | C$1.152 |
December 31, Year 4 | C$1.155 |
Exchange rates changed evenly throughout the year.
Required:
(a) Prepare journal entries for MUL for Year 1. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
(b) Calculate the exchange gains or losses that would be reported in the profit of the company each year over the life of the loan. (Negative amount should be indicated by a minus sign. Omit $ sign in your response.)
Date | Exchange | Yearly gain (loss) on | ||||
Rate | Loan | Interest | ||||
Jan. 1/1 | 1.159 | |||||
Dec. 31/1 | 1.168 | |||||
Dec. 31/2 | 1.160 | |||||
Dec. 31/3 | 1.152 | |||||
Dec. 31/4 | 1.155 | |||||
Total (4 years) | ||||||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started