Question
On April 1, 2020, Mendoza Company (a U.S.-based company) borrowed 514,000 euros for one year at an interest rate of 5 percent per annum. Mendoza
On April 1, 2020, Mendoza Company (a U.S.-based company) borrowed 514,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on October 1, 2020, and will make a second interest payment on March 31, 2021, when the loan is repaid. Mendoza prepares U.S. dollar financial statements and has a December 31 year-end. Prepare all journal entries related to this foreign currency borrowing assuming the following exchange rates for 1 euro:
Date | U.S. Dollar per Euro | ||
April 1, 2020 | $ | 1.10 | |
October 1, 2020 | 1.20 | ||
December 31, 2020 | 1.24 | ||
March 31, 2021 | 1.28 | ||
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1 Record the borrowal of the foreign loan.
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2 Record the first interest payment on the foreign loan.
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3 Record the year-end interest accrual on the foreign loan.
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4 Record the year-end adjustment to the foreign loan.
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5 Record the second interest payment and foreign exchange gain or loss.
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6 Record the repayment of the loan and foreign exchange gain or loss.
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