Question
On July 1, 2020, Martinez Company (a U.S.based company) borrowed 400,000 euros for one year at an interest rate of 5 percent per annum. Martinez
On July 1, 2020, Martinez Company (a U.S.based company) borrowed 400,000 euros for one year at an interest rate of 5 percent per annum. Martinez will pay the interest on June 30, 2021, when the loan is repaid. Martinez prepares U.S. dollar financial statements and has a December 31 year-end. What is the total U.S. dollar borrowing cost on the 400,000 euros note payable? In other words, what is the impact of this borrowing on Martinez's net income over the two accounting periods?
Date
Spot Rate (U.S. Dollar per Euro)
July 1, 2020
$1.10
December 31, 2020
$1.20
June 30, 2021
$1.24
Choices:
$80,800
$24,000
$68,800
$56,000
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On July 1, 2020, Martinez Company (a U.S.based company) borrowed 400,000 euros for one year at an interest rate of 5 percent per annum. Martinez will pay the interest on June 30, 2021, when the loan is repaid. Martinez prepares U.S. dollar financial statements and has a December 31 year-end. What is the total U.S. dollar borrowing cost on the 400,000 euros note payable? In other words, what is the impact of this borrowing on Martinez's net income over the two accounting periods?
Date | Spot Rate (U.S. Dollar per Euro) |
July 1, 2020 | $1.10 |
December 31, 2020 | $1.20 |
June 30, 2021 | $1.24 |
Choices:
$80,800
$24,000
$68,800
$56,000
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