Question

4. A U.S. company borrows HK$1,000,000 from a Hong Kong bank on November 1, 2019, when the spot rate is $0.127/HK$. The loan carries an interest rate of 3%, and principal and interest are due on April 1, 2020, in Hong Kong dollars. The spot rate on December 31, the company’s year-end, is $0.128/HK$. On April 1, the company pays principal and interest to close the loan. The spot rate on April 1 is $0.124/HK$. The average spot rate for the period November 1 – April 1 is $0.1272/HK$.

Using the attached T-account template, prepare all necessary journal entries to record the above events on the U.S. company's books, including year-end adjusting entries.

Answer 1

Journal entries to record the above events on the U.S. company's books, including year-end adjusting entries:

Journal entries to record the above events on the U.S. company's books, including year-end adjusting entries:
		Debit Amount	Credit Amount
Nov. 1st, 2019	Cash A/c Debit	$          1,27,200
	Interst Payable A/c Debit	$                1,590
	To Hong Kong Bank		$          1,28,790
	(US company Borrow HKS100000 from Hong Kong Bank @Spot Rate 0.1272$ per HKS at interest of 3%)
Dec. 31swt, 2019	Loan A/c Debit	$          1,28,000
	To Hong Kong Bank		$          1,28,000
	(Loan Due on Year ending when spot rate was $0.128 per HKS)
April 1st, 2020	Hong Kong Bank A/c Debit	$          1,27,200
	Interest on Loan A/c Denit	$                1,590
	To Cash		$          1,28,790
	(Cash Due is Paid to Hong Kong Bank on Due Date)

T-Accounts
Hong Kong Bank
Date		Debit			Credit
Nov. 1st, 2019	To Cash	$      1,27,200	Dec. 31st, 2019	By US Company Loan A/c	$       1,28,790
	To Interest Payable	$            1,590
		$      1,28,790			$       1,28,790
Jan. 1st, 2020	To US Company Loan A/c	$      1,28,790	April 1st, 2020	By Cash	$       1,28,790
		$      1,28,790			$       1,28,790