Question

In: Accounting

On March 1st 2017 American Company purchased a one-million Euro CD when one Euro = one...

On March 1st 2017 American Company purchased a one-million Euro CD when one Euro = one dollar.
This 3 year 12% CD pays interest semi-annually to American Company on March 1st and September 1st.
Additional information is as follows:
3/1/2017 1 Euro worth $1.00
9/1/2017 1 Euro worth $1.01
12/31/2017 1 Euro worth $1.04
3/1/2018 1 Euro worth $1.02
9/1/2018 1 Euro worth $0.99
12/31/2018 1 Euro worth $0.95
3/31/2019 1 Euro worth $0.90
9/1/2019 1 Euro worth $0.96
12/31/2019 1 Euro worth $0.98
3/1/2020 1 Euro worth $1.03
Required:   make all the necessary journal entries for American Company connected with purchase of the CD for 2017 through 2020
hint: don't forget adjusting entries at the end of each year.

Solutions

Expert Solution

Date General Journal Debit Credit
01/03/17 Bank $10,00,000
To CD $10,00,000
(Being one million euro cd taken)
01/09/17 Interest expense $60,600 (1,000,000*12%*1.01)/2
To Bank $60,600
(Being half year interest paid)
31/12/17 Interest expense $41,600 (1,000,000*12%*1.04)/12*4
To Accrued interest $41,600
(Being interest expense for 4 months booked)
31/12/17 Foreign exchnage loss $40,000 (1,000,000*(1.04-1.00))
To CD $40,000
(being foreign exchange loss recognised.)
01/03/18 Interest expense $20,400 (1,000,000*12%*1.02)/12*2
Accrued interest $41,600
To Foreign exchnage gain $800
To Bank $61,200 (1,000,000*12%*1.02)/2
(Being interest for the half year paid)
01/09/18 Interest expense $59,400 (1,000,000*12%*0.99)/2
To Bank $59,400
(Being half year interest paid)
31/12/18 Interest expense $38,000 (1,000,000*12%*0.95)/12*4
To Accrued interest $38,000
(Being interest expense for 4 months booked)
31/12/18 CD $90,000 (1,000,000*(0.95-1.04))
To Foreign exchnage gain $90,000
(being foreign exchange gain recognised.)
01/03/19 Interest expense $18,000 (1,000,000*12%*0.90)/12*2
Accrued interest $38,000
To Foreign exchnage gain $2,000
To Bank $54,000 (1,000,000*12%*0.90)/2
(Being interest for the half year paid)
01/09/19 Interest expense $57,600 (1,000,000*12%*0.96)/2
To Bank $57,600
(Being half year interest paid)
31/12/19 Interest expense $39,200 (1,000,000*12%*0.98)/12*4
To Accrued interest $39,200
(Being interest expense for 4 months booked)
31/12/19 Foreign exchnage loss $30,000 (1,000,000*(0.98-0.95))
To CD $30,000
(being foreign exchange Loss recognised.)
01/03/20 Interest expense $20,600 (1,000,000*12%*1.03)/12*2
Accrued interest $39,200
Foreign exchnage loss $2,000
To Bank $61,800 (1,000,000*12%*1.03)/2
(Being interest for the half year paid)
01/03/20 CD $9,80,000
Foreign exchnage loss $50,000
To Bank $10,30,000
(Being CD repaid)

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