Question

On October 1st American Company purchased this 1,000,000 peso CD when the peso was worth 10 cents

This 2 year CD pays interest at 12% with interest paid each April 1st and October 1st

American Company purchased this 1,000,000 peso CD when the peso was worth 10 cents

On December 31st The peso was worth 8 cents

On April 1st 2020 the peso was worth 9 cents

On October 1st 2020 the peso was worth 11 cents

On December 1st 2020 the peso was worth 10 cents

On April 1st 2021 the peso was worth 8 cents

On October 1st 2021 the peso was worth 9 cents

REQUIRED: MAKE ALL THE JOURNAL ENTRIES AMERICAN MAKES IN CONNECTION WITH THIS CD

DON'T FORGET THE INITIAL PURCHASE OF THE CD AND THE NECESSARY ADJUSTING ENTRIES AT YEAR END

Answer 1

Oct,1 when peso was purchased

Peso CD A/c..Dr 10 cents

To Creditor's A/c 10 Cents

2 year CD pays interest twice in a year so in 2 years interest paid 4 times. Below is the journal entries for the 4 time which interest we have paid

Apr.1 2020

Interest Expenses A/c..Dr 1.08 Cents

To Accounts payable A/c 1.08 Cents

Oct.1 2020

Interest Expenses A/c..Dr 1.32 Cents

To Accounts payable A/c 1.32 Cents

Apr.1 2021

Interest Expenses A/c..Dr 0.96 Cents

To Accounts payable A/c 0.96 Cents

Oct.1 2021

Interest Expenses A/c..Dr 1.08 Cents

To Accounts payable A/c 1.08 Cents

So Interest paid on 2020 was (1.08+1.32)= 2.4 Cents

on 31st 2020 the adjusting journal entries will be

Interest Exp.A/c...Dr 10 cents

Peso CD Payable A/c..Dr. 2.4 Cents

To Cash A/c 12.4 Cents

Interest paid on 2021 was (1.08+0.96)= 2.04 Cents

on 31st 2021 the adjusting journal entries will be

Interest Exp.A/c...Dr 10 cents

Peso CD Payable A/c..Dr. 2.04 Cents

To Cash A/c 12.04 Cents