Question

In: Accounting

2. ABC Inc. borrowed funds from its bank. Details are as follows. Four year term loan,...

2. ABC Inc. borrowed funds from its bank. Details are as follows.
Four year term loan, U.S. $500,000
Funds borrowed 1 January 20X6; due 31 December 20X9
Exchange rates:

1 January 20X6

U.S. $1 = Cdn. $1.35

31 December 20X6

U.S. $1 = Cdn. $1.40

31 December 20X7

U.S. $1 = Cdn. $1.42

31 December 20X8

U.S. $1 = Cdn. $.136

31 December 20X9

U.S. $1 = Cdn. $1.39

Required:

Prepare the journal entries as follows to record:
A) Receipt of loan proceeds for January 20X6.
B) The adjustment to spot rate for December 20X6.
C) The adjustment to spot rate December 20X7
D) The adjustment to spot rate December 20X8
E) The adjustment to spot rate December 20X9
F) Repayment of loan December 20X9

G) Based on the above information calculate the total accounting recognition of loss.

Solutions

Expert Solution

A) Cash a/c Dr 675,000

Term Loan A/c Cr 675,000

( Being receipt of loan proceeds )

(USD 500,000*1.35 = CAD 675,000)

B)  Currency Gain/Loss Unrealized A/c Dr 25,000

Term Loan A/c    Cr 25,000

[(1.40-1.35)*500,000 = 25,000] This is recognised as unrealized forex loss upon revaluation.

We consider it unrealized because the we have not paid yet – this is just our best guess of how much we’ll gain or lose, but we aren’t sure. Generally, we make this a reversing entry so when we pay, we can book a realized gain or loss entry.

C) Currency Gain/Loss Unrealized A/c Dr 10,000

Term Loan A/c    Cr 10,000

[(1.42-1.40)*500,000 = 10,000] This is recognised as unrealized forex loss upon revaluation.

D) Term Loan A/c    Dr 30,000

Currency Gain/Loss Unrealized A/c Cr 30,000

[(1.36-1.42)*500,000 = -30,000] This is recognised as unrealized forex gain upon revaluation.

E) Currency Gain/Loss Unrealized A/c Dr 15,000

Term Loan A/c Cr 15,000

[(1.39-1.36)*500,000 = 15,000] This is recognised as unrealized forex loss upon revaluation.

F) Term Loan A/c Dr 675,000

  Currency Gain/Loss Realized A/c Dr 20,000

Cash A/c Cr 695,000

The repayment will be USD 500,000 * 1.39 = CAD 695,000.

G) The total acoounting recoznition of loss is CAD 20,000, which is recognised as realized upon settlement of the loan. (1.39-1.35)*500,000 = 20,000.


Related Solutions

ABC Inc. borrowed funds from its bank. Details are as follows. Four year term loan, U.S....
ABC Inc. borrowed funds from its bank. Details are as follows. Four year term loan, U.S. $500,000 Funds borrowed 1 January 2016; due 31 December 2019 Exchange rates: 1 January 2016 U.S. $1 = Cdn. $1.34 31 December 2016 U.S. $1 = Cdn. $1.40 31 December 2017 U.S. $1 = Cdn. $1.41 31 December 2018 U.S. $1 = Cdn. $.136 31 December 2019 U.S. $1 = Cdn. $1.38 Required: Prepare the journal entries as follows to record: A) Receipt of...
On January 1, 2020, ABC Company borrowed $200,000 from the bank. The loan is a 10-year...
On January 1, 2020, ABC Company borrowed $200,000 from the bank. The loan is a 10-year note payable that requires semi-annual payments of $24,000 every June 30 and December 31, beginning June 30, 2020. Assume the loan has a 20% interest rate, compounded semi-annually. Calculate the amount of the note payable at December 31, 2020 that would be classified as a long-term liability.
On January 1, 2017, ABC Company borrowed $100,000 from the bank. The loan is a 10-year...
On January 1, 2017, ABC Company borrowed $100,000 from the bank. The loan is a 10-year note payable that requires semi-annual payments of $12,000 every June 30 and December 31, beginning June 30, 2017. Assume the loan has a 20% interest rate, compounded semi-annually. Calculate the amount of the note payable at December 31, 2017 that would be classified as a current liability.
Four years ago, you borrowed $300,000 for a ten-year period from ABC Bank at a stated...
Four years ago, you borrowed $300,000 for a ten-year period from ABC Bank at a stated interest rate of 10% p.a. with interest compounded quarterly. You have been making equal, quarterly payments on the loan during this time and now wish to repay the loan in full. The amount that you need to repay the bank today is closest to:
4.5 pts On January 1, 2017, ABC Company borrowed $100,000 from the bank. The loan is...
4.5 pts On January 1, 2017, ABC Company borrowed $100,000 from the bank. The loan is a 10-year note payable that requires semi-annual payments of $12,000 every June 30 and December 31, beginning June 30, 2017. Assume the loan has a 20% interest rate, compounded semi-annually. Calculate the amount of the note payable at December 31, 2017 that would be classified as a current liability.
On January 1, 2024, ABC Company borrowed $150,000 from the bank. The loan requires semi-annual payments...
On January 1, 2024, ABC Company borrowed $150,000 from the bank. The loan requires semi-annual payments of $18,000 every June 30 and December 31, beginning June 30, 2024. Assume the loan has an interest rate of 20% compounded semi-annually. Calculate the amount of the note payable at December 31, 2024 that would be classified as a current liability.
On January 1, 2019, ABC Company borrowed $120,000 from the bank. The loanis a 7-year...
On January 1, 2019, ABC Company borrowed $120,000 from the bank. The loan is a 7-year note payable that requires annual payments of $24,500 every December 31, beginning December 31, 2019. Assume the loan has an interest rate of 10% compounded annually. Calculate the amount of the note payable at December 31, 2020 that wouldbe classified as a current liability.
I have borrowed $14,500 from a bank. It is a 5-year interest only loan, with annual...
I have borrowed $14,500 from a bank. It is a 5-year interest only loan, with annual payments. The APR is 8%. What will be my payments each year?
Installment Term Loan On December 31, 2014, Thomas, Inc. borrowed $850,000 on an eight percent, 15-year...
Installment Term Loan On December 31, 2014, Thomas, Inc. borrowed $850,000 on an eight percent, 15-year mortgage note payable. The note is to be repaid in equal semiannual installments of $49,156 (payable on June 30 and December 31). Prepare journal entries to reflect (a) the issuance of the mortgage note payable, (b) the payment of the first installment on June 30, 2015, and (c) the payment of the second installment on December 31, 2015. Round amounts to the nearest dollar....
A business borrowed $150,000 from a bank to purchase new equipment. The interest on the loan...
A business borrowed $150,000 from a bank to purchase new equipment. The interest on the loan is 3% per year, and it must be paid in 8 years. Create a loan schedule for the payments
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT