Question

On April 1, 2020, Mendoza Company (a U.S.-based company) borrowed 508,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on October 1, 2020, and will make a second interest payment on March 31, 2021, when the loan is repaid. Mendoza prepares U.S. dollar financial statements and has a December 31 year-end. Prepare all journal entries related to this foreign currency borrowing assuming the following exchange rates for 1 euro:

Date	U.S. Dollar per Euro
April 1, 2020	$	1.10
October 1, 2020		1.20
December 31, 2020		1.24
March 31, 2021		1.28

Answer 1

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Date	General Journal	Debit	Credit
April 1,2017	Cash	$558800
	Note Payable		558800
	(508000 x1.1)
October1,2020	Interest Expense	15240
	Accr interest payable		15240
	(508000 x5% x0.5=12700) (12700 x 1.20=15240)
Dec31,2020	Interest Expense	7874
	Interest Payable		7874
	(508000 x5%x 3/12=6350 x1.24=7874)
Dec31,2020	Foreign exchange loss	71120
	Note payable		71120
	(508000 x(1.24-1.1)
March 31,2021	Interest expenses	8128
	Interest payable	7874
	Foreign Exchane Loss	254
	Cash		16256
	(508000 X5% x3/12 =6350 X1.28=8128) (508000 x5%x0.5=12700 X1.28=16256)
March31,2021	Note Payable	629920
	Foreign Exchange Loss	20320
	Cash		650240
	(508000 X1.28=650240) (508000 X 1.24=629920)