Question

On April 1, 2017, Mendoza Company borrowed 660,000 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, 2017 and will make a second interest payment on March 31, 2018 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:

April 1, 2017 $ 1.14

October 1, 2017 1.24

December 31, 2017 1.28

March 31, 2018 1.32

Answer 1

Date	General Journal	Debit	Credit
april 1, 2017	Cash (660,000*$1.14)	$   752,400
	Loan payable		$   752,400
October 1, 2017	Interest expenses ($660,000*5%*6/12*$1.24)	$     20,460
	Cash		$     20,460
December 31, 2017	Interest expenses ($660,000*5%*3/12*$1.28)	$     10,560
	Currency exchange loss (660,000*($1.28-$1.14)	$     92,400
	Interest payable		$     10,560
	Loan payable (660,000*($1.28-$1.14)		$     92,400
March 31, 2018	Interest expenses (660,000*5%*3/12*$1.32)	$     10,890
	Interest payable	$     10,560
	Currency exchange loss	$           330
	Cash (660,000*5%*6/12*1.32)		$     21,780
March 31, 2018	Loan payable ($752,400+$92,400)	$   844,800
	Currency exchange loss	$     26,400
	Cash (660,000*1.32)		$   871,200

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