Question

On April 1, 2017, Mendoza Company borrowed 550,000 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

Record the borrowal of the foreign loan.

Record the first interest payment on the foreign loan.

Record the year end interest accrual on the foreign loan.

Record the year end adjustment to the foreign loan.

Record the second interest payment and foreign exchange loss/gain.

Record the repayment of the loan and foreign exchange loss/gain

Answer 1

No.	Date	General journal	Debit	Credit
1	04/01/2017	Cash (550,000 * 1.14)	627000
		Notes payable (euro)		627000
		Record the borrowal of the foreign loan
2	10/01/2017	Interest expense (euro)	17050
		Cash (550000*5%*6/12*1.24)		17050
		Record the first interest payment on the foreign loan.
3	12/31/2017	Interest expense (euro) (550000*5%*3/12*1.28)	8800
		Interest payable (euro)		8800
		Record the year end interest accrual on the foreign loan.
4	12/31/2017	Foreign exchange loss	77000
		Notes payable (euro) (550000*(1.28-1.14))		77000
		Record the year end adjustment to the foreign loan.
5	03/31/2018	Interest expense (euro) (550000*5%*3/12*1.32)	9075
		Interest payable (euro)	8800
		Foreign exchange loss (550000*5%*6/12*(1.32-1.28))	275
		Cash (550000*5%*6/12*1.32)		18150
		Record the second interest payment and foreign exchange loss/gain.
6	30/31/2018	Notes payable (euro)	704000
		Foreign exchange loss (550000*(1.32-1.28))	22000
		Cash (550000*1.32)		726000
		Record the repayment of the loan and foreign exchange loss/gain