On 1/1/2014 ACME Company purchased a 1,000,000 Pound Sterling two year CD for $1

Question

On 1/1/2014 ACME Company purchased a 1,000,000 Pound Sterling two year CD for $1,500,000. This 12% CD pays interest on June 30 and December 31. REQUIRED: Make the journal entry ACME makes on 1/1/2014 Make the journal entry ACME makes on 6/30/2014 when the Pound Sterling is $1.45 Make the journal entries needed on December 31 when the Pound Sterling is $1.55 For the interest received To revalue the CD Make the journal entry ACME makes on 6/30/15 when the Pound Sterling is $1.67 Make the journal entries needed on December 31 when the Pound Sterling is $1.46 for The interest received The collection of the note.

Explanation / Answer

Amounts in Dollar Date Particulars Debit Credit 1/1/2014 Certifcate of Deposit 1500000          Cash 1500000 Purchase of CD for 1500000 dollars 6/30/2014 Cash 87000        Interest revenue 87000 Recording 6 months interest on CD = 1000000 pound x 12 % x 1/2 year = 60000 pounds Pound = 1.45 Dollar = 60000 x 1.45 = 87000 12/31/2014 Cash 93000        Interest revenue 93000 Recording 6 months interest on CD = 1000000 pound x 12 % x 1/2 year = 60000 pounds Pound = 1.55 Dollar = 60000 x 1.55 = 93000 12/31/2014 Certifcate of Deposit 50000           Unrealised profit on certificate of deposit 50000 Certificate of deposit at changed rate = 1000000 x 1.55, = 1550000    Cost of purchase = 1500000    Profit = 50000 6/30/2015 Cash 100200        Interest revenue 100200 Recording 6 months interest on CD = 1000000 pound x 12 % x 1/2 year = 60000 pounds Pound = 1.67 Dollar = 60000 x 1.67 = 100200 12/31/2015 Cash 1547600 Loss on investment in certificate of deposits 90000        Interest revenue 87600        Certificate of deposits 1550000 1637600 Recording 6 months interest on CD = 1000000 pound x 12 % x 1/2 year = 60000 pounds Pound = 1.46 Dollar = 60000 x 1.46 = 87600 Redemption of CD of 1000000 pounds = 1000000 x 1.46 , =1460000 Cash received = 87600+1460000 = 1547600

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