On October 31, 2010, Darling Company negotiated a two-year 100,000 franc loan fr

Question

On October 31, 2010, Darling Company negotiated a two-year 100,000 franc loan from a foreign bank at an interest rate of 3 percent per year. Interest payments are made annually on October 31, and the principal will be repaid on October 31, 2012. Darling 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: Franc rate October 31,2010 $0.50 December 31,2010 $0.52 October 31,2011 $0.60 December 31,2011 $0.62 October 31,2012 $ 0.75

Explanation / Answer

Date Particulars Debit Amount Credit Amount 31-10-2010 Bank A/c 50000 To Loan A/c 50000 (Being loan taken) 31-12-2010 Interest Expenses 1500 To Interest Expenses payable 1500 (Being expenses booked) 31-10-2010 Interest Expenses payable 1500 To Bank A/c 1500 (Being Interest paid) 31-10-2010 Profit and loss a/c 2000 To Loss on exchange rate 2000 (Being loss booked) 31-12-2011 Interest Expenses 1500 To Interest Expenses payable 1500 (Being expenses booked) 31-10-2010 Interest Expenses payable 1500 To Bank A/c 1500 (Being Interest paid) 31-10-2010 Profit and loss a/c 8000 To Loss on exchange rate 8000 (Being loss booked) 31-10-2012 Loan A/c 50000 Interest A/c 1500 To Bank A/c 51500 (Being amount repaid) 31-10-2012 Profit and loss a/c 13000 To Loss on exchange rate 13000 (Being loss booked)

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