On March 1st 2017 American Company purchased a one-million Euro CD when one Euro

Question

On March 1st 2017 American Company purchased a one-million Euro CD when one Euro = one dollar. This 3 year 12% CD pays interest semi-annually to American Company on March 1st and September 1st. Additional information is as follows: 3/1/2017 1 Euro worth $1.00 9/1/2017 1 Euro worth $1.01 12/31/2017 1 Euro worth $1.04 3/1/2018 1 Euro worth $1.02 9/1/2018 1 Euro worth $0.99 12/31/2018 1 Euro worth $0.95 3/31/2019 1 Euro worth $0.90 9/1/2019 1 Euro worth $0.96 12/31/2019 1 Euro worth $0.98 3/1/2020 1 Euro worth $1.03 Required:   make all the necessary journal entries for American Company connected with purchase of the CD for 2017 through 2020 hint: don't forget adjusting entries at the end of each year. On March 1st 2017 American Company purchased a one-million Euro CD when one Euro = one dollar. This 3 year 12% CD pays interest semi-annually to American Company on March 1st and September 1st. Additional information is as follows: 3/1/2017 1 Euro worth $1.00 9/1/2017 1 Euro worth $1.01 12/31/2017 1 Euro worth $1.04 3/1/2018 1 Euro worth $1.02 9/1/2018 1 Euro worth $0.99 12/31/2018 1 Euro worth $0.95 3/31/2019 1 Euro worth $0.90 9/1/2019 1 Euro worth $0.96 12/31/2019 1 Euro worth $0.98 3/1/2020 1 Euro worth $1.03 Required:   make all the necessary journal entries for American Company connected with purchase of the CD for 2017 through 2020 hint: don't forget adjusting entries at the end of each year.

Explanation / Answer

Date General Journal Debit Credit 01/03/17 Bank $10,00,000 To CD $10,00,000 (Being one million euro cd taken) 01/09/17 Interest expense $60,600 (1,000,000*12%*1.01)/2 To Bank $60,600 (Being half year interest paid) 31/12/17 Interest expense $41,600 (1,000,000*12%*1.04)/12*4 To Accrued interest $41,600 (Being interest expense for 4 months booked) 31/12/17 Foreign exchnage loss $40,000 (1,000,000*(1.04-1.00)) To CD $40,000 (being foreign exchange loss recognised.) 01/03/18 Interest expense $20,400 (1,000,000*12%*1.02)/12*2 Accrued interest $41,600 To Foreign exchnage gain $800 To Bank $61,200 (1,000,000*12%*1.02)/2 (Being interest for the half year paid) 01/09/18 Interest expense $59,400 (1,000,000*12%*0.99)/2 To Bank $59,400 (Being half year interest paid) 31/12/18 Interest expense $38,000 (1,000,000*12%*0.95)/12*4 To Accrued interest $38,000 (Being interest expense for 4 months booked) 31/12/18 CD $90,000 (1,000,000*(0.95-1.04)) To Foreign exchnage gain $90,000 (being foreign exchange gain recognised.) 01/03/19 Interest expense $18,000 (1,000,000*12%*0.90)/12*2 Accrued interest $38,000 To Foreign exchnage gain $2,000 To Bank $54,000 (1,000,000*12%*0.90)/2 (Being interest for the half year paid) 01/09/19 Interest expense $57,600 (1,000,000*12%*0.96)/2 To Bank $57,600 (Being half year interest paid) 31/12/19 Interest expense $39,200 (1,000,000*12%*0.98)/12*4 To Accrued interest $39,200 (Being interest expense for 4 months booked) 31/12/19 Foreign exchnage loss $30,000 (1,000,000*(0.98-0.95)) To CD $30,000 (being foreign exchange Loss recognised.) 01/03/20 Interest expense $20,600 (1,000,000*12%*1.03)/12*2 Accrued interest $39,200 Foreign exchnage loss $2,000 To Bank $61,800 (1,000,000*12%*1.03)/2 (Being interest for the half year paid) 01/03/20 CD $9,80,000 Foreign exchnage loss $50,000 To Bank $10,30,000 (Being CD repaid)

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