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

Explanation / Answer

THE AMERICAN COMPANY JOURNAL Date Account Title & Explanation Debit Credit 01-Mar-17 Bank/Cash a/c Dr $1,000,000         To Foreign currency loan a/c Cr $1,000,000 (Borrowed 1000000 euros for 3 years @ 12% interest) 01-Sep-17 Interest expense a/c Dr (1000000*12%*6/12*1.01) $60,600         To Bank/Cash a/c Cr $60,600 (Interest expenses for the period Mar-16 to Aug-16) 31-Dec-17 Interest expense a/c Dr (1000000*12%*4/12*1.04) $41,600         To Interest expenses payable a/c Cr $41,600 (Interest expenses for the period Sep-17 to Dec-17) 31-Dec-17 Exchange fluctuation loss a/c Dr $40,000         To Profit & Loss a/c Cr (1000000*(1.04-1) $40,000 (exchange fluctuation loss for the year ended Dec 31, 2017) 01-Mar-18 Interest expense a/c Dr (1000000*12%*2/12*1.02) $20,400 Interest expenses payable a/c Dr $41,600         To Bank/Cash a/c Cr $62,000 (Interest expenses for the period Sep-17 to feb-18) 01-Sep-18 Interest expense a/c Dr (1000000*12%*6/12*0.99) $59,400         To Bank/Cash a/c Cr $59,400 (Interest expenses for the period Mar-18 to Aug-18) 31-Dec-18 Interest expense a/c Dr (1000000*12%*4/12*0.95) $38,000         To Interest expenses payable a/c Cr $38,000 (Interest expenses for the period Sep-18 to Dec-18) 31-Dec-18 Profit & Loss a/c Dr (1000000*(1.04-0.95) $90,000         To exchange fluctuation Income a/c Cr $90,000 (exchange fluctuation income for the year ended Dec 31, 2018) 01-Mar-19 Interest expense a/c Dr (1000000*12%*2/12*0.90) $18,000 Interest expenses payable a/c Dr $38,000         To Bank/Cash a/c Cr $56,000 (Interest expenses for the period Sep-18 to feb-19) 01-Sep-19 Interest expense a/c Dr (1000000*12%*6/12*0.96) $57,600         To Bank/Cash a/c Cr $57,600 (Interest expenses for the period Mar-19 to Aug-19) 31-Dec-19 Interest expense a/c Dr (1000000*12%*4/12*0.98) $39,200         To Interest expenses payable a/c Cr $39,200 (Interest expenses for the period Sep-19 to Dec-19) 31-Dec-19 Profit & Loss a/c Dr (1000000*(0.98-0.95)) $30,000         To exchange fluctuation Income a/c Cr $30,000 (exchange fluctuation income for the year ended Dec 31, 2019) 01-Mar-20 Interest expense a/c Dr (1000000*12%*2/12*1.03) $20,600 Interest expenses payable a/c Dr $39,200         To Bank/Cash a/c Cr $59,800 (Interest expenses for the period Sep-19 to feb-20) 01-Mar-20 Foreign currency loan a/c Dr (1000000*1.03) $1,030,000         To Bank/Cash a/c Cr $1,030,000 (Repayment of foregn currency loan)

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