On 1/1/2014 ACME Company purchased a 1,000,000 Pound Sterling two year CD for $1
ID: 2749053 • Letter: O
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
Answer:
Journal Entries:
1/1/2014
Dr. 2 year CD 12% $ 1,500,000
Cr. Bank $ 1,500,000
(Being corporate deposit purchased)
30/06/2014
Dr. Bank Account $ 174,000 (12% of pound sterling 1,000,000 x $ 1.45)
Cr. Interest Received $ 174,000
31/12/2014
Dr. Bank Account $ 186,000 (12% of pound sterling 1,000,000 x $ 1.55)
Cr. Interest Received $ 186,000
30/06/2015
Dr. Bank Account $ 200,400 (12% of pound sterling 1,000,000 x $ 1.67)
Cr. Interest Received $ 200,400
31/12/2015
Dr. Bank Account $ 175,200 (12% of pound sterling 1,000,000 x $ 1.46)
Cr. Interest Received $ 175,200
31/12/2015
Dr. Bank $ 1,460,000
Dr. Loss on CD $ 40,000
Cr. 2 Year CD $ 1,500,000
(being note collected)
Alternately, the value of 2 year CD can be marked to market on every interest payment date and gain/loss can be recognised in books accordingly.
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