On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 3,400,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PFI prepares U.S. dollar financial statements and has a December 31 year-end. Relevant exchange rates are as follows: DateU.S. Dollar per Chinese Yuan (CNY) September 30, 2020$0.230 December 31, 2020 0.235 September 30, 2021 0.250 December 31, 2021 0.255 September 30, 2022 0.280 Prepare all journal entries related to this foreign currency borrowing.Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022. NoDateGeneral JournalDebitCredit109/30/2020Cash782,000Note payable (CNY)782,000212/31/2020Interest expense7,990Interest payable (CNY)7,99012/31/2020Foreign exchange loss17,000Note payable (CNY)17,000409/30/2021Interest expense23,970Interest payable (CNY)Foreign exchange loss7,9902,040Cash34,000512/31/2021Interest expense8,670Interest payable (CNY)8,6706.12/31/2021Foreign exchange loss68,000Note payable (CNY)68,000Interest expenseInterest payable (CNY)Foreign exchange loss709/30/202226,0108,6703,400Cash38,080Note payable (CNY)Foreign exchange loss09/30/2022867,00085,000Cash952,000Co EffectiveCost ofBorrowing202020212022

Interest Expense = Principal Amount of Notes Payable x Interest Rate

Answered: On September 30, 2020, Peace Frog…

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On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 3,400,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PFI prepares U.S. dollar financial statements and has a December 31 year-end. Relevant exchange rates are as follows:

Date	U.S. Dollar per Chinese Yuan (CNY)
September 30, 2020	$	0.230
December 31, 2020		0.235
September 30, 2021		0.250
December 31, 2021		0.255
September 30, 2022		0.280

Prepare all journal entries related to this foreign currency borrowing.
Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022.

No
Date
General Journal
Debit
Credit
1
09/30/2020
Cash
782,000
Note payable (CNY)
782,000
2
12/31/2020
Interest expense
7,990
Interest payable (CNY)
7,990
12/31/2020
Foreign exchange loss
17,000
Note payable (CNY)
17,000
4
09/30/2021
Interest expense
23,970
Interest payable (CNY)
Foreign exchange loss
7,990
2,040
Cash
34,000
5
12/31/2021
Interest expense
8,670
Interest payable (CNY)
8,670
6.
12/31/2021
Foreign exchange loss
68,000
Note payable (CNY)
68,000
Interest expense
Interest payable (CNY)
Foreign exchange loss
7
09/30/2022
26,010
8,670
3,400
Cash
38,080
Note payable (CNY)
Foreign exchange loss
09/30/2022
867,000
85,000
Cash
952,000
Co

Effective
Cost of
Borrowing
2020
2021
2022

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