On July 1, 2015 the Skywalker Company (American) buys a 3 year 100,000 C$ 10% CD
ID: 2717100 • Letter: O
Question
On July 1, 2015 the Skywalker Company (American) buys a 3 year 100,000 C$ 10% CD from C3PO bank (Canadian) when $1 =1 C$. This CD pays interest annually on July 1. The exchange rates for the Canadian and US dollars are as follows:
July 1, 2015 $1 = 1C$ (C$ is Canadian dollar)
December 31, 2015 $1 = .90 C$
July 1, 2016 $1 = 1 C$
December 31, 2016 $1 = 1.05 C$
July 1, 2017 $1 = 1.10 C$
December 31, 2017 $1 = .98 C$
July 1, 2018 $1 = .88 C$
REQUIRED: MAKE ALL THE NECESSARY JOURNAL ENTRIES FOR SKYWALKER CONNECTED WITH THIS CD…DON’T FORGET ADJUSTING ENTRIES ON DECEMBER 31!!!
Explanation / Answer
(All entries in USD) Entry Particulars Amount $ Amount $ Date Debit Credit 01/07/2015 Investment in CD A/c DR 100000 To C3PO Bank A/c 100000 31/12/2015 Investment in CD A/c DR 11111 1 USD = 0.9 Canadian Dollars ; hence 100000 Canadian Dollars = 111,111 USD To Exchange Gain A/c 11111 01/07/2016 Exchange Loss A/c DR 11111 This value is devalued by 11,111 being reinstated to 1 USD = 1 Canadian Dollars To Investment in CD A/c 11111 01/07/2016 C3PO Bank A/c DR 10000 Interest is calculated at the revised valuation of $ 100,000 To Interest on CD A/c 10000 31/12/2016 Exchange Loss A/c DR 4762 The value is devalued based on the formula 1 USD = 1.05 Canadian Dollars To Investment in CD A/c 4762 01/07/2017 Exchange Loss A/c DR 4329 The value is further devalued based on 1 USD = 1.10 Canadian Dollars To Investment in CD A/c 4329 01/07/2017 C3PO Bank A/c DR 9091 Interest is calculated at the revised valuation of $ 90,909 To Interest on CD A/c 9091 31/12/2017 Investment in CD A/c DR 11131 Revaluation done based on 1 USD = 0.98 Canadian Dollars To Exchange Gain A/c 11131 01/07/2018 Investment in CD A/c DR 11596 Revaluation done based on 1 USD = 0.88 Canadian Dollars To Exchange Gain A/c 11596 01/07/2018 C3PO Bank A/c DR 11364 Interest is calculated on the revised valuation of $ 113,636 To Interest on CD A/c 11364
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