On 1 January, 2015, Hikers Inc., a U.S.-based company, borrowed £200,000 on a two-year note at a per annum interest of 4.5%. The spot rate on this day was $1.65 per pound. The spot rate on 31 December, 2015, was $1.64 per pound. The journal entries to account for this foreign currency borrowing will include:______

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Question:

On 1 January, 2015, Hikers Inc., a U.S.-based company, borrowed £200,000 on a two-year note at a per annum interest of 4.5%. The spot rate on this day was $1.65 per pound. The spot rate on 31 December, 2015, was $1.64 per pound. The journal entries to account for this foreign currency borrowing will include:______

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Answer:Debit to Interest expenses for $14,760 on December 31, 2015Explanation:At the end of December 2014, the accrued interest is to be accounted based on exchange rate prevailing on that date.The Journal entry would be as follows:Account Title                  Debit       CreditInterest expenses        $14,760Interest payable                             $14,760(£200,000*4.5%*$1.64 per pounds)

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