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Calculate the exchange gains or losses

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Question - Paolo Company of Toronto borrowed $4,000,000 in U.S funds on January 1, Year 1, at an annual interest rate of 15%. The loan is due on December 31, Year 4, and interest is paid annually on December 31. The Canadian exchange rates for U.S. dollars over the life of the loan were as follows:

January 1, Year 1 C$1.159

December 31, Year 1 C$1.168

December 31, Year 2 C$1.160

December 31, Year 3 C$1.152

December 31, Year 4 C$1.155

Exchange rates changed evenly throughout the year.

Required -

1. Prepare journal entries for Paolo for Year 1?

2. Calculate the exchange gains or losses that would be reported in the profit of the company each year over the life of the loan.

Reference no: EM133139613

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