Prairie Dog Inc. borrowed US$10,000,000 on January 1, 2017 at an annual rate of 8%. The loan is due December 31, 2020 and interest is payable annually each December 31. The exchange rates on selected dates throughout the life of the loan are shown below:
$\begin{array}{|l|l|}\hline \text { Tanuary } 1,2017 & \text { CDN \$1.4415 } \\\hline \text { December } 31,2017 & \text { CDN } \$ 1.4325 \\\hline \text { December } 31,2018 & \text { CDN } \$ 1.4575 \\\hline \text { December } 31,2019 & \text { CDN \$1.4435 } \\\hline \text { December } 31,2020 & \text { CDN } \$ 1.4525 \\\hline\end{array}$ Assume that the average annual exchange rate was equal to the December 31^st spot rates.
Calculate the exchange gains or losses that would be reported in the net income of the company for each year over the life of the loan.

Question

Prairie Dog Inc. borrowed US$10,000,000 on January 1, 2017 at an annual rate of 8%. The loan is due December 31, 2020 and interest is payable annually each December 31. The exchange rates on selected dates throughout the life of the loan are shown below:

\begin{array}{|l|l|}\hline \text { Tanuary } 1,2017 & \text { CDN \$1.4415 } \\\hline \text { December } 31,2017 & \text { CDN } \$ 1.4325 \\\hline \text { December } 31,2018 & \text { CDN } \$ 1.4575 \\\hline \text { December } 31,2019 & \text { CDN \$1.4435 } \\\hline \text { December } 31,2020 & \text { CDN } \$ 1.4525 \\\hline\end{array}

Assume that the average annual exchange rate was equal to the December 31^st spot rates.
Calculate the exchange gains or losses that would be reported in the net income of the company for each year over the life of the loan.

Quizplus · Accepted Answer

The Answer of Prairie Dog Inc. borrowed US$10,000,000 on January 1, 2017 at an annual rate of 8%. The loan is due December 31, 2020 and interest is payable annually each December 31. The exchange rates on selected dates throughout the life of the loan are shown below: $\begin{array}{|l|l|} \hline \text { Tanuary } 1,2017 & \text { CDN \$1.4415 } \ \hline \text { December } 31,2017 & \text { CDN } \$ 1.4325 \ \hline \text { December } 31,2018 & \text { CDN } \$ 1.4575 \ \hline \text { December } 31,2019 & \text { CDN \$1.4435 } \ \hline \text { December } 31,2020 & \text { CDN } \$ 1.4525 \ \hline \end{array}$ Assume that the average annual exchange rate was equal to the December 31^st spot rates. Calculate the exchange gains or losses that would be reported in the net income of the company for each year over the life of the loan.

Prairie Dog Inc Assume That the Average Annual Exchange Rate Was Equal to an Annual