XYZ Corp Has a Calendar Year End The Average Rates in Effect for 2019 and 2020 Were

question 25

Multiple Choice

XYZ Corp. has a calendar year end. On January 1, 2019, the company borrowed $5,000,000 U.S. dollars from an American Bank. The loan is to be repaid on December 31, 2022 and requires interest at 5% to be paid every December 31. The loan and applicable interest are both to be repaid in U.S. dollars. XYZ does not hedge to minimize its foreign exchange risk. The following exchange rates were in effect throughout the term of the loan:
$$\begin{array} { | l | c | } \hline \text { Jaruary } 1,2019 & \text { US } \$ 1 = \text { CDN } \$ 1.1500 \\\hline \text { December } 31,2019 & \text { US } \$ 1 = \text { CDN } \$ 1.1490 \\\hline \text { Decernber } 31,2020 & \text { US } \$ 1 = \text { CDN } \$ 1.1485 \\\hline \text { Decerrber } 31,2021 & \text { US } \$ 1 = \text { CDN } \$ 1.1483 \\\hline \text { Decermber } 31,2022 & \text { US } \$ 1 = \text { CDN } \$ 1.1487 \\\hline\end{array}$$ The average rates in effect for 2019 and 2020 were as follows:
$$\begin{array} { | l | c | } \hline2019 : & \text { US } \$ 1 = \text { CDN } \$ 1.1493 \\\hline 2020 : & \text { US } \$ 1 = \text { CDN } \$ 1.1487 \\\hline\end{array}$$ What is the amount of interest expense (in Canadian Dollars) recorded for 2020?

• A) $249,920
• B) $250,080
• C) $287,175
• D) $287,250

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Definitions:

Estimated Cost

An approximation of the financial expenditure associated with a project or production.

Ending Inventory

The final value of goods available for sale at the end of an accounting period after subtracting the cost of goods sold.

Retail Method

A pricing strategy used in retail to maintain a consistent profit margin by marking up goods based on their wholesale cost.

Retail Method

An accounting method used to estimate ending inventory and cost of goods sold by calculating a cost-to-retail percentage and applying it to the retail price.