On 1 July 2015 Jarrets Plc Borrows £500 000 from a British

Multiple Choice

On 1 July 2015 Jarrets Plc borrows £500 000 from a British bank at an interest rate of 8 per cent,repayable in pounds sterling (£) and with interest due on 30 June each year.The term of the loan is 3 years.On the same date Fitners Plc borrows €1 million from a European bank at an interest rate of 10 per cent.The term of the loan is 3 years.Jarrets and Fitners decide to swap their interest and principal obligations on 1 July 2015.Exchange rate information is as follows:
1 July 2015 = £0.50
30 June 2016 = £0.55
Both Jarrets and Fitners are Dutch companies.What are the journal entries to record the swap for the period ended 30 June 2016 in Jarrets Plc's books (rounded to the nearest whole euro) ?

A) $1 \text { July } 2015$
$\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Cash } & 250000 & \\\hline \mathrm{Cr} & \text { Foreign loan } & & 250000 \\\hline {\mathrm{Dr}} & & \\\hline \mathrm{Dr} & \text { Foreign currency receivable } & 250000 & \\\hline \mathrm{Cr} & \text { Australian loan } & & 250000 \\\hline\end{array}$

$30 \text { June } 2016$
$\begin{array}{|l|l|r|r|}\hline\mathrm{Dr} & \text { Foreign exchange loss } & 25000 & \\\hline \mathrm{Cr} & \text { Foreign loan } & & 25000 \\\hline & & 25000 & \\\hline \mathrm{Dr} & \text { Foreign currency receivable } & & 25000 \\\hline \mathrm{Cr} & \text { Foreign exchange gain } & & \\\hline & & 22000 & \\\hline \mathrm{Dr} & \text { Interest expense } & & 22000 \\\hline \mathrm{Cr} & \text { Cash } & 3000 & \\\hline & & & 3000 \\\hline \mathrm{Dr} & \text { Interest expense } & & \\\hline \mathrm{Cr} & \text { Cash } & & \\\hline\end{array}$

B) $1 \text { July } 2015$
$\begin{array}{|l|l|l|l|}\hline \mathrm{Dr} & \text { Cash } & 1000000 & \\\hline \mathrm{Cr} & \text { Foreign loan } & & 1000000 \\\hline& & \\\hline \mathrm{Dr} & \text { Foreign currency receivable } & 1000000 & \\\hline \mathrm{Cr} & \text { Australian loan } & & 1000000 \\\hline\end{array}$

$30 \text { June } 2016$
$\begin{array}{|c|l|r|r|}\hline \mathrm{Dr} & \text { Foreign loan } & 90909 & \\\hline \mathrm{Cr} & \text { Foreign exchange gain } & & 90909 \\\hline & & & \\\hline \mathrm{Dr} & \text { Foreign exchange loss } & 90909 & \\\hline \mathrm{Cr} & \text { Foreign currency receivable } & & 90909 \\\hline & & 80000 & \\\hline \mathrm{Dr} & \text { Interest expense } & & 80000 \\\hline \mathrm{Cr} & \text { Cash } & & \\\hline\end{array}$
C) $1 \text { July } 2015$
$\begin{array}{|l|l|l|l|}\hline \mathrm{Dr} & \text { Cash } & 1000000 & \\\hline \mathrm{Cr} & \text { Foreign loan } & & 1000000 \\\hline\\\hline{\mathrm{Dr}} & \text { Foreign currency receivable } & 1000000 \\\hline \mathrm{Cr} & \text { Australian loan } & & \\\hline\end{array}$

$30 \text { June } 2016$
$\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Foreign loan } & 90909 & \\\hline \mathrm{Cr} & \text { Foreign exchange gain } & & 90909 \\\hline & & & \\\hline \mathrm{Dr} & \text { Foreign exchange loss } &90909 & \\\hline \mathrm{Cr} & \text { Foreign currency receivable } & &90909 \\\hline & & & \\\hline \mathrm{Dr} & \text { Interest expense } & 72727& \\\hline \mathrm{Cr} & \text { Cash } & &72727 \\\hline & & \\\hline \mathrm{Dr} & \text { Interest expense } & 272273 & \\\hline \mathrm{Cr} & \text { Cash } & & 27273 \\\hline\end{array}$
D) $1 \text { July } 2015$
$\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Cash } & 250000 & \\\hline \mathrm{Cr} & \text { Foreign loan } & & 250000 \\\hline & & \\\hline \mathrm{Dr} & \text { Foreign currency receivable } & 250000 & \\\hline \mathrm{Dr} & \text { Loss on foreign currency swap } & 750000 & \\\hline \mathrm{Cr} & \text { Australian loan } & & 1000000 \\\hline\end{array}$

$30 \text { June } 2016$
$\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Foreign exchange loss } & 25000 & \\\hline \mathrm{Cr} & \text { Foreign loan } & & 25000 \\\hline & & 25000 & \\\hline \mathrm{Dr} & \text { Foreign currency receivable } & & 25000 \\\hline \mathrm{Cr} & \text { Foreign exchange gain } & & \\\hline & & 22000 & \\\hline \mathrm{Dr} & \text { Interest expense } & & 22000 \\\hline \mathrm{Cr} & \text { Cash } & & \\\hline & & 3000 & \\\hline \mathrm{Dr} & \text { Interest expense } & & 3000 \\\hline \mathrm{Cr} & \text { Cash } & & 300 \\\hline\end{array}$