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Determine the effective cost of borrowing in dollars

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Question - On September 30, 2018, Dolphin Company negotiated a two-year, 1,000,000 Euro loan from a German bank at an interest rate of 2 percent per year. Dolphin makes interest payments annually on September 30 and will repay the principal on September 30, 2020. Dolphin prepares U.S.-dollar financial statements and has a December 31 year end.

a. Prepare the journal entries related to this foreign currency borrowing assuming the following exchange rates for 1 Euro:

September 30, 2018 $0.115

December 31, 2018 0.120

September 30, 2019 0.135

December 31, 2019 0.140

 September 30, 2020 0.165

b. Determine the effective cost of borrowing in dollars in each of the three years 2018, 2019, and 2020.

Reference no: EM132593267

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