Assessment 3: Foreign Currency
Exercise 1 Worksheet: Foreign Currency Borrowing
On September 30, 2015, Dolphin Incorporated negotiated a 1,000,000 euro, two-year loan from a German bank. The annual interest on the loan is 2%. Dolphin makes annual interest payments on September 30. Dolphin will repay the loan principal on September 30, 2017. Dolphin prepares December 31 year-end financial statements in U.S. dollars.
Step 1:
Prepare the journal entries in Table 1 below for this foreign currency borrowing, based on the following exchange rates for one euro: September 30, 2015 . . . . . . . . . . . . . . . . $0.110 December 31, 2015 . . . . . . . . . . . . . . . . $0.115 September 30, 2016 . . . . . . . . . . . . . . . . $0.130 December 31, 2016 . . . . . . . . . . . . . . . . $0.135 September 30, 2017 . . . . . . . . . . . . . . . . $0.160
Table 1: Journal Entries
Date	Account	Credit	Debit
Step 2:
Determine the effective cost (in U.S. dollars) of borrowing in 2015, 2016, and 2017. Use Table 2 below as a worksheet.
Table 2: Effective Cost of Borrowing
2015