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 Debit Credit

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

2016

2017