On September 30, 2017, Ericson Company negotiated a two-year, 2,000,000 dudek loan from a foreign bank at an interest rate of 4 percent per year. It makes interest payments annually on September 30 and will repay the principal on September 30, 2019. Ericson prepares U.S.-dollar financial statements and has a December 31 year-end.

a. Prepae all journal entries related to this foreign currency borrowing assuming the following exchange rates for 1 dudek:

September 30, 2017$0.200December 31, 20170.205September 30, 20180.220December 31, 20180.225September 30, 20190.250

b. Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in dollars on the loan in each of the three years 2017, 2018, and 2019.