On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 3,200,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PFI prepares U.S. dollar financial statements and has a December 31 year-end. Relevant exchange rates are as follows: Date September 30, 2020 December 31, 2020 September 30, 2021 December 31, 2021 September 30, 2022 U.S. Dollar per Chinese Yuan (CNY) $ 0.210 0.215 0.230 0.235 0.260 a. Prepare all journal entries related to this foreign currency borrowing. b. Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022. Interest payable (CNY) 6,880 Foreign exchange loss Cash 480 29,440 5 12/31/2021 Interest expense 7,520 Interest payable (CNY) 7,520 6 12/31/2021 Foreign exchange loss 64,000 Note payable (CNY) 64,000 7 09/30/2022 Interest expense 3,200 Interest payable (CNY) 3,200 8 09/30/2022 Note payable (CNY) 25,000 Foreign exchange loss 25,000 Journal entry worksheet 1 2 3 4 5 6 7 8 Record the second annual interest payment, record interest expense for the period 01/01/2022-09/30/2022, and record a foreign exchange gain or loss on the interest payable accrued at 12/31/2021. Note: Enter debits before credits. Date General Journal Debit Credit 09/30/2022 Interest expense 3,200 Interest payable (CNY) 3,200 Record the payment of 1 million yuan note. Note: Enter debits before credits. Date General Journal Debit Credit 09/30/2022 Note payable (CNY) 25,000 Foreign exchange loss 25,000 Required A Required B Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022. (Do not round intermediate calculations.) Effective Cost of Borrowing 2020 2021 2022 < Required A Required B >