Question

PLEASE ANSWER STEP 2 ONLY

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 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

Answer 1

Date	Accounts	Debit	Credit
30/9/2015	Cash	110,000
	Notes Payable		110,000
31/12/2015	Interest expense	1,150
	Acrued interest		1,150
	1000000*2%*.115/2
30/9/2016	Interest expense	1,300
	Acrued interest	1,150
	Cash		2,450
	Foreign exchange loss	20,000
	Notes Payable		20,000
31/12/2016	Interest expense	1,350
	Acrued interest		1,350
	1000000*2%*.135/2
30/9/2017	Interest expense	1,600
	Acrued interest	1,350
	Cash		2,950
	Foreign exchange loss	30,000
	Notes Payable		30,000
	Notes Payables	160,000
	Cash		160,000