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How do determine the effective cost of borrowing in dollar

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On September 30, 2018, Dolphin Company negotiated a two-year, 1,000,000 Euro loan from a German bank at an interest rate of 2 percent per year. Dolphin makes interest payments annually on September 30 and will repay the principal on September 30, 2020. Dolphin prepares U.S.-dollar financial statements and has a December 31 year end.

Problem a. create journal entries related to this foreign currency borrowing assuming the following exchange rates for 1 Euro:

September 30, 2018 $0.115
December 31, 2018 0.120
September 30, 2019 0.135
December 31, 2019 0.140
September 30, 2020 0.165

Problem b. Determine the effective cost of borrowing in dollars in each of the three years 2018, 2019, and 2020.

Reference no: EM132805388

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