PLEASE ANSWER STEP 2 ONLY Prepare the journal entries in Table 1 below for this

Question

PLEASE ANSWER STEP 2 ONLY

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

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

Explanation / Answer

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

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