Question

PLEASE ANSWER STEP 2 ONLY

On September 30,2015, Dolphin Incorporated negotiated a 1,000,000 euro, two-yearloan from a German bank. The annual interest on the loan is 2%.Dolphin makes annual interest payments on September 30. Dolphinwill repay the loan principal on September 30, 2017. Dolphinprepares December 31 year-end financial statements in U.S.dollars.

Step 1:

Prepare the journal entries in Table 1 below for this foreigncurrency borrowing, based on the following exchange rates for oneeuro:

• 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 theeffective cost (in U.S. dollars) of borrowing in 2015, 2016, and2017. Use Table 2 below as a worksheet.
Table 2: EffectiveCost of Borrowing
2015
2016
2017