Answered: September 30, 2017 December 31, 2017…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

On September 30, 2017, Ericson Company negotiated a two-year, 1,000,000 dudek loan from a foreign bank at an interest rate of 2 percent per year. It makes interest payments annually on September 30 and will repay the principal on September 30, 2019. Ericson prepares U.S.-dollar financial statements and has a December 31 year-end.
a. Prepare all journal entries related to this foreign currency borrowing assuming the following exchange rates for 1 dudek:
b. Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in dollars on the loan in each of the three years 2017, 2018, and 2019.

September 30, 2017
December 31, 2017
September 30, 2018
December 31, 2018
September 30, 2019
$0.100
0.105
0.120
0.125
0.150

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