On September 30, 2011, Ericson Company negotiated a two-year, 1,000,000 dudek loan from a foreign bank at

Question:

On September 30, 2011, 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, 2013. Ericson prepares U.S.-dollar 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:
September 30, 2011 . $0.100
December 31, 2011 . 0.105
September 30, 2012 . 0.120
December 31, 2012 . 0.125
September 30, 2013 . 0.150
b. Determine the effective cost of borrowing in dollars in each of the three years 2011, 2012, and 2013.

Financial Statements
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