Calculate all the 3subparts A,B,C.if answered within 40mins,it would be appreciable!!A) Calculate the book values of both the swap account and the note in each of the three years.B) Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.)C) Suppose the fair value of the note at December 31, 2021, had been $267,000 rather than $276,441 with the additional decline in fair value due to investors’ perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values? On January 1, 2021, Labtech Circuits borrowed $280,000 from First Bank by issuing a three-year, 9% note, payable on December 31,2023. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore,Labtech entered into a three-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge.The agreement called for the company to receive payment based on an 9% fixed interest rate on a notional amount of $280,000 andto pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount onDecember 31 of each year.Floating (LIBOR) settlement rates were 9% at inception and 10%, 8%, and 8% at the end of 2021, 2022, and 2023, respectively. The fairvalues of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows:January 1December 312021202120222023Fair value of interest rate swap$ (3,559)$276,441$2,735$Fair value of note payable$280,000$282,735$280,000

A) Book values of both the swap account and the note Working:

Answered: Calculate all the 3subparts A,B,C.if…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter13: Marketable Securities And Derivatives

Section: Chapter Questions

Problem 30P

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Calculate all the 3subparts A,B,C.if answered within 40mins,it would be appreciable!!

A) Calculate the book values of both the swap account and the note in each of the three years.
B) Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.)
C) Suppose the fair value of the note at December 31, 2021, had been $267,000 rather than $276,441 with the additional decline in fair value due to investors’ perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values?

On January 1, 2021, Labtech Circuits borrowed $280,000 from First Bank by issuing a three-year, 9% note, payable on December 31,
2023. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore,
Labtech entered into a three-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge.
The agreement called for the company to receive payment based on an 9% fixed interest rate on a notional amount of $280,000 and
to pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount on
December 31 of each year.
Floating (LIBOR) settlement rates were 9% at inception and 10%, 8%, and 8% at the end of 2021, 2022, and 2023, respectively. The fair
values of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows:
January 1
December 31
2021
2021
2022
2023
Fair value of interest rate swap
$ (3,559)
$276,441
$
2,735
$
Fair value of note payable
$280,000
$282,735
$280,000

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