January 1, 2020 WI entered into a two year interest rate swap in with DI Corp. WI received 8% fixed on a notional amount of S4.000.000 and pay variable at prime +1% where prime is set at 7%. WI opts to not to not use hedge accounting for this swap contract January 1. 2021: Prime is reset to 5% on the swan contract The swap contract value is $113 000. January 1. 2022: The swap contract was settled. prepare the journal entry for each item

January 1, 2020 WI entered into a two year interest rate swap in with DI Corp. WI received 8% fixed on a notional amount of S4.000.000 and pay variable at prime +1% where prime is set at 7%. WI opts to not to not use hedge accounting for this swap contract January 1. 2021: Prime is reset to 5% on the swan contract The swap contract value is $113 000. January 1. 2022: The swap contract was settled. prepare the journal entry for each item

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 3MC: On July 1, 2019, Aldrich Company purchased as an available-for-sale security 200,000 face value, 9%...

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On July 1, 2019, Aldrich Company purchased as an available-for-sale security 200,000 face value, 9% U.S. Treasury notes for 194,000. The notes mature July 1, 2020, and pay interest semiannually on January 1 and July 1. The notes were sold on December 1, 2019, for 199,000. Aldrich normally uses straight-line amortization on all of its notes. In its income statement for the year ended December 31, 2019, what amount should Aldrich report as a gain on the sale of the available-for-sale security? a. 2,500 b. 3,500 c. 5,000 d. 6,000
Company B (CB) entered into an interest rate swap contract with Company C (CC) effective January 1, 2020. Specifically, CB agrees to pay CC’s interest and CC will pay CB’s interest. The contract lasts for three years. CB is attempting to hedge their cash flow risk exposure on their floating rate debt on a loan of $ 3,000,000 which is due in full in three years. CC is attempting to hedge their fair value risk exposure on their fixed rate debt of $ 3,000,000 which is also due in three years in full. The notional principal in the swap contract is $ 3,000,000. The fixed rate and variable rate on January 1, 2020 were both 5%. During 2020 the variable rate increased to 6 %. Required. (a) Prepare the journal entries for 2020 for CB and CC using IFRS and ASPE if optional hedge accounting is used. Explain your answer. (b) Prepare the journal entries for 2020 for CB and CC using IFRS and ASPE if optional hedge accounting is not used. Explain your answer.
On January 1, 2021, Labtech Circuits borrowed $160,000 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 fair value hedge. The agreement called for the company to receive payment, based on an 9% fixed interest rate on a notional amount of $160,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract cash settlement of the new 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:…
On January 1, 2021, Labtech Circuits borrowed $290,000 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 $290,000 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…
On January 1, 2021, Labtech Circuits borrowed $252,000 from First Bank by issuing a three-year, 6% 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 6% fixed interest rate on a notional amount of $252,000 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 6% at inception and 7%, 5%, and 5% at the end of 2021, 2022, and 2023, respectively. The fair values of the swap are quotes obtained from a derivatives dealer. Those quotes and the fair values of the note are as follows: January 1 December 31 2021 2021 2022 2023…
On January 1, 2021, Labtech Circuits borrowed $216,000 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 $216,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract called for ash 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 contained from a derivatives dealer. Those quotes and the fair values of the note are as follows:…
Sarazan Company issues a 4-year, 7.5% fixed-rate interest only, nonprepayable $1,000,000 note payable on December 31, 2019. It decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap agreement specifies that Sarazan will receive a fixed rate at 7.5% and pay variable with settlement dates that match the interest payments on the debt. Assume that interest rates have declined during 2020 and that Sarazan received $13,000 as an adjustment to interest expense for the settlement at December 31, 2020. The loss related to the debt (due to interest rate changes) was $48,000. The value of the swap contract increased $48,000. Instructions a. Prepare the journal entry to record the payment of interest expense on December 31, 2020. b. Prepare the journal entry to record the receipt of the swap settlement on December 31, 2020. c. Prepare the journal entry to record the change in the fair value of the swap contract on…
On January 1, 2021, Labtech Circuits borrowed $110,000 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 $110,000 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…
On January 1, 2021, LLB Industries borrowed $360,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly. LLB entered into a two-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. Its intent was to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. The agreement called for the company to receive payment based on a 10% fixed interest rate on a notional amount of $360,000 and to pay interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly. Floating (LIBOR) settlement rates were 10% at January 1, 8% at March 31, and 6% June 30, 2021. The fair values of the swap are quotes obtained from a derivatives dealer. Those quotes and the fair values of the note are as indicated below. January 1…
Tuba Co. enters into a “receive variable, pay fixed” interest swap on January 1, 20x1 for a notional amount of ₱1,000,000. Under the terms of the contract, if the current rate increases above 12% (i.e., the set rate), Tuba Co. shall receive the excess interest. If the current rate falls below 12%, Tuba Co. shall pay the deficiency. Swap payment shall be made on December 31, 20x2. The current rates are as follows: Jan. 1, 20x1……………………………12% Jan. 1, 20x2……………………………15% How much is the net cash settlement on December 31, 20x2? 30,0000 payment 30,000 receipt 26,087 payment 26,087 receipt
(Fair Value Hedge Interest Rate Swap) On December 31, 2017, Mercantile Corp. had a $10,000,000, 8% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2-year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indicate that Mercantile will receive interest at a fixed rate of 8% andwill pay a variable rate equal to the 6-month LIBOR rate, based on the $10,000,000 amount. The LIBOR rate on December 31, 2017, is 7%. The LIBOR rate will be reset every 6 months and will be used to determine the variable rate to be paid for the following 6-month period.Mercantile Corp. designates the swap as a fair value hedge. Assume that the hedging relationship meets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debt fair values are as follows. Date 6-Month LIBOR Rate Swap Fair Value Debt Fair Value December 31, 2017 7.0% — $10,000,000 June 30, 2018 7.5% (200,000) 9,800,000…
On January 1, 2020, Sheridan Technical Inc. issues a 5-year, 6% fixed-rate interest only, nonprepayable $5,100,000 note with interest payable on June 30 and December 31 of each year. Sheridan decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with Last Bank Financial. The swap agreement specifies that Sheridan will receive a fixed rate at 6% and pay variable with settlement dates that match the interest payments on the debt. Assume that interest rates have increased during 2020 and that Sheridan paid $34,900 as an adjustment to interest expense for the settlement at June 30, 2020. The gain related to the debt (due to interest rate changes) was $111,000. The value of the obligation under the swap contract increased $111,000. (a) Prepare the journal entry to record the payment of interest expense on June 30, 2020. (b) Prepare the journal entry to record the receipt of the swap settlement on June 30, 2020. (c) Prepare the…