Notes payable:
Notes payable is basically a promissory note wherein the amount mentioned has to be paid. The issuer or the borrower has to interest as well and the issuing company will have an interest factor. It is a general ledger liability account.
In other words, the borrower is bound to pay a certain amount under this agreement to the lender within a stipulated time period along with an interest.
To calculate:
The notes payable on the basis of
Answer to Problem 7E
There is no ending balance at the end of each quarter.
Explanation of Solution
Note: Variables rates for the next quarters
Schedule A: Amortisation of note payable without swap
Quarter | Payment | Interest | Principal | Balance |
Beginning | | |||
March | | | | |
June | | | | |
September | | | | |
December | | | | |
March | | | | |
Total | | | |
Note:
Schedule B: quarterly variable versus fixed rate difference
Quarter | Variable rate | Fixed rate | Quarterly interest | Quarterly difference | |
Variable rate (A) | Fixed rate (B) | | |||
June | | | | | |
September | | | | | |
December | | | | | |
March | | | | | |
Total | |
Variables rates for the next quarters:
Summary of entries debit (credit) over the life of not payable as follows:
Particulars | Cash | Notes Payable | Interest | Gain(loss) on debt | Swap asset | Gain(loss)on swap |
Beginning balance | | | ||||
March | | | | |||
June Change in value of swap Quarterly difference | | | | | | |
September Quarterly difference | | | | | | |
December Quarterly difference | | | | | | |
March Quarterly difference | | | | | | |
Ending balance | | | | | | |
CONCLUSION
There is no ending balance at the end of each quarter.
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Chapter 9 Solutions
ADVANCED ACCOUNTING >CUSTOM<
- A2) A semi-annual pay interest rate swap where the fixed rate is 6.00% (with semi-annual compounding) has a remaining life of eight months. The six-month LIBOR rate observed four months ago was 5.00% with semi-annual compounding. Today’s two and eight month LIBOR rates are 5.5% and 5.75% (continuously compounded) respectively. Assume that OIS and LIBOR rates are the same. If the swap has a principal value of $100,000, the value of the swap to the party receiving a fixed rate of interest is closest to which of the following ?arrow_forward6. Consider a credit default swap initiated on April 1, 2012. The notional principal amount is $100 million. The premium payments are made annually at a rate of 180 basis points per year. The swap will last for 5 years. Suppose that default event occurs on December 31, 2014. The recovery rate is 65%. Then the accrual payment is equal to ___________. a. $0b. $1,200,000c. $1,350,000d. $4,400,000e. $35,000,000arrow_forwardProblem 4. The LIBOR zero curve is flat at 5% per year with continuously compounded out to 1.5 years. The swap rate for 2-year semiannual pay swap is 5.4% per year with semiannual compounding. Estimate the 2-year LIBOR zero rate per year with continuous compounding. a. 5.00% b. 5.13% c. 5.20% d. 5.34% e. 5.40%arrow_forward
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