INTERMEDIATE ACCTING CONNECT ACCESS >I<
9th Edition
ISBN: 9781260586893
Author: SPICELAND
Publisher: MCGRAW-HILL CUSTOM PUBLISHING
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Textbook Question
Chapter A, Problem 2E
Derivatives; interest rate swap; fixed rate debt
On January 1, 2018, LLB Industries borrowed $200,000 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, 2018, 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 $200,000 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, 2018. 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.
Required:
- 1. Calculate the net cash settlement at March 31 and June 30, 2018.
- 2. Prepare the
journal entries through June 30, 2018, to record the issuance of the note, interest, and necessary adjustments for changes in fair value.
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On January 1, 2024, LLB Industries borrowed $210,000 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, 2024, 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 $210,000
and to pay interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly
and rates reset at the beginning of each period.
• Floating (SOFR) settlement rates were 10% at January 1, 8% at March 31, and 6% at June 30 and September 30, 2024. 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. Assume LLB uses the shortcut method.
Fair value…
On January 1, 2024, LLB Industries borrowed $212,000 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, 2024, 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 $212,000
and to pay Interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly
and rates reset at the beginning of each period.
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Floating (SOFR) settlement rates were 10% at January 1, 8% at March 31, and 6% at June 30 and September 30, 2024. 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. Assume LLB uses the shortcut method.
Fair value of…
On January 1, 2024, LLB Industries borrowed $228,000 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, 2024, 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 $228,000
and to pay interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly
and rates reset at the beginning of each period.
• Floating (SOFR) settlement rates were 10% at January 1, 8% at March 31, and 6% at June 30 and September 30, 2024. 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. Assume LLB uses the shortcut method.
Fair value…
Chapter A Solutions
INTERMEDIATE ACCTING CONNECT ACCESS >I<
Ch. A - Prob. A.1QCh. A - Prob. 2QCh. A - Prob. A.2QCh. A - Prob. 3QCh. A - Prob. A.3QCh. A - Prob. 4QCh. A - Prob. A.4QCh. A - What is the effect on interest of an interest rate...Ch. A - Prob. A.5QCh. A - How are derivatives reported on the balance sheet?...
Ch. A - Prob. A.6QCh. A - When is a gain or a loss from a cash flow hedge...Ch. A - Prob. A.7QCh. A - Prob. 1ECh. A - Prob. A.1ECh. A - Derivatives; interest rate swap; fixed rate debt...Ch. A - Derivatives; interest rate swap; fixed rate...Ch. A - Derivatives; interest rate swap; fixed rate debt;...Ch. A - Prob. 5ECh. A - Derivatives; interest rate swap; fixed-rate debt;...Ch. A - Derivatives; interest rate swap On January 1,...Ch. A - Derivatives; interest rate swap; comprehensive...Ch. A - Derivatives; interest rate swap; fixed rate debt;...Ch. A - Real World Case A1 Derivative losses; recognition...Ch. A - Research Case A4 Issue related to the derivatives...Ch. A - Prob. A.4BYP
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