Business, 18.08.2021 02:10 mili74

On January 1, 2021, Labtech Circuits borrowed $270,000 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 $270,000 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. Those quotes and the fair values of the note are as follows:

January 1,2021 December 31,2021 December 31,2022 December 31,2023
Fair value of interest rate swap 0 $(3,300) $2,500 $0
Fair value of note payable $270,000 $266,700 $272,500 $270,000

Required:
a. Calculate the net cash settlement at the end of 2021, 2022, and 2023.
b. Prepare the journal entries during 2021 to record the issuance of the note, interest, and necessary adjustments for changes in fair value.
c. Prepare the journal entries during 2022 to record interest, net cash interest settlement for the interest rate swap, and necessary adjustments for changes in fair value.
d. Prepare the journal entries during 2023 to record interest, net cash interest settlement for the interest rate swap, necessary adjustments for changes in fair value, and repayment of the debt.
e. Calculate the book values of both the swap account and the note in each of the three years.
f. Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.)
g. Suppose the fair value of the note at December 31, 2021, had been $247,000 rather than $266,700 with the additional decline in fair value due to investor's perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values?

Answers: 3

Show answers

Another question on Business

Business, 22.06.2019 02:00

True or false: a smart store layout moves customers in and out as fast as possible. a) true b) false

Answers: 2

Answer

Business, 22.06.2019 03:00

50 points mark brainliest 1) the information in the interactive presentation suggests that people a) utilize the perception of others rather that out own perception b) learn more about the positive aspects of perception c) should monitor how perceptual barriers influence our relationship d) spend more times on our personal relationships rather than our professional relationships 2) you are about to take the dog out for a walk but pause to watch the news because you hear the name of your town being mentioned hearing your town being mentioned on the news is an example of a) stimulation b) interaction c) organization d) interpretation- evaluation 3) tamara thinks ivan is upset with her because hes been unusually quiet today to better interpret the situation and communicate appropriately tamara should a) ask ivan why hes quiet and explain that hes being inconsiderate b) leave ivan alone because hes obviously going through something c) ask her guidance counselor for tips on providing therapy to a friend d) examine her own perception and then check in with ivan about his behavior 4) of the following abilities which is the most important to the perceptual checking process a) critical thinking ability b) creative ability c) memorizing ability d) organizational ability

Answers: 2

Answer

Business, 22.06.2019 18:30

Amanufacturer has paid an engineering firm $200,000 to design a new plant, and it will cost another $2 million to build the plant. in the meantime, however, the manufacturer has learned of a foreign company that offers to build an equivalent plant for $2,100,000. what should the manufacturer do?

Answers: 1

Answer

Business, 22.06.2019 19:30

Which of the following statements are false regarding activity-based costing? non-manufacturing costs are important to include when calculating the cost of each product. costs are allocated based on a pre-determined overhead rate. transitioning from traditional costing methods to activity-based costing can be complicated and costly. activity-based costing follows the same basic calculation methods as traditional costing approaches. none of the above

Answers: 2

Answer

You know the right answer?

On January 1, 2021, Labtech Circuits borrowed $270,000 from First Bank by issuing a three-year, 9% n...

Questions