On January 1, 2024, Oriole Company purchased $500,000 of Nest Corporation’s five-year, 4% notes at par, with interest receivable semiannually. The company classified the investment as available-for-sale.
∙ To hedge the risk that general interest rates will increase and the fair market value of its investment in AFS debt securities will decrease, Oriole entered into a five-year plain vanilla interest rate swap agreement on January 1, 2024, and designated the swap as a fair value hedge.
∙ The agreement called for the company to make payments based on a 4% fixed interest rate on a notional amount of $500,000 and to receive interest based on a floating interest rate (SOFR). The contract called for cash settlement of the net interest amount semiannually on June 30 and December 31, based on beginning-of-period rates.
∙ Oriole qualifies for and elects to use the shortcut method.
∙ Floating (market) settlement rates were 3% at June 30, 2024, 5% at December 31, 2024, and 5.5% at June 30, 2025.
The fair values of the swap on those dates are quotes obtained from a derivatives dealer and are listed below.

Required:
1. Calculate the net cash settlement at June 30 and December 31, 2024, and June 30, 2025.
2. Prepare the journal entries through June 30, 2025, to record the investment in available-for-sale debt securities, interest, and necessary adjustments for changes in fair value.

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Interest revenue-AFS security Fixed rate-swap Floating rate-swap Fair value of interest rate swap 1/1/24 4% 4% $0 6/30/24 $ 10,000 4% 3% $ (20,901) 12/31/24 $ 10,000 4% 5% $ 17,925 6/30/25 $10,000 4% 5.5% $23,585