ABC Inc. issues a 10,000,000 6-year, 5% fixed-rate interest note payable on December 31, 2020. CDE Inc. is worried that interest rates may decrease which would increase the value of its debt so it enters into a swap agreement with ABC Corp. The swap agreement specifies that CDE Inc. will receive a fixed rate at 5% and pay a variable (floating) rate with settlement dates occurring on the dates interest payments are due. Interest payments are due annually on December 31st.

1) During 2021, market interest rates increased to 6%. Which journal entries does ABC Inc. record on December 31, 2021 to account for interest and the swap arrangement? 2) During 2022, market interest rates decreased from 6% to 4%. What journal entries does ABC Inc. record on December 31, 2022 to account for interest and the swap arrangement? 3) What is the recorded book value for the note payable at the end of 2022? 4) What is the effect on net income of the note payable and associated interest rate swap for the fiscal year ending on December 31, 2022?