Accounting for Fair Value Hedge: Interest Rate Swap On January 2, Badger Corp. enters into a...

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Accounting for Fair Value Hedge: Interest Rate Swap On January 2, Badger Corp. enters into a 5-year interest rate swap contract to effectively hedge a 5-year, 5%, $30,000 note, issued on January 2. The swap calls for Badger Corp. to receive payments semiannually on June 30 and December 31 from the counterparty at a 5% interest rate based on a notional amount of $30,000 and to make payments to the counterparty based upon a designated benchmark interest rate. The benchmark interest rate is 4.2% as of January 2 and the rate will be adjusted every 6 months to the current benchmark interest rate. For simplicity, assume that the swap has zero value on January 2 and on June 30. Required a. Prepare the journal entry on January 2 to record the issuance of the note and initiation of the interest rate swap agreement. Note: If a journal entry isn't required, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Jan. 2 Cash Note Payable Account Name To record issuance of note N/A-Debit N/A-Credit To record issuance of swap agreement Dr. Cr. 30,000 0 0 30,000 0 0 0 0 b. Prepare the entries related to the note payable and the interest rate swap on June 30 assuming the benchmark interest rate is unchanged. Note: If a journal entry isn't required, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Account Name June 30 Interest Expense Cash To record interest paid on note Cash Interest Revenue To record interest received from counterparty Dr. Cr. 1,500 0 0 % 1,500 x 1,500 0 x 0 1,500 x Accounting for Fair Value Hedge: Interest Rate Swap On January 2, Badger Corp. enters into a 5-year interest rate swap contract to effectively hedge a 5-year, 5%, $30,000 note, issued on January 2. The swap calls for Badger Corp. to receive payments semiannually on June 30 and December 31 from the counterparty at a 5% interest rate based on a notional amount of $30,000 and to make payments to the counterparty based upon a designated benchmark interest rate. The benchmark interest rate is 4.2% as of January 2 and the rate will be adjusted every 6 months to the current benchmark interest rate. For simplicity, assume that the swap has zero value on January 2 and on June 30. Required a. Prepare the journal entry on January 2 to record the issuance of the note and initiation of the interest rate swap agreement. Note: If a journal entry isn't required, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Jan. 2 Cash Note Payable Account Name To record issuance of note N/A-Debit N/A-Credit To record issuance of swap agreement Dr. Cr. 30,000 0 0 30,000 0 0 0 0 b. Prepare the entries related to the note payable and the interest rate swap on June 30 assuming the benchmark interest rate is unchanged. Note: If a journal entry isn't required, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Account Name June 30 Interest Expense Cash To record interest paid on note Cash Interest Revenue To record interest received from counterparty Dr. Cr. 1,500 0 0 % 1,500 x 1,500 0 x 0 1,500 x