Question
Exercise A-5 (Algo) Derivatives; interest rate swap; fixed rate debt; extended method [LOA-6] On January 1, 2021, LLB Industries borrowed $260,000 from Trust Bank by
Exercise A-5 (Algo) Derivatives; interest rate swap; fixed rate debt; extended method [LOA-6] On January 1, 2021, LLB Industries borrowed $260,000 from Trust Bank by issuing a two-year, 12% note, with interest payable quarterly. LLB entered into a two-year interest rate swap agreement on January 1, 2021, 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 12% fixed interest rate on a notional amount of $260,000 and to interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly. Floating (LIBOR) settlement rates were 12% at January 1, 10% at March 31, and 8% at June 30, 2021. 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: Fair value of interest rate swap. Fair value of note payable. January 1 $260,000 0 March 31 $ 7,400 $267,400 June 30 $ 13,194 $273,194 Required: Prepare the journal entries through June 30, 2021, to record the issuance of the note, interest, and necessary adjustments for char in fair value. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round y intermediate and final answers to the nearest whole dollar.) View transaction list Journal entry worksheet 2 3 4 5 6 7
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