On January 1, 2021. Labtech Circuits borrowed $240.000 from First Bank by issuing a three-year. 6% 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 6% fixed interest rate on a notional amount of $240.000 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. %, and 5% at the end of 2021, 2022. and 2023, respectively. The fair values of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows: January 1 2821 0 $240, December 31 2822 $ 2.335 $242,335 Fair value of interest rate swap Fair value of note payable 2921 $ (3,159) $236,841 2923 $ $240, eee Required: 1. Calculate the net cash settlement at the end of 2021 2022, and 2023. 2. Prepare the journal entries during 2021 to record the issuance of the note, interest, and necessary adjustments for changes in fair value. 3. Prepare the joumal entries during 2022 to record interest, net cash interest settlement for the interest rate swap. and necessary adjustments for changes in fair value. 4. 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. 5. Calculate the book values of both the swap account and the note in each of the three years. 6. Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.) 7. Suppose the fair value of the note at December 31, 2021, had been $227.000 rather than $236.841 with the additional decline in fair value due to investors' perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Calculate the net cash settlement at the end of 2021, 2022, and 2023. (Negative amounts should be indicated by a minus sign.) December 31 2022 2021 2023 Net interest receipts (payments) Required 1 Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the journal entries during 2021 to record the issuance of the note, interest, and necessary adjustments for changes in fair value. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet 2 3 4 5 Record the issuance of the note. Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2021 Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 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. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet Record the interest. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2022 Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the interest. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2023 Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Calculate the book values of both the swap account and the note in each of the three years. Swap Balance Note Balance Date December 31, 2021 December 31, 2022 December 31, 2023 | Required 4 Required 6 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.) (Negative amounts should be indicated by a minus sign.) Net effect on earnings 2021 2022 2023 Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Suppose the fair value of the note at December 31, 2021, had been $227,000 rather than $236,841 with the additional decline in fair value due to investors' perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Show less View transaction list Journal entry worksheet 2 3 4 Record the interest. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2021 Record entry Clear entry View general journal On January 1, 2021. Labtech Circuits borrowed $240.000 from First Bank by issuing a three-year. 6% 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 6% fixed interest rate on a notional amount of $240.000 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. %, and 5% at the end of 2021, 2022. and 2023, respectively. The fair values of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows: January 1 2821 0 $240, December 31 2822 $ 2.335 $242,335 Fair value of interest rate swap Fair value of note payable 2921 $ (3,159) $236,841 2923 $ $240, eee Required: 1. Calculate the net cash settlement at the end of 2021 2022, and 2023. 2. Prepare the journal entries during 2021 to record the issuance of the note, interest, and necessary adjustments for changes in fair value. 3. Prepare the joumal entries during 2022 to record interest, net cash interest settlement for the interest rate swap. and necessary adjustments for changes in fair value. 4. 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. 5. Calculate the book values of both the swap account and the note in each of the three years. 6. Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.) 7. Suppose the fair value of the note at December 31, 2021, had been $227.000 rather than $236.841 with the additional decline in fair value due to investors' perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Calculate the net cash settlement at the end of 2021, 2022, and 2023. (Negative amounts should be indicated by a minus sign.) December 31 2022 2021 2023 Net interest receipts (payments) Required 1 Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the journal entries during 2021 to record the issuance of the note, interest, and necessary adjustments for changes in fair value. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet 2 3 4 5 Record the issuance of the note. Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2021 Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 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. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet Record the interest. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2022 Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the interest. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2023 Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Calculate the book values of both the swap account and the note in each of the three years. Swap Balance Note Balance Date December 31, 2021 December 31, 2022 December 31, 2023 | Required 4 Required 6 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.) (Negative amounts should be indicated by a minus sign.) Net effect on earnings 2021 2022 2023 Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Suppose the fair value of the note at December 31, 2021, had been $227,000 rather than $236,841 with the additional decline in fair value due to investors' perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Show less View transaction list Journal entry worksheet 2 3 4 Record the interest. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2021 Record entry Clear entry View general journal