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On January 1, 2024, Avalanche Corporation borrowed $134,000 from First Bank by issuing a two-year, as fined-rate note with annual interest payments. The principst of
On January 1, 2024, Avalanche Corporation borrowed $134,000 from First Bank by issuing a two-year, as fined-rate note with annual interest payments. The principst of the note is due on December 3t,2025 - Avalanche wanted to hedge against declines in general interest rates, so it also entered into a two year sofr-based interest rate swap agreement on January 1, 2024, and designates it as a fair value hedge. Bocause the swap is entered at macket rates, the fair value of the swap is reco at inception. - The agreement called for the company to recelve fixed interest of the current 5 OFR swap rate of 5% and pay routing interest tied to SOFR. This arrangement results in an effective varlable rate on the note of SOFR +3% - The contract specifies that the floating rate resets each year on June 30 and December 31 for the net settlement that is due the following poriod. in other words, the net cash settement is calculated using beginning: of poried rates The SOFR rates on the swap reset dates and the fair values of the swap obtained from a derivatives dealer are as follows. Avalanche meets alf criteria for hedge occounting using the shonteut method. 5. Rotiorward both the swap account and the notes payable account at each settiementhinterest payment date
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