On July 1, 2020, Molson Coors Brewing Company borrowed $10 million for two years with interest paid semi-annually based on LIBOR adjusted semiannually. On that date, LIBOR is 2 percent per annum. To hedge against a possible rise in interest rates, on July 2 Molson Coors bought a two-year 2.05 percent interest rate cap for 0.075 percent per year, payable in full immediately. The intrinsic value of the cap is designated as the hedge instrument and the hedge is fully effective. The change in the caps time value is reported directly in income. LIBOR increased during the second half of 2020 and is reset to 2.15 percent for the first half of 2021. Molson Coors closes its books on December 31 and June 30. The caps fair value is $11,500 on December 31, 2020, before the rate adjustment, and is $13,500 on June 30, 2021.

Required

Prepare all journal entries related to the loan interest and the interest rate cap on July 2, 2020, December 31, 2020, and June 30, 2021.