Question $6($Hedge accounting $-$ interest rate swap$)$: $(24$ marks$)$

On January $1,2020,$ Motorhead Inc. received a three$-$year, $$1$ million loan with interest payments

due at the end of each year and the principal to be repaid on December $31,2022.$ The interest rate

for the first year is the prevailing market rate of $9$ percent, and the rate each succeeding year will

be equal to the prevailing market rate on January $1$ of that year. On January $1,2020,$ Motorhead

also entered into an interest rate swap agreement related to this loan and designated this swap as a

hedge against fluctuations for its interest payments. Under the terms of the swap agreement, in the

years $2021$ and $2022,$ Motorhead will receive or make a swap payment based on the principal

amount of $$2$ million. If the January $1$ interest rate is greater than $9$ percent, Motorhead will receive

a swap payment for the difference; and if the January $1$ interest rate is less than $9$ percent,

Motorhead will make a swap payment for the difference. The swap payments are made on

December $31$ of each year. On January $1,2021,$ the interest rate is $8$ percent, and on January $1,$

$2022,$ the interest rate is $10$ percent. For purposes of estimating future swap payments, assume that

the current interest rate is the best forecast of the future interest rate

Required: $($Show calculations and round all entries to the nearest dollar.$)$

a$.$ Make the necessary entries on Motorhead's books at December $31,2020.(5$ marks$)$

b$.$ Make the necessary entries on Motorhead's books at December $31,2021.(9$ marks$)$

c$.$ Make the necessary entries on Motorhead's books at December $31,2022.(10$ marks$)$