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Required Information

On January $1,2024,$ Avalanche Corporation borrowed $$104,000$ from First Bank by Issulng a two$-$year, $8\%$ fixed$-$rate note

with annual Interest payments. The principal of the note is due on December $31,2025.$

Avalanche wanted to hedge agalnst 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 falr value hedge. Because the swap is

entered at market rates, the fair value of the swap is zero at Inception.

The agreement called for the company to recelve fixed Interest at the current SOFR swap rate of $5\%$ and pay floating

Interest tled to SOFR. This arrangement results in an effectlve 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 perlod. In other words, the net cash settlement is calculated using beginning$-$of$-$perlod

rates.

The SOFR rates on the swap reset dates and the falr values of the swap obtained from a derlvatlves dealer are as follows:

Avalanche meets all criterla for hedge accounting using the shortcut method.

Calculate the net cash settlement at each settlement date during $2024$ and $2025.$

Prepare the journal entrles during $2024$ to record the Issuance of the note, Interest, net cash settlement for the interest rate

swap, and necessary adjustments for changes in falr value under the shortcut method.

Prepare the journal entrles during $2025$ to record Interest, net cash settlement for the Interest rate swap, necessary adjustments

for changes in fair value, and repayment of the debt.

Complete this question by entering your answers in the tabs below.

Calculate the net cash settlement at each settlement date during $2024$ and $2025.$

Note: Indicate payment amounts with a minus sign.