se of variable-for-fixed swap agreement-fair value hedge n June 30, our company borrows $25 million of 5-year 7.5% fixed-rate interest-only nonprepayable debt. We prefer variable-rate debt since our cash flows are positively correlated to the level of interest rates, and decide to enter into a fixed-for-variable interest rate swap. Under the terms of the swap, we receive interest at a fixed rate of 7.5% and pay interest at a variable rate equal to the six-month U LIBOR, based on a notional amount of $25 million. Both the debt and the swap require that payments be made or received on December 31 and June 30. The six-month U.S. LIBOR rate on each reset date determines the variable portion of the interest-rate swap for the following six-month period. O pany designates the swap as a fair value hedge of the fixed-rate debt, with changes in the fair value th are due to changes in benchmark interest rates being the specific risk that is hedged. ur com- The six-month U.S. LIBOR rates and the swap and debt fair values are assumed to be as follows for the first year of the swap and debt agreements: Six-Month U.S. LIBOR Rate SWAP Fair Value Debt Carrying Value Date June 30 (date of borrowing). December 31. June 30 (following year).... 6.00% 5.75% 68,750 137,500 $25,000,000 25,068,750 25,137,500 Pre the journal entries to record the following: orrowing on June 30 (year of borrowing) 0. Interest payment at December 31 C. Interest st payment at June 30 (following year) sacurities-fair value hedge LO