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T here are only 7 journal entries required. I can't figure out where I'm going wrong on entries 5 and 7. On January 1, 2021,
There are only 7 journal entries required. I can't figure out where I'm going wrong on entries 5 and 7.
On January 1, 2021, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly. LLB entered into a two-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. Its intent was to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. The agreement called for the company to receive payment based on a 10% fixed interest rate on a notional amount of $200,000 and to pay interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly. Floating (LIBOR) settlement rates were 10% at January 1, 8% at March 31, and 6% at June 30, 2021. The fair values of the swap are quotes obtained from a derivatives dealer. Those quotes and the fair values of the note are as follows: Fair value of interest rate swap Fair value of note payable January 1 0 $ 200,000 March 31 $ 6,472 $ 206,472 June 30 $ 11,394 $ 211,394 Required: Prepare the journal entries through June 30, 2021, to record the issuance of the note, interest, and necessary adjustments for changes in fair value. (Round your intermediate and final answers to the nearest whole dollar. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is not complete. General Journal No Date Credit Debit 200,000 1 January 01 Cash Notes payable 200.000 N 2 March 31 5,000 Interest expense Cash 5,000 3 March 31 Cash 1.000 6,472 Interest rate swap Interest expense 7,472 4 March 31 6,472 Interest expense Notes payable 6,472 5 June 30 3,700 Interest expense Notes payable 3,700 6 June 30 2,000 4,922 Cash Interest rate swap Interest revenue Interest expense 129 6,793 7 June 30 4,793 Interest expense Notes payable el 4,793Step by Step Solution
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