Answered step by step
Verified Expert Solution
Link Copied!

Question

...
1 Approved Answer

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,

image text in transcribedThere are only 7 journal entries required. I can't figure out where I'm going wrong on entries 5 and 7.

image text in transcribed

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 4,793

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: Kin Lo, George Fisher

3rd Edition Vol. 1

9787300071374

Students also viewed these Accounting questions