check your file you already have it .alvalance corporation borrowed 138,000 from first bank Required information On January 1, 2024, Avalanche Corporation borrowed from First Bank by Issulng a two-year, fixed-rate note With annual Interest payments. The principal of the note is due on December 31, 2025. - Avalanche wanted to hedge against 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 and pay floating Interest tled to SOFR. This arrangement results in an effective 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 period. In other words, the net cash settlement is calculated using beginning - of - perlod rates. The SOFR rates on the swap reset dates and the fair values of the swap obtained from a derivatives dealer are as follows: Avalanche meets all criterla for hedge accounting using the shortcut method. 2 Calculate the net cash settlement at each settlement date during 2024 and 2025. 3. 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. 4. Prepare the Journal entrles during 2025 to record Interest, net cash settlement for the interest rate swap, necessary adjustment for changes In falr 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.
check your file you already have it .alvalance corporation borrowed 138,000 from first bank Required information On January 1, 2024, Avalanche Corporation borrowed from First Bank by Issulng a two-year, fixed-rate note With annual Interest payments. The principal of the note is due on December 31, 2025. - Avalanche wanted to hedge against 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 and pay floating Interest tled to SOFR. This arrangement results in an effective 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 period. In other words, the net cash settlement is calculated using beginning - of - perlod rates. The SOFR rates on the swap reset dates and the fair values of the swap obtained from a derivatives dealer are as follows: Avalanche meets all criterla for hedge accounting using the shortcut method. 2 Calculate the net cash settlement at each settlement date during 2024 and 2025. 3. 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. 4. Prepare the Journal entrles during 2025 to record Interest, net cash settlement for the interest rate swap, necessary adjustment for changes In falr 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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check your file you already have it .alvalance corporation borrowed 138,000 from first bank Required information On
January 1, 2024, Avalanche Corporation borrowed from First Bank by Issuing a two-year, fixed-rate note With annual
Interest payments. The principal of the note is due on December 31, 2025. - Avalanche wanted to hedge against
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 and pay floating Interest tled to SOFR. This arrangement results in an effective 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 period. In other words, the net cash settlement is calculated using beginning-of-
perlod rates. The SOFR rates on the swap reset dates and the fair values of the swap obtained from a derivatives dealer
are as follows: Avalanche meets all criterla for hedge accounting using the shortcut method. 2 Calculate the net cash
settlement at each settlement date during 2024 and 2025. 3. 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. 4. Prepare the Journal entrles during 2025 to record Interest, net cash settlement
for the interest rate swap, necessary adjustment for changes In falr 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.
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