On December 31, 2020, Sage Corp. had a $5,340,000, 6% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2- year swap with First Regional Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indicate that Sage will receive interest at a fixed rate of 6% and will pay a variable rate equal to the 6-month LIBOR rate, based on the $5,340,000 amount. The LIBOR rate on December 31, 2020, is 5.0%. The LIBOR rate will be reset every 6 months and will be used to determine the variable rate to be paid for the following 6-month period. Sage Corp, designates the swap as a fair value hedge. Assume that the hedging relationship meets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debt fair values are as follows. Date December 31, 2020 June 30, 2021 December 31, 2021 (b) 6-Month LIBOR Rate Swap Fair Value 5.0% 4.5% 6.0% 90,000 (190,000) Debt Fair Value $5,340,000 5,430,000 5,150,000 Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on December 31, 2020. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
On December 31, 2020, Sage Corp. had a $5,340,000, 6% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2- year swap with First Regional Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indicate that Sage will receive interest at a fixed rate of 6% and will pay a variable rate equal to the 6-month LIBOR rate, based on the $5,340,000 amount. The LIBOR rate on December 31, 2020, is 5.0%. The LIBOR rate will be reset every 6 months and will be used to determine the variable rate to be paid for the following 6-month period. Sage Corp, designates the swap as a fair value hedge. Assume that the hedging relationship meets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debt fair values are as follows. Date December 31, 2020 June 30, 2021 December 31, 2021 (b) 6-Month LIBOR Rate Swap Fair Value 5.0% 4.5% 6.0% 90,000 (190,000) Debt Fair Value $5,340,000 5,430,000 5,150,000 Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on December 31, 2020. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I just need help with part b. I already did part a, and I'm just giving it to you to make doing part b easier. Please do not give me the answer to part a, I only need help with part b.
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