On January 1, 2021, JPS Industries borowed $220,000 from Austin Bank by issuing a three-year, floating rate note based on LIBOR,with interest payable semi-annually on June 30 and December of each year. JPS entered into a three-year interest rate swapagreement on January 1, 2021, and designaled the swap as a cash flow hedge. The intent was to hedge the risk that interest rates willrise, increasing its semi-annual interest payments. The swap agreement called for the company to receive payment based on a floatingInterest rate on a notional amount of $220,000 and to pay a 4.0% fixed Interest rate. The contract called for cash settlement of the netinterest amount semi-annually, and the rate on each reset date (June 30 and December 31) determines the variable interest rate for thefollowing six months.LIBOR rates in 2021 were 4.0% at January 1, 3.0% at June 30, and 5.5% at December 31. The fair values of the swap on those dates,obtalned by dealer quotes, were as follows:January 1June 30 December 31Swap fair value$(2,300) $ 3,600Required:1. Calculate the net settlement on June 30, 2021.2. Prepare journal entries for the period January 1 to December 31, 2021, to record the note payable and hedging instrument,necessary adjustments for changes in fair value, and settlement of the swap contract.

Requirement 1 June 30 Receive floating interest ($220,000×3%×½) = $3,300 Pay fixed interest…

On January 1, 2021, JPS Industries borrowed $220,000 from Austin Bank by issuing with interest payable semi-annually on June 30 and December of each year. JPS er agreement on January 1, 2021, and designated the swap as a cash flow hedge. The rise, increasing its semi-annual interest payments. The swap agreement called for t Interest rate on a notional amount of $220,000 and to pay a 4.0% fixed Interest rate interest amount semi-annually, and the rate on each reset date (June 30 and Decer following six months. LIBOR rates in 2021 were 4.0% at January 1, 3.0% at June 30, and 5.5% at Decembe obtalned by dealer quotes, were as follows: June 30 December 3: $(2,300) $ 3,680 January 1 Swap fair value Required:

On January 1, 2021, JPS Industries borrowed $220,000 from Austin Bank by issuing with interest payable semi-annually on June 30 and December of each year. JPS er agreement on January 1, 2021, and designated the swap as a cash flow hedge. The rise, increasing its semi-annual interest payments. The swap agreement called for t Interest rate on a notional amount of $220,000 and to pay a 4.0% fixed Interest rate interest amount semi-annually, and the rate on each reset date (June 30 and Decer following six months. LIBOR rates in 2021 were 4.0% at January 1, 3.0% at June 30, and 5.5% at Decembe obtalned by dealer quotes, were as follows: June 30 December 3: $(2,300) $ 3,680 January 1 Swap fair value Required:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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