Please do not give image format and solve all required 1. Calculate the net cash settlement at the end of 2021, 2022, and 2023.2. Prepare the journal entries during 2021 to record the issuance of the note, interest, and necessary adjustments for changes in fairvalue.3. Prepare the journal entries during 2022 to record interest, net cash interest settlement for the interest rate swap, and necessaryadjustments for changes in fair value.4. Prepare the journal entries during 2023 to record interest, net cash interest settlement for the interest rate swap, necessaryadjustments for changes in fair value, and repayment of the debt.5. Calculate the book values of both the swap account and the note in each of the three years.6. Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.)7. Suppose the fair value of the note at December 31, 2021, had been $247,000 rather than $266,700 with the additional decline in fairvalue due to investors' perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to recordchanges in the fair values? On January 1, 2021, Labtech Circuits borrowed $270,000 from First Bank by issuing a three-year, 9% note, payable on December 31,2023. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore,Labtech entered into a three-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge.The agreement called for the company to receive payment based on an 9% fixed interest rate on a notional amount of $270,000 andto pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount onDecember 31 of each year.Floating (LIBOR) settlement rates were 9% at inception and 10%, 8%, and 8% at the end of 2021, 2022, and 2023, respectively. The fairvalues 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 swapFair value of note payableJanuary 120210$270,0002021$ (3,300)$266, 700December 312022$ 2,500$272,500$2023$270,000

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On January 1, 2021, Labtech Circuits borrowed $270,000 from First Bank by issuing a three-year, 9% note, payable on December 31, 2023. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore, Labtech entered into a three-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. The agreement called for the company to receive payment based on an 9% fixed interest rate on a notional amount of $270,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount on December 31 of each year. Floating (LIBOR) settlement rates were 9% at inception and 10%, 8%, and 8% at the end of 2021, 2022, and 2023, respectively. 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 2021 0 $270,000 2021 $ (3,300) $266,700 December 31 2022 $ 2,500 $272,500 $ 2023 $270,000

On January 1, 2021, Labtech Circuits borrowed $270,000 from First Bank by issuing a three-year, 9% note, payable on December 31, 2023. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore, Labtech entered into a three-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. The agreement called for the company to receive payment based on an 9% fixed interest rate on a notional amount of $270,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount on December 31 of each year. Floating (LIBOR) settlement rates were 9% at inception and 10%, 8%, and 8% at the end of 2021, 2022, and 2023, respectively. 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 2021 0 $270,000 2021 $ (3,300) $266,700 December 31 2022 $ 2,500 $272,500 $ 2023 $270,000

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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