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:     January 1 March 31 June 30 Fair value of interest rate swap   0   $ 6,472   $ 11,394   Fair value of note payable $ 200,000   $ 206,472   $ 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Hello, 

I have attached the full question below, but I just need help with a few parts, not the whole thing. I have also attached a screenshot of what I already have. I understand this question is complex, but can someone please help.

 

 

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:
 

  January 1 March 31 June 30
Fair value of interest rate swap   0   $ 6,472   $ 11,394  
Fair value of note payable $ 200,000   $ 206,472   $ 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.

 

No
Date
General Journal
Debit
Credit
1
January 01
Cash
200,000
Notes payable
200,000
March 31
Interest expense
5,000
Cash
5,000
3
March 31
Cash
1,000
Interest rate swap
terest expense
4
March 31
6,472
6,472
June 30
Notes payable
Interest expense
6
June 30
Cash
2,000
Interest rate swap
Interest expense
7
June 30
Interest expense
Notes payable
2.
Transcribed Image Text:No Date General Journal Debit Credit 1 January 01 Cash 200,000 Notes payable 200,000 March 31 Interest expense 5,000 Cash 5,000 3 March 31 Cash 1,000 Interest rate swap terest expense 4 March 31 6,472 6,472 June 30 Notes payable Interest expense 6 June 30 Cash 2,000 Interest rate swap Interest expense 7 June 30 Interest expense Notes payable 2.
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