INTERMEDIATE ACCT.-CONNECT PLUS ACCESS
8th Edition
ISBN: 9780077832810
Author: J. David Spiceland and James Sepe and Mark Nelson and Wayne Thomas
Publisher: McGraw Hill
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Chapter A, Problem A.1P
(1)
To determine
Derivatives: Derivatives are some financial instruments which are meant for managing risk and safeguard the risk created by other financial instruments. These financial instruments derive the values from the future value of underlying security or index. Some examples of derivatives are forward contracts, interest rate swaps, futures, and options.
Interest rate swap: This is a type of derivative used by two parties under a contract to exchange the consequences (net cash difference between interest payments) of fixed interest rate for floating interest rate, or vice versa, without exchanging the principal or notional amounts.
The net cash settlement as at December 31, 2016, 2017, and 2018
(2)
To determine
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To journalize: The entries of issue of note, interest payments, and
(3)
To determine
To journalize: The entries of issue of note, interest payments, and adjustment entries to reflect fair value during 2017
(4)
To determine
To journalize: The entries of issue of note, interest payments, and adjustment entries to reflect fair value during 2018.
(5)
To determine
The book values of interest rate swap and note in 2016, 2017, and 2018.
(6)
To determine
The net effect of fair value hedge on earnings for the years 2016, 2017, and 2018.
(7)
To determine
To journalize: The entries of issue of note, interest payments, and adjustment entries to reflect fair value during 2016, if fair value would have been $97,000 rather than $98,241.
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