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*E17-25B (Fair Value Hedge) On January 1, 2014, VB Technical Inc. issues a 5-year, 6% fixed-rate interest only, nonprepayable $5,000,000 note with interest payable on June 30 and December 31 of each year. VB decides to change the interest rate from a fixe

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*E17-25B (Fair Value Hedge) On January 1, 2014, VB Technical Inc. issues a 5-year, 6% fixed-rate interest only, nonprepayable $5,000,000 note with interest payable on June 30 and December 31 of each year. VB decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with Last Bank Financial. The swap agreement specifies that VB will receive a fixed rate at 6% and pay variable with settlement dates that match the interest payments on the debt. Assume that interest rates have increased during 2014 and that VB paid $37,500 as an adjustment to interest expense for the settlement at June 30, 2014. The gain related to the debt (due to interest rate changes) was $122,000. The value of the obligation under the swap contract increased $122,000.;Instructions;(a) Prepare the journal entry to record the payment of interest expense on June 30, 2014.;(b) Prepare the journal entry to record the receipt of the swap settlement on June 30, 2014.;(c) Prepare the journal entry to record the change in the fair value of the swap contract on June 30, 2014.;(d) Prepare the journal entry to record the change in the fair value of the debt on June 30, 2014.

 

Paper#78442 | Written in 18-Jul-2015

Price : $27
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