A Co has as its functional currency the Singapore dollar (S$) and enters into the following transaction. The business model of A Co is to hold investments to collect contractual cash flows and for sale.

Fair values of option in convertible bond remain unchanged on 31 December 2010 and 31 December 2011. A Co enters into an interest rate swap with an external party B Co in an attempt to hedge the fixed rate convertible bond purchased on 1 January 2010. In the interest rate swap contract, A Co receives floating interest rate LIBOR +
1%, reset and receivable every six months and pays fixed rate 1.50% semi-annually. Notional principal of the swap is US$3,000,000 and the swap maturity date is 31 December 2012. Swap settlements are made at the end of each half-year and the LIBOR rates are reset at the beginning of each half-year. The sixmonth LIBOR rates are as follows:

Required
Prepare the journal entries in A Co’s book in relation to the swap from 1 January 2010 to 31 December 2011.

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Date of purchase. Purchase price. Principal sum. Coupon rate.. Investment in quoted convertible bond of K Co 1 January 2010 Years to maturity from inception. Effective interest rate.. Fair value as at 31 Dec 2010. Fair value as at 31 Dec 2011 US$3,000,000 US$2,600,000 1.50% per half-year (settled every half-year) 3 years 1% per semi-annual. US$2,500,000 US$2,050,000