On January 1, 2024, Avalanche Corporation borrowed $112,000 from First Bank by Issuing a two-year, 8%...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
On January 1, 2024, Avalanche Corporation borrowed $112,000 from First Bank by Issuing a two-year, 8% fixed-rate note with annual Interest payments. The principal of the note is due on December 31, 2025. Avalanche wanted to hedge against declines in general interest rates, so it also entered into a two-year SOFR-based Interest rate swap agreement on January 1, 2024, and designates it as a fair value hedge. Because the swap is entered at market rates, the fair value of the swap is zero at inception. The agreement called for the company to receive fixed interest at the current SOFR swap rate of 5% and pay floating Interest tied to SOFR. This arrangement results in an effective variable rate on the note of SOFR+3%. 42 The contract specifies that the floating rate resets each year on June 30 and December 31 for the net settlement that is due the following period. In other words, the net cash settlement is calculated using beginning-of-period rates. The SOFR rates on the swap reset dates and the fair values of the swap obtained from a derivatives dealer are as follows: Floating rate (SOFR) Fair value of interest rate swap 1/1/24 6/30/24 12/31/24 5% 6% 4% 6/30/25 3% 12/31/25 3% $ 0 $ (1,534) $ 1,091 $ 1,111 $ 0 Avalanche meets all criteria for hedge accounting using the shortcut method. 5. Rollforward both the swap account and the notes payable account at each settlement/Interest payment date. Swap Debit Beginning Balance 12/31/24 Balance Credit Debit Beginning Balance 12/31/24 Balance Note Credit 12/31/25 Balance 0 12/31/25 Balance 0 On January 1, 2024, Avalanche Corporation borrowed $112,000 from First Bank by Issuing a two-year, 8% fixed-rate note with annual Interest payments. The principal of the note is due on December 31, 2025. Avalanche wanted to hedge against declines in general interest rates, so it also entered into a two-year SOFR-based Interest rate swap agreement on January 1, 2024, and designates it as a fair value hedge. Because the swap is entered at market rates, the fair value of the swap is zero at inception. The agreement called for the company to receive fixed interest at the current SOFR swap rate of 5% and pay floating Interest tied to SOFR. This arrangement results in an effective variable rate on the note of SOFR+3%. 42 The contract specifies that the floating rate resets each year on June 30 and December 31 for the net settlement that is due the following period. In other words, the net cash settlement is calculated using beginning-of-period rates. The SOFR rates on the swap reset dates and the fair values of the swap obtained from a derivatives dealer are as follows: Floating rate (SOFR) Fair value of interest rate swap 1/1/24 6/30/24 12/31/24 5% 6% 4% 6/30/25 3% 12/31/25 3% $ 0 $ (1,534) $ 1,091 $ 1,111 $ 0 Avalanche meets all criteria for hedge accounting using the shortcut method. 5. Rollforward both the swap account and the notes payable account at each settlement/Interest payment date. Swap Debit Beginning Balance 12/31/24 Balance Credit Debit Beginning Balance 12/31/24 Balance Note Credit 12/31/25 Balance 0 12/31/25 Balance 0
Expert Answer:
Related Book For
Posted Date:
Students also viewed these accounting questions
-
On January 1, 2024, Avalanche Corporation borrowed $100,000 from First Bank by issuing a two-year, 8% fixedrate note with annual interest payments. The principal of the note is due on December 31,...
-
On January 1, 2024, Avalanche Corporation borrowed $100,000 from First Bank by issuing a two-year, 8% fixed-rate note with annual interest payments. The principal of the note is due on December 31,...
-
Calculate the investment return, BAR, and ALPHA of the following investment, all over one year. Market return .12 or 12% investment in Tesla stock, $15000 , then sold at end of year for $32000, bet...
-
What is Emotional Intelligence (EI) and why is it important to understand emotional intelligence?
-
On January 1, 2024, White Water issues $600,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Required: Assuming the market interest rate on...
-
An atmospheric boundary layer is formed when the wind blows over the Earth's surface. Typically, such velocity profiles can be written as a power law: \(u=a y^{n}\), where the constants \(a\) and...
-
The acquisition cost of inventory remaining at the end of a period is measured using LIFO, FIFO, or average cost. a. Rank cost of goods sold, gross profit, and ending inventory from highest to lowest...
-
Nike had sales of $44.487 billion in 2021. Suppose you expected its sales to grow at a rate of 18% in 2022, but then slow by 3% per year to the long-run growth rate that is characeristic of the...
-
Describe two things the nfl has done in order to market to female fans Describe two ways in which the nfl has alienated female fans.
-
4. (20 total points) Consider two firms, firm 1 and firm 2, producing identical products so that they are forced to charge identical prices. The sole strategic choice of the firms is the amount they...
-
Plot the exchange rate of US dollars against 3 other foreign currencies in separate figures from December 1st, 2019 to February 28th, 2023. Note: the exchange rate is defined as how much foreign...
-
Jane has been offered a research consultancy job to study the impact of inequality of poverty in five SADC countries of her choice. As her former classmate, Jane has asked you to help advise her on...
-
Problem 1: JIT Setup Cost and Time Suppose that Roger, a production manager, is trying to run JIT. The product Annual Demand is 300,000 units, with 250 working days in a year, which means daily...
-
Introduction In this activity, we will discuss the impact trade barriers have on the way international corporations do business. Get Ready! To prepare for Discussion 4 : Read Chapters 8 & 9 of the...
-
In workshop two, you went to Ron blue's website, http://www.masteryourmoney.com/, which is designed to provide assistance and resources for anyone interested in learning more about what the bible...
-
The polar coordinates of a point are given. Find the rectangular coordinates of the point. (-1, - /3)
-
A construction contract differs from contracts that we generally deal with that focus on an easily defined physical object because the physical object can be examined. How is the object of a...
-
What does the owner contribute to the project and what does the contractor contribute to the project?
-
The construction schedule is the only project document that fully communicates the contractor's intentions for delivering the contracted scope of services over the full course of the project...
Study smarter with the SolutionInn App