Interest Rate Cap On July 1, 2013, Molson Coors Brewing Company borrowed $3 million for two LO 2 years with interest paid semi-annually based on LIBOR adjusted semiannually. On that date, LIBOR is 4 percent per annum and is set at 4 percent for the first six months. To hedge against a possible rise in MOLSON COORS interest rates, on July 2 Molson Coors bought a two-year 4.1 percent interest rate cap for 0.15 percent per BREWING year, payable in full immediately. The intrinsic value of the cap is designated as the hedge instrument and QOMPANY the hedge is fully effective. LIBOR increased during the second half of 2013 and is reset to 4.3 percent for the first half of 2014. Molson Coors closes its books on December 31 and June 30. The cap's fair value is $7,000 on December 31, 2013, before the rate adjustment, and is $8,000 on June 30,2014, when the time value component is $5,000.
Required
Prepare all journal entries related to the loan interest and the interest rate cap on July 2, 2013, December 31, 2013, and June 30, 2014.