On December 31, 2017, Master Corp. had a $10-million, 8% fixed-rate note outstanding that was payable in
Question:
Instructions
(a) For this transaction:
1. Identify the hedged item.
2. Identify the hedging item.
3. Identify how the hedged item would be accounted for without hedge accounting.
4. Identify how the hedging item is accounted for.
5. Indicate how the gains and losses for the hedged and hedging items are recognized.
(b) Present the journal entries to record the following transactions:
1. The entry, if any, to record the swap on December 31, 2017
2. The entry to record the semi-annual debt interest payment on June 30, 2018
3. The entry to record the settlement of the semi-annual swap amount receivable at 8%, less the amount payable at LIBOR, 7%
4. The entry, if any, to record the change in the debt's fair value at June 30, 2018
5. The entry, if any, to record the change in the swap's fair value at June 30, 2018
(c) Indicate the amount(s) reported on the statement of financial position and income statement related to the debt and swap for the year ended December 31, 2017.
(d) Indicate the amount(s) reported on the statement of financial position and income statement related to the debt and swap for the six months ended June 30, 2018.
(e) Indicate the amount(s) reported on the statement of financial position and income statement related to the debt and swap for the year ended December 31, 2018.
(f) Assume that the company applies hedge accounting under ASPE. How would the journal entries change?
Step by Step Answer:
Intermediate Accounting
ISBN: 978-1119048541
11th Canadian edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy