On December 31, 2019, Mercantile Corp. had a $10,000,000, 8% fixed-rate note outstanding, payable in 2 years.
Question:
Mercantile Corp. designates the swap as a fair value hedge. Assume that the hedging relationship meets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debt fair values are as follows.
Instructions
a. Present the journal entries to record the following transactions.
1. The entry, if any, to record the swap on December 31, 2019.
2. The entry to record the semiannual debt interest payment on June 30, 2020.
3. The entry to record the settlement of the semiannual swap amount receivables at 8%, less amount payable at LIBOR, 7%.
4. The entry to record the change in the fair value of the debt on June 30, 2020.
5. The entry to record the change in the fair value of the swap at June 30, 2020.
b. Indicate the amount(s) reported on the statement of financial position and income statement related to the debt and swap on December 31, 2019.
c. Indicate the amount(s) reported on the statement of financial position and income statement related to the debt and swap on June 30, 2020.
d. Indicate the amount(s) reported on the statement of financial position and income statement related to the debt and swap on December 31, 2020.
Step by Step Answer:
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield