Required information

On January $1,2024,$ Avalanche Corporation borrowed $$122,000$ 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 SOFRbased 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 that is due the following period. In other wesets each year on June $30$ and December $31$ for the net settlement rates. follows:

Floating rate $($SOFR$)$

Fair value of interest rate swap

$\frac{1}{1}\frac{?}{24}$

$$0^{5\%}$

$\frac{6}{30}\frac{?}{24}$

$$(1,634{)}^{68}$

Avalanche meets all criteria for hedge accounting using the shortcut method.

$6.$ Calculate the net effect on earnings of the hedging arrangement for the six$-$month periods ending June $30$ and December $31,2024,$ and June $30$ and December $31,2025.$