Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Question
Chapter 9.M, Problem 3E
To determine
Concept Introduction:
Interest Expense:
Interest Expense is any type of interest that is incurred debt like loans, bond etc. Interest factor plays a very crucial role for any organization.
Carrying value:
Carrying value is referred to an asset’s original cost. From that any
Unrealized Gain:
An unrealized gain is basically realized when the prices of the stock are usually higher than the original price. Unrealized profit is advantageous for any organization.
Requirement
To calculate:
Net Interest Income needs to be calculated for June
To determine
Concept Introduction:
Interest Expense:
Interest Expense is any type of interest that is incurred debt like loans, bond etc. Interest factor plays a very crucial role for any organization.
Carrying value:
Carrying value is referred to an asset’s original cost. From that any depreciation, amortization and asset impairment costs are subtracted in order to ascertain the carrying value of the asset.
Unrealized Gain:
An unrealized gain is basically realized when the prices of the stock are usually higher than the original price. Unrealized profit is advantageous for any organization.
Requirement
To calculate:
Carrying Value needs to be calculated for June
To determine
Concept Introduction:
Interest Expense:
Interest Expense is any type of interest that is incurred debt like loans, bond etc. Interest factor plays a very crucial role for any organization.
Carrying value:
Carrying value is referred to an asset’s original cost. From that any depreciation, amortization and asset impairment costs are subtracted in order to ascertain the carrying value of the asset.
Unrealized Gain:
An unrealized gain is basically realized when the prices of the stock are usually higher than the original price. Unrealized profit is advantageous for any organization.
Requirement
To calculate:
Net Realized gain or Loss on Swap needs to be calculated for June 30 and December 31, 2013.
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Students have asked these similar questions
Shortcut Method - Issuer Entries
On January 1, 2023, Fontaine Corporation issued an $800,000 notes payable to Allegheny State
Bank. The note pays coupon payments at the rate of 5%, which is also the market rate of interest
when the note was issued. The note matures in three years. Fontaine Corporation entered into an
interest rate swap with the same maturity and notional amount to hedge against falling interest
rates. The swap will result in Fontaine Corporation paying floating rate interest tied to the
prevailing LIBOR rate and receiving fixed rate interest at 5%. Interest payments and cash
settlement occur at the end of each year. LIBOR settlement rates at the end of 2023, 2024, and
2025 are 6%, 7%, and 6%, respectively.
a) Prepare the required journal entries for Fontaine Corporation using the shortcut method
for 2023-2025.
b) Indicate how the above entries affect Fontaine Corporation’s reported net earnings for
each year.
For a bank that funds its fixed-rate loans with floating rate deposits whose cost
varies with a the 3-month LIBOR, it can magnify its strategic interest rate exposure
by entering into a plain vanilla interest rate swap where it receives the fixed-rate and
pay the floating rate.
True
False
9) Exercise A-5 (Static) Derivatives; interest rate swap; fixed rate debt; extended method [LOA–6]
On January 1, 2021, LLB Industries borrowed $200,000 from Trust Bank by issuing a two-year, 10% note, with interest payable quarterly. LLB entered into a two-year interest rate swap agreement on January 1, 2021, and designated the swap as a fair value hedge. Its intent was to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. The agreement called for the company to receive payment based on a 10% fixed interest rate on a notional amount of $200,000 and to pay interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly. Floating (LIBOR) settlement rates were 10% at January 1, 8% at March 31, and 6% at June 30, 2021. The fair values of the swap are quotes obtained from a derivatives dealer. Those quotes and the fair values of the note are as follows:
January 1
March 31…
Chapter 9 Solutions
Advanced Accounting
Ch. 9.M - Prob. 1UTICh. 9.M - Prob. 2UTICh. 9.M - Prob. 3UTICh. 9.M - Prob. 4UTICh. 9.M - Prob. 5UTICh. 9.M - Prob. 1ECh. 9.M - Prob. 2ECh. 9.M - Prob. 3ECh. 9.M - Prob. 4.1ECh. 9.M - Prob. 4.2E
Ch. 9.M - Prob. 4.3ECh. 9.M - Prob. 4.4ECh. 9.M - Prob. 4.5ECh. 9.M - Prob. 4.6ECh. 9.M - Prob. 5ECh. 9.M - Prob. 6.1ECh. 9.M - Prob. 6.2ECh. 9.M - Prob. 7ECh. 9.M - Prob. M.1.1PCh. 9.M - Prob. M.1.2PCh. 9.M - Prob. M.2.1PCh. 9.M - Prob. M.2.2PCh. 9.M - Prob. M.3PCh. 9.M - Prob. M.4.3PCh. 9.M - Prob. M.4.4PCh. 9.M - Prob. M.4.5PCh. 9.M - Prob. M.4.6PCh. 9.M - Prob. M.5PCh. 9.M - Prob. M.6PCh. 9.M - Prob. M.7.1PCh. 9.M - Prob. M.7.2PCh. 9.M - Prob. M.7.3PCh. 9 - Prob. 1UTICh. 9 - Prob. 2UTICh. 9 - Prob. 3UTICh. 9 - Prob. 1.1ECh. 9 - Prob. 1.2ECh. 9 - Exercise 2 (LO 3) The accounting issues associated...Ch. 9 - Prob. 3.1ECh. 9 - Prob. 3.2ECh. 9 - Prob. 3.3ECh. 9 - Prob. 4.1ECh. 9 - Prob. 4.2E
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