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On July 1, 2011, Sunshine Inc. loaned a major supplier of raw material $2,000,000 to construct recent processing facility. Loan is due on July 1, 2013 and pays interest each December 31 and June 30. Supplier insisted on variable rate loan. Sam, controller of Sunshine Inc., desires to avoid risk of variable interest rate fluctuations. Therefore, Sunshine Inc. entered into interest rate swap in which it will pay variable rate on $2,000,000 in exchange for the fixed interest rate of 8.3%. Swap is settled on the interest payment dates. Variable interest rates and value of the swap on selected dates are given below:

                                  Variable Interest Rate                       Value of the Swap
July 1, 2011                       7.9  %
December 31, 201          7.75%                                                 $10,400

problems:

Create all entries to record this hedge through December 31, 2011.

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  • Category:- Accounting Basics
  • Reference No.:- M910239

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