Question

On January 1, 2018, S&S Corporation invested in LLB Industries’ negotiable two-year, 12% notes, with interest receivable quarterly. The company classified the investment as available-for-sale. S&S entered into a two-year interest rate swap agreement on January 1, 2018, 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 investment to increase. The agreement called for the company to make payment based on a 12% fixed interest rate on a notional amount of $300,000 and to receive interest based on a floating interest rate. The contract called for cash settlement of the net interest amount quarterly.

Floating (LIBOR) settlement rates were 12% at January 1, 10% at March 31, and 8% June 30, 2018. The fair values of the swap are quotes obtained from a derivatives dealer. Those quotes and the fair values of the investment in notes are as follows:

	January 1	March 31	June 30
Fair value of interest rate swap	0	9,526	16,804
Fair Value of Note Payable	300,000	309,526	316,804

Record the interest.

Date	General Journal	Debit	Credit
March 31	Cash
	Interest revenue
June 30	Cash
	Interest revenue

Answer 1

Α Α C D 2 Date General Journal 3 Mar-31 Cash Interest revenue 5 (Interest from Jan to March Recorded) Debit Credit 9000 9000 7 9000 Jun-30 Cash Interest revenue (Interest from April to June Recorded) 9000 10

В 2 Date General Journal 3 11383 Cash Interest revenue (Interest from Jan to March Recorded) Debit Credit =+D4 =+(300000*12%)*3/12 =+D8 11110 Cash Interest revenue (Interest from April to June Recorded) =+(300000*12%)*3/12 10

As per your question, only interest entries are explained above

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