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On December 31, 2020, Cheyenne Corp. had a $11,800,000, 8.0% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2- year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indicate that Cheyenne will receive interest at a fixed rate of 8.0% and will pay a variable rate equal to the 6-month LIBOR rate, based on the $11,800,000 amount. The LIBOR rate on December 31, 2020, is...
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On December 31, 2020, Blossom Corp. had a $9-million, 9%
fixed-rate note outstanding that was payable in two years. It
decided to enter into a two-year swap with First Bank to convert
the fixed-rate debt to floating-rate debt. The terms of the swap
specified that Master will receive interest at a fixed rate of 9%
and will pay a variable rate equal to the six-month LIBOR rate,
based on the $9-million amount. The LIBOR rate on December 31,
2020, was...
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As of 12/31/19, Bayern Corp. had a $100M 3% (annual) fixed-rate
note outstanding which is payable on 12/31/23. On 1/1/20, Bayern
decides to enter into a 4-year interest rate swap with Juventus
Bank. Bayern will receive fixed payments (of 3%, annual) and pay a
variable rate based on LIBOR. Assume that interest payments on the
note and settlement on the rate exchange are semiannual. The
LIBOR-based rate on 1/1/20 is also 3% (annual). The LIBOR-based
variable rate is reset every...
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Pearl Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc, on December 31, 2020. The purchase price was $1,294,800 for 49,800 shares. Kulikowski Inc. declared and paid an $0.75 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $764,000 for 2021. The fair value of Kulikowski's stock was $29 per share at December 31, 2021. Assume that the security is a trading security. Prepare the journal entries for Pearl...
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Martinez Company issues a 4-year, 7.60% fixed-rate interest
only, nonprepayable $830,000 note payable on December 31, 2019. It
decides to change the interest rate from a fixed rate to variable
rate and enters into a swap agreement with M&S Corp. The swap
agreement specifies that Martinez will receive a fixed rate at
7.60% and pay variable with settlement dates that match the
interest payments on the debt. Assume that interest rates have
declined during 2020 and that Martinez received $10,500...
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Monty Company issues a 4-year, 7.50% fixed-rate
interest only, nonprepayable $ 1,100,000 note payable on December
31, 2016. It decides to change the interest rate from a fixed rate
to variable rate and enters into a swap agreement with M&S
Corp. The swap agreement specifies that Monty will receive a fixed
rate at 7.50% and pay variable with settlement dates
that match the interest payments on the debt. Assume that interest
rates have declined during 2017 and that Monty received $ 10,500...
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Exercise 16-21
On January 2, 2020, Crane Corp. issued a $82,000, four–year note
at prime plus 1% variable interest, with interest payable
semi–annually. On the same date, Crane entered into an interest
rate swap where it agreed to pay 8% fixed and receive prime plus 1%
for the first six months on $82,000. At each six–month period, the
variable rate will be reset. The prime interest rate is 7.7% on
January 2, 2020, and is reset to 8.7% on June...
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Exercise 9-14
On July 1, 2020, Bridgeport Aggregates Ltd. purchased 6% bonds
having a maturity value of $65,000 for $67,331. The bonds provide
the bondholders with a 5% yield. The bonds mature four years later,
on July 1, 2024, with interest receivable June 30 and December 31
of each year. Bridgeport uses the effective interest method to
allocate unamortized discount or premium. The bonds are accounted
for using the FV-OCI model with recycling. Bridgeport has a
calendar year end. The...
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Splish Company has the following investments as of December 31,
2020:
Investments in common stock of Laser Company
$1,540,000
Investment in debt securities of FourSquare Company
$3,590,000
In both investments, the carrying value and the fair value of these
two investments are the same at December 31, 2020. Splish’s stock
investments does not result in significant influence on the
operations of Laser Company. Splish’s debt investment is considered
held-to-maturity. At December 31, 2021, the shares in Laser Company
are valued...
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Exercise 17-25 On January 2, 2020, Concord Co. issued a 4-year, $112,000 note at 6% fixed interest, interest payable semiannually. Concord now wants to change the note to a variable-rate note. As a result, on January 2, 2020, Concord Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.60% for the first 6 months on $112,000. At each 6-month period, the variable rate will be reset. The variable rat is reset...
On December 31, 2020, Cheyenne Corp. had a $11,800,000, 8.0% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2- year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indicate that Cheyenne will receive interest at a fixed rate of 8.0% and will pay a variable rate equal to the 6-month LIBOR rate, based on the $11,800,000 amount. The LIBOR rate on December 31, 2020, is...
On December 31, 2020, Blossom Corp. had a $9-million, 9%
fixed-rate note outstanding that was payable in two years. It
decided to enter into a two-year swap with First Bank to convert
the fixed-rate debt to floating-rate debt. The terms of the swap
specified that Master will receive interest at a fixed rate of 9%
and will pay a variable rate equal to the six-month LIBOR rate,
based on the $9-million amount. The LIBOR rate on December 31,
2020, was...
Pearl Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc, on December 31, 2020. The purchase price was $1,294,800 for 49,800 shares. Kulikowski Inc. declared and paid an $0.75 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $764,000 for 2021. The fair value of Kulikowski's stock was $29 per share at December 31, 2021. Assume that the security is a trading security. Prepare the journal entries for Pearl...
Exercise 16-21
On January 2, 2020, Crane Corp. issued a $82,000, four–year note
at prime plus 1% variable interest, with interest payable
semi–annually. On the same date, Crane entered into an interest
rate swap where it agreed to pay 8% fixed and receive prime plus 1%
for the first six months on $82,000. At each six–month period, the
variable rate will be reset. The prime interest rate is 7.7% on
January 2, 2020, and is reset to 8.7% on June...
Exercise 17-25 On January 2, 2020, Concord Co. issued a 4-year, $112,000 note at 6% fixed interest, interest payable semiannually. Concord now wants to change the note to a variable-rate note. As a result, on January 2, 2020, Concord Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.60% for the first 6 months on $112,000. At each 6-month period, the variable rate will be reset. The variable rat is reset...