Required InformationOn January 1, 2024, Avalanche Corporation borrowed $102,000 from First Bank by issuing a two-year, 8% fixed-rate notewith 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 SOFR-basedinterest rate swap agreement on January 1, 2024, and designates it as a fair value hedge. Because the swap isentered 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 floatinginterest tied to SOFR. This arrangement results in an effective variable rate on the note of SOFR + 3%.• The contract specifies that the floating rate resets each year on June 30 and December 31 for the net settlementthat is due the following period. In other words, the net cash settlement is calculated using beginning-of-periodrates.The SOFR rates on the swap reset dates and the fair values of the swap obtained from a derivatives dealer are as follows:12/31/253%$06/30/24$ (1,434)Avalanche meets all criteria for hedge accounting using the shortcut method.Floating rate (SOFR)Fair value of interestBeginning Balance12/31/24 BalanceDebit12/31/25 Balanceswap5. Rollforward both the swap account and the notes payable account at each settlement/interest payment date.Swap01/1/245%$06%Credit12/31/244%$ 991Beginning Balance12/31/24 BalanceDebit12/31/25 Balance6/30/251,006Note0Credit

DateDebit (USD)Credit (USD)Balance (USD)1/1/24$06/30/24$1,434$…

Answered: 5. Rollforward both the swap account…

Business

Accounting

5. Rollforward both the swap account and the notes payable account at each settlement/interest payment date.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter13: Marketable Securities And Derivatives

Section: Chapter Questions

Problem 30P

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