AC 302 Chapter 17 Problem Question 16

AC 302 Chapter 17 Problem Question 16
Name				Date		
Instructor				Course		
Intermediate Accounting 14th Edition by Kieso Weygandt and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
P 17-16 (Fair Value Hedge Interest Rate Swap) On December 31, 2012, Mercantile Corp. had a						
$10,000,000 	8.00%	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 Mercantile will receive interest at a fixed rate of					8.00%	and will pay a 
variable rate equal to the 6-month LIBOR rate, based on the					$10,000,000 	amount. The 
LIBOR rate on December 31, 2012, is			7.00%	. The LIBOR rate will be reset every 6 		
months and will be used to determine the variable rate to be paid for the following 6-month period.						
"Mercantile Corp. designates the swap as a fair value hedge. Assume that the hedging relationship
meets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debt
fair values are as follows."						
						
						
Date		6-Month LIBOR Rate		Swap Fair Value		Debt Fair Value
December 31, 2012		7.00%		-		$10,000,000 
June 30, 2013		7.50%		($200,000)		$9,800,000 
December 31, 2013		5.00%		$60,000 		$10,060,000 
						
Instructions:						
(a)(1) Present the journal entries to record the entry, if any, swap on December 31, 2012.						
Enter text answer as appropriate.						
						
						
(a)(2) Present the journal entries to record the semiannual debt interest payment on June 30, 2013.						
						
Jun 30, 13	Account title				Amount	
	Account title					Amount
						
(a)(3) Present the journal entries to record the settlement of the semiannual swap amount receivables 						
at	8.00%	less amount payable at LIBOR,			7.00%	
						
Jun 30, 13	Account title				Amount	
	Account title					Amount
						
					Interest Received (Paid)	
						
						
	Text title				Amount	
	Text title				Amount	
	Text title				Amount	
						
(a)(4) Present the journal entries to record the change in the fair value of the debt on June 30, 2013.						
						
Jun 30, 13	Account title				Amount	
	Account title					Amount
						
(a)(5) Present the journal entries to record the change in the fair value of the swap at June 30, 2013.						
						
Jun 30, 11	Account title				Amount	
	Account title					Amount
						
"(b) Indicate the amount(s) reported on the balance sheet and income statement related to the debt
     and swap on December 31, 2012."						
						
						
	Balance Sheet					
	Liabilities					
	Account title			Amount		
	Income Statement			Amount		
						
"(c) Indicate the amount(s) reported on the balance sheet and income statement related to the debt
     and swap on June 30, 2013."						
						
						
	Balance Sheet					
	Liabilities					
	Account title				Amount	
	Account title				Amount	
	Income Statement					
	Account title				Amount	
						
	Account title				Amount	
	Account title				Amount	
	Total				Formula	
						
"(d) Indicate the amount(s) reported on the balance sheet and income statement related to the debt
     and swap on December 31, 2013."						
						
						
	Balance Sheet					
	Assets					
	Account title				Amount	
	Liabilities					
	Account title				Amount	
	Income Statement					
	Account title					
	First six months				Amount	See (c), above.
	Second six months				Amount	See below.
						
	Account title				Amount	
	Account title				Amount	
	Total				Formula	
						
	Text title				Amount	
	Text title				Amount	
	Cash settlement				Formula	
						
	Interest expense unadjusted					
	Text title				Amount	
	Text title				Amount	
					Formula