90.2K

Verified Solution

Link Copied!

Fair Value and Cash Flow Hedges: interest Rate Swap On jaruary 1. Marshall Corp, issues 510,000,000 in 3 percent fixed rate debt with interest payments due every six months. Concurrently, Marshall enters into an interest rate swap in which it receves 3 percent fixed and pays variable at average sofR +60 bp on a notional amount of $10,000,000. Onjanuary 1 , sofr was 1.8 percent, On june 30 , SOFR was 1.7 percent. The estimated fair value of the swop to Marshall increased $225,000 on j une 30 , and the fair value of the debt is $10.225,000. a. Prepare the journal entries made by Marshall on January 1 and Jone 30 in connection with the debt issuance, the periodic interest, and value changes an the swap and Did market interest rates increase or decrease during this period? How do you krow? The market interest rates decreased, since the present value of the debt decreased. The market interest rates increased, since the present value of the debt increased. The market interest rates decreased, since the present value of the debt increased. The market interest rates increased, since the present value of the debt decreased b. Suppose instead that Marshall issued variabie rate debt and entered a swap in which it receives variable and pays fixed. If the market rate of interest on its variable rate debr declines, does Marshall recognize a gain or loss on the swap and what is its accounting treatment? Marshall recognizes a on the swap which is recorded in Please answer all parts of the

Answer & Explanation Solved by verified expert

See Answer