Reference no: EM132646007

Question - On January 2, 2020, Pharoah Corp. issues a $8-million, five-year note at LIBOR, with interest paid annually. To protect against the cash flow uncertainty related to interest payments that are based on LIBOR, Pharoah entered into an interest rate swap to pay 8% fixed and receive LIBOR based on $8 million for the term of the note. The LIBOR rate for the first year is 7.6%. The LIBOR rate is reset to 8.7% on January 2, 2021. Pharoah follows ASPE and uses hedge accounting. On December 31, 2020, the fair value of the swap decreased by $13,500: it increased by $4,000 on December 31, 2021. Assume that the criteria for hedge accounting under ASPE are met.

Required - Prepare the journal entries to recognize the swap, assuming the company follows hedge accounting under IFRS

A) December 31, 2020 (To decrease the value of the contract)

B) To record the "fix" under hedge accounting

C) December 31, 2022 (to increase the value of the contract)

D) To record the 'fix' under hedge accounting

The company reports under IFRS.