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Prepare the journal entry to record the receipt of the swap

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Sarazan Company issues a 4-year, 7.5% fixed-rate interest only, nonprepayable $1,000,000 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 Sarazan will receive a fixed rate at 7.5% and pay variable with settlement dates that match the interest payments on the debt. Assume that interest rates have declined during 2020 and that Sarazan received $13,200 as an adjustment to interest expense for the settlement at December 31, 2020. The loss related to the debt (due to interest rate changes) was $48,000. The value of the swap contract increased $48,000.

Problem 1: Prepare the journal entry to record the payment of interest expense on December 31, 2020.

Problem 2: Prepare the journal entry to record the receipt of the swap settlement on December 31, 2020.

Problem 3: Prepare the journal entry to record the change in the fair value of the swap contract on December 31, 2020.

Problem 4: Prepare the journal entry to record the change in the fair value of the debt on December 31, 2020.

Reference no: EM132670875

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