Reference no: EM132789310
On January 1, 2018, Trece Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31 and the principal is due on December 31, 2021. Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction with the loan, Trece Company entered into a "receive variable, pay fixed" interest rate swap agreement with another bank speculator at an underlying rate of 10%. The interest rate swap agreement was designated as cash flow hedge.
The market rates of interest are:
January 1, 2018 10%
January 1, 2019 14%
January 1, 2020 12%
January 1, 2021 11%
Problem 1: The PV of an ordinary annuity of 1 is 2.32 at 14% for three periods, 1.69 at 12% for two periods and 0.90 at 11% for one period. Prepare the necessary entries for 2018, 2019, 2020 and 2021.
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