On January 1,2014,Bambi Borrowed $500,000 from Lonni

question 8

Essay

On January 1,2014,Bambi borrowed $500,000 from Lonni.The five-year term note carries a variable rate interest,based on LIBOR,and interest is payable at December 31 of each year,compounded annually.The first year's rate of interest is 6% and Bambi would like to assure that their rate does not increase.Bambi enters into a pay-fixed,receive-variable interest rate swap agreement with Third National Bank,under which Bambi will pay 6%,fixed.At December 31,2014,it is determined that Bambi's interest rate to Lonni for the next year will be 5%.Treat as a cash flow hedge.
Required: Determine the estimated fair value of the hedge at December 31,2014,and prepare the related journal entry required to document this hedge and the related interest payment at December 31,2014.Assume the interest rate curve is flat.

Describe the handling and reporting of contingent liabilities.

Understand the impact of liabilities on a company’s financial health and risk assessment.

Recognize the requirements for the disclosure of liabilities in financial statements.

Comprehend the calculation and significance of the times interest earned ratio.

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Definitions:

DC Voltage

Direct current voltage, where the flow of electric charge is in one direction.

AC Voltage

Alternating Current voltage, where the flow of electric charge periodically reverses direction, commonly used in power supply systems worldwide.

Encoder

A rotary device that transmits position information; a device that transmits a fixed number of pulses for each revolution.

Digital Signal

An electronic signal that represents data as a series of discrete values, typically used in digital electronics and communication.