On January 1,2014,Hannah Ventures,Inc

question 41

Essay

On January 1,2014,Hannah Ventures,Inc. ,received a three-year,$1 million loan with interest payments due at the end of each year and the principal to be repaid on December 31,2016.The interest rate for the first year is the prevailing market rate of 9 percent,and the rate each succeeding year will be equal to the prevailing market rate on January 1 of that year.Hannah also entered into an interest rate swap agreement related to this loan.Under the terms of the swap agreement,in the years 2015 and 2016,Hannah will receive a swap payment based on the principal amount of $1 million.If the January 1 interest rate is greater than 9 percent,Hannah will receive a swap payment for the difference;and if the January 1 interest rate is less than 9 percent,Hannah will make a swap payment for the difference.The swap payments are made on December 31 of each year.On January 1,2015,the interest rate is 8 percent,and on January 1,2016,the interest rate is 12 percent.
Make all the journal entries necessary on Hannah's books at the dates shown below.For purposes of estimating future swap payments,assume that the current interest rate is the best forecast of the future interest rate (round all entries to the nearest dollar).

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