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Question - On January 2, 2020, Pharoah Corp. issues a $12-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 4% fixed and receive LIBOR based on $12 million for the term of the note. The LIBOR rate for the first year is 3.8%. The LIBOR rate is reset to 4.9% on January 2, 2021. Pharoah follows IFRS 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 IFRS are met.
Required - Prepare the journal entries relating to the payment on interest and payment on swap for the years ended December 31, 2020 and 2021?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
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