A3_Check_Numbers Assignment #3 Check Numbers Problem #1 Requirement a 2022 Fair value change for derivative: $289 Problem #2 Requirement a 2023 Fair value change for derivative: $14,953 Problem #3...

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A3_Check_Numbers Assignment #3 Check Numbers Problem #1 Requirement a 2022 Fair value change for derivative: $289 Problem #2 Requirement a 2023 Fair value change for derivative: $14,953 Problem #3 Requirement b for 2023 In 2023, the next effect is record interest expense of $48,000 ACCTG472_A3 Page 1 THE PENNSYLVANIA STATE UNIVERSITY Accounting 472 Intermediate Financial Accounting II – Spring 2021 Assignment #3 GENERAL INSTRUCTIONS: This assignment is due on Thursday, February 25th at 5:00 p.m. Please submit your solution on Canvas using Excel by 5:00 p.m. on the due date. Note that late assignments will not be accepted. Problem #1 Shortcut Method - Issuer Entries On January 1, 2021, Fontaine Corporation issued an $800,000 notes payable to Allegheny State Bank. The note pays coupon payments at the rate of 5%, which is also the market rate of interest when the note was issued. The note matures in three years. Fontaine Corporation entered into an interest rate swap with the same maturity and notional amount to hedge against falling interest rates. The swap will result in Fontaine Corporation paying floating rate interest tied to the prevailing LIBOR rate and receiving fixed rate interest at 5%. Interest payments and cash settlement occur at the end of each year. LIBOR settlement rates at the end of 2021, 2022, and 2023 are 6%, 7%, and 6%, respectively. REQUIRED: a) Prepare the required journal entries for Fontaine Corporation using the shortcut method for 2021-2023. b) Indicate how the above entries affect Fontaine Corporation’s reported net earnings for each year. Problem #2 Shortcut Method - Investor Entries Use the same information as in Problem #1. However, consider the purchase of the note from the perspective of Allegheny State Bank. The bank also hedges the fair value risk by entering into an interest rate swap. The swap will result in Allegheny State Bank receiving floating rate interest tied to the prevailing LIBOR rate and paying fixed rate interest at 5%. REQUIRED: a) Prepare the required journal entries for Allegheny State Bank using the shortcut method for 2021-2023. b) Indicate how the above entries affect Allegheny State Bank’s reported net earnings for each year. Page 2 Problem #3 Extended Method - Issuer Entries Assume the same information as in Problem #1. REQUIRED: a) Prepare the required journal entries for Fontaine Corporation using the extended method for 2021-2023. b) Indicate how the above entries affect Fontaine Corporation’s reported net earnings for each year.