On July 1, 20X1, Littleton Inc

Essay

On July 1, 20X1, Littleton Inc. loaned a key supplier of raw material $2,000,000 to construct a new processing facility. The loan is due on July 1, 20X3 and pays interest each December 31 and June 30. The supplier insisted on a variable rate loan. Charles Upton, controller of Littleton Inc., wants to avoid the risk of variable interest rate fluctuations. As a result, Littleton Inc. entered into an interest rate swap in which it will pay the variable rate on $2,000,000 in exchange for a fixed interest rate of 8.3%. The swap is settled on the interest payment dates. Variable interest rates and the value of the swap on selected dates are as follows:
Required:
Prepare all entries to record this hedge through December 31, 20X1.