On January 2, 2020, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note. As a result, on January 2, 2020, MacCloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $100,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.7% on June 30, 2020. Instructions a. Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2020. b. Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2020.
On January 2, 2020, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note. As a result, on January 2, 2020, MacCloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $100,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.7% on June 30, 2020. Instructions a. Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2020. b. Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2020.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 28E: On January 1, 2019, Northfield Corporation becomes delinquent on a 100,000, 14% note to First...
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On January 2, 2020, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note.
As a result, on January 2, 2020, MacCloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $100,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.7% on June 30, 2020.
Instructions
a. Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2020.
b. Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2020.
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