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ID: 2444786 • Letter: W
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On January 2, 2014, Sloan Company issued a 5-year, $9,370,000 note at LIBOR with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 6.8%.Sloan Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result, Sloan enters into an interest rate swap to pay 7% fixed and receive LIBOR based on $9,370,000. The variable rate is reset to 7.5% on January 2, 2015.
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Explanation / Answer
the net interest expense to be reported for this note and related swap transaction as of December 31, 2014 is 7%*$9370000=$655900
the net interest expense to be reported for this note and related swap transaction as of December 31, 2015 is 7.5%*9370000=$702750
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