On July 1, 2016, Hargrove Corporation issued a 2-year note with a face value of $4,000,000 and a fixed interest rate of 9%, payable on a semiannual basis. On January 15, 2017, the company entered into an interest rate swap with a financial institution in anticipation of lower variable rates. At the initial date of the swap, the company paid a premium of $9,200. The swap had a notional amount of $4,000,000 and called for the payment of a variable rate of interest in exchange for a 9% fixed rate. The variable rates are reset semiannually beginning with January 1, 2017, in order to determine the next interest payment. Differences between rates on the swap will be settled on a semiannual basis. Variable interest rates and the value of the swap on selected dates are as follows:Reset Date Variable Interest Rate Value of the SwapJanuary 1, 2017 . . . . . . . . . . . . . 8.75%June 30, 2017. . . . . . . . . .. . . . . 8.50% $14,000December 31, 2017 . . . . .. . . . . . 8.85% $3,500For each of the above dates June 30 and December 31, determine:1. The net interest expense.2. The carrying value of the note payable.3. The net unrealized gain or loss on the swap.
On July 1, 2016, Hargrove Corporation issued a 2-year note with a face value of $4,000,000 and a fixed interest rate of 9%, payable on a semiannual basis. On January 15, 2017, the company entered into an interest rate swap with a financial institution in anticipation of lower variable rates. At the initial date of the swap, the company paid a premium of $9,200. The swap had a notional amount of $4,000,000 and called for the payment of a variable rate of interest in exchange for a 9% fixed rate. The variable rates are reset semiannually beginning with January 1, 2017, in order to determine the next interest payment. Differences between rates on the swap will be settled on a semiannual basis. Variable interest rates and the value of the swap on selected dates are as follows:
Reset Date Variable Interest Rate Value of the Swap
January 1, 2017 . . . . . . . . . . . . . 8.75%
June 30, 2017. . . . . . . . . .. . . . . 8.50% $14,000
December 31, 2017 . . . . .. . . . . . 8.85% $3,500
For each of the above dates June 30 and December 31, determine:
1. The net interest expense.
2. The carrying value of the note payable.
3. The net unrealized gain or loss on the swap.
Step by step
Solved in 1 steps
